TIDMMGNS
RNS Number : 5876F
Morgan Sindall Group PLC
22 February 2018
22 February 2018
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
RESULTS FOR THE FULL YEAR (FY)ED 31 DECEMBER 2017
FY 2017 FY 2016 Change
Revenue GBP2,793m GBP2,562m +9%
Operating profit -
adjusted(1) GBP68.6m GBP48.8m +41%
Profit before tax -
adjusted(1) GBP66.1m GBP45.3m +46%
Earnings per share
- adjusted(1) 121.1p 84.7p +43%
Year end net cash GBP193m GBP209m -GBP16m
Average daily net cash GBP118m GBP25m +GBP93m
Total dividend per
share 45.0p 35.0p +29%
Operating profit - reported GBP67.4m GBP47.4m +42%
Profit before tax -
reported GBP64.9m GBP43.9m +48%
Basic earnings per share
- reported 118.8p 83.8p +42%
------------------------------ ----------- ----------- ---------
(1) 'Adjusted' is defined as before intangible
amortisation (GBP1.2m) (FY 2016: before intangible
amortisation (GBP1.4m) and (in the case of earnings
per share) deferred tax credit (GBP0.7m)). All
profit and earnings per share measures quoted
in this statement are on an adjusted basis unless
otherwise stated.
FY 2017 summary:
-- Strong profit growth; profit before tax up 46% to GBP66.1m
-- Average daily net cash up to GBP118m. Year end net cash of GBP193m
-- Order book up 6% to GBP3.8bn
-- Total dividend up 29% to 45.0p per share
-- Divisional highlights
o Excellent performance from Fit Out; operating profit up 42% to
GBP39.1m (FY 2016: GBP27.5m)
o Continued improvement in Construction & Infrastructure;
operating margin up to 1.5% (FY 2016: 0.7%) and operating profit of
GBP20.4m (FY 2016: GBP8.9m)
o Growth in Partnership Housing; operating profit up 5%,
impacted by lower fourth quarter completions
o Urban Regeneration in line with its schedule of development
completions; operating profit of GBP10.0m
o Small loss in Property Services as expected; loss of GBP1.3m
arising from restructuring and contract exits
Commenting on today's results, Chief Executive, John Morgan
said:
"These strong results are evidence of the significant
operational progress being made across the Group and are a
testament to the high quality and commitment of our people.
"Our positive cash generation and increase in average net cash
in the year has further strengthened our balance sheet and provides
us with the flexibility to invest in our regeneration activities
whilst allowing us to continue being highly selective with bidding
in our construction activities.
"Looking ahead to 2018, we expect continued margin progression
in Construction & Infrastructure, another strong performance
from Fit Out, further growth from Urban Regeneration and
Partnership Housing and positive contributions from Property
Services and Investments.
"Consequently, we are confident of another good year of progress
and with this positive momentum, are well-placed to deliver a
result for the year which is slightly above our previous
expectations."
Enquiries
Morgan Sindall Group Tel: 020 7307
John Morgan 9200
Steve Crummett
Instinctif Partners
Matthew Smallwood Tel: 020 7457
Helen Tarbet 2020
Rosie Driscoll
Presentation
-- There will be an analyst and investor presentation at 09.00
at Numis Securities Limited, the London Stock Exchange Building, 10
Paternoster Square, London EC4M 7LT. Coffee and registration will
be from 08.30.
-- A copy of these results is available at www.morgansindall.com.
-- Today's presentation will be available via live webcast from
09.00 at www.morgansindall.com. A recording will also be available
via playback in the afternoon.
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK Construction &
Regeneration group with annual revenue of GBP2.8bn, employing
around 6,400 employees and operating in the public, regulated and
private sectors. It reports through six divisions of Construction
& Infrastructure, Fit Out, Property Services, Partnership
Housing, Urban Regeneration and Investments.
Group Strategy
The Group's strategy is focused on its well-established core
strengths of Construction and Regeneration in the UK. The Group has
a balanced business which is geared toward the increasing demand
for affordable housing, urban regeneration and infrastructure
investment.
Morgan Sindall's recognised expertise and market positions in
affordable housing (through its Partnership Housing division) and
in mixed-use regeneration development (through its Urban
Regeneration division) reflect its deep understanding of the built
environment developed over many years and its ability to provide
solutions to complex regeneration projects. As a result, its
capabilities are aligned with sectors of the UK economy which are
expected to see increasing opportunities in the medium to long term
and which support the UK's current and future affordable housing
and regeneration needs.
Through its Construction & Infrastructure division, the
Group is also well positioned to meet the increasing demand for
ongoing investment in the UK's infrastructure, working on some of
the UK's most high profile infrastructure projects. Its
geographically diverse construction activities are focused on key
areas of education, healthcare and defence.
The Fit Out business holds a leading position within its market
and delivers a consistently strong operational performance. Fit
Out, together with the Construction & Infrastructure division,
generates cash resources to support the Group's investment in
affordable housing and mixed-use regeneration. Additionally, the
Group has a presence in Property Services.
The Investments business acts mainly as a facilitator and
provides opportunities across construction and regeneration
activities; it has also built up a portfolio of property
partnerships with local authorities and government bodies which
generate a stream of development profits.
In February 2017, the Group announced a set of medium-term
financial targets for each division (the 'target' or 'targets').
These targets relate to operating margin, return on capital
employed or profit and are referenced in the divisional sections of
the Business Review.
Group Structure
Under the two business activities of Construction and
Regeneration, the Group is organised into six divisions as
follows:
Construction activities comprise the following operations:
-- Construction & Infrastructure: Focused on the highways,
rail, aviation, energy, water and nuclear markets in
Infrastructure; and on the education, healthcare, defence,
commercial, industrial, leisure and retail markets in
Construction
-- Fit Out: Focused on the fit out of office space with
opportunities in commercial, central and local government offices,
further education and retail banking
-- Property Services: Focused on response and planned
maintenance activities provided to social housing and the wider
public sector
Regeneration activities comprise the following operations:
-- Partnership Housing: Focused on working in partnerships with
local authorities and housing associations. Activities include
mixed-tenure developments, building and developing homes for open
market sale and for social/affordable rent, 'design & build'
contracting and planned maintenance & refurbishment
-- Urban Regeneration: Focused on transforming the urban
landscape through partnership working and the development of
multi-phase sites and mixed-use regeneration
In addition, Investments is focused on providing the Group with
both construction and regeneration opportunities through various
strategic partnerships to develop under-utilised property assets
and generates development profits from such partnerships.
Group Operating Review
The Group has delivered another strong year of growth in 2017
and the positive momentum across all divisions provides an
encouraging platform for future progress.
Activity levels across the Group increased, with revenue for the
year up 9% to GBP2,793m (FY 2016: GBP2,562m). Operating profit was
up 41% to GBP68.6m (FY 2016: GBP48.8m), resulting in an operating
margin of 2.5%. This was a significant improvement of 60 bps over
the prior year margin of 1.9% and was reflective of the Group's
focus on operational delivery, contract selectivity and on
improving the overall quality of earnings across the Group.
The net finance expense reduced to GBP2.5m (FY 2016: GBP3.5m)
due to a lower interest charge as a result of the positive cash
performance and after deducting this, the profit before tax was
GBP66.1m, up 46% (FY 2016: GBP45.3m). The earnings per share
increased by 43%, up to 121.1p (FY 2016: 84.7p), with the fully
diluted earnings per share of 114.8p up 39% (FY 2016: 82.3p).
The Group result was driven by another excellent performance by
Fit Out, with revenue growth of 16% to GBP735m and significant
margin improvement to 5.3% (FY 2016: 4.3%), delivering operating
profit of GBP39.1m, up 42% (FY 2016: GBP27.5m). Construction &
Infrastructure made further operational progress with an improved
operating margin of 1.5%, up from 0.7% in the prior year. Its focus
on operational delivery and the quality of work secured has
benefited the Construction activities particularly, giving a
divisional operating profit of GBP20.4m (FY 2016: GBP8.9m). Further
progress in Property Services was impacted by restructuring costs
in the year with the division making a loss of GBP1.3m, however,
this now leaves the division better placed to benefit from its
workload in future years.
Of the Group's regeneration divisions, Partnership Housing
increased its operating profit 5% to GBP14.1m (FY 2016: GBP13.4m),
however performance was impacted by lower mixed-tenure open market
sales in the year and by cost escalation on a single 'design &
build' housing contract. Urban Regeneration reported operating
profit of GBP10.0m (FY 2016: GBP13.4m) which as expected was lower
than the prior year but in line with its schedule of development
completions. Investments made good progress with developing its
portfolio of property partnerships, delivering a small profit of
GBP0.5m in the year.
In addition to the higher activity levels in the year, the Group
has also been successful in winning new work for future delivery.
While focusing on the appropriate balance of risk within the order
book, the secured order book for the Group was GBP3,849m at the
year end, up 6% from the previous year end and up 1% on the half
year position. The regeneration & development pipeline also
grew, up 1% to GBP3,233m, providing longer term visibility of
activity for the regeneration divisions.
The statutory profit before tax was GBP64.9m, up 48% (FY 2016:
GBP43.9m) from the prior year. The tax charge for the year is
GBP12.5m, which broadly equates to the UK statutory rate after
adjusting for the impact of tax on joint ventures.
Balance sheet strength and cash generation remain high
priorities for the Group and the cash performance has again been
strong. The average daily net cash for the year was GBP118m, a
significant improvement of GBP93m on the prior year (FY 2016:
average daily net cash of GBP25m). At the year end, the Group had
net cash of GBP193m (FY 2016: GBP209m).
The Group generated an operating cash inflow of GBP41.0m in the
year, this as well as also increasing the capital employed in the
regeneration activities of Partnership Housing and Urban
Regeneration by over GBP40m. The strategic investment in
Partnership Housing and Urban Regeneration is scheduled to
continue, with the timing dependent upon the phasing of individual
schemes. Based upon current investment plans, the Group expects
average daily net cash for 2018 will be at least GBP50m.
During the year, the Group secured GBP180m of new five-year
committed revolving credit facilities replacing the previous
facilities which were due to expire in 2018. Due to the continued
strong cash performance of the Group, the new facilities were not
utilised in the period, however they provide ongoing funding
headroom and financial security for the Group out to 2022. The
facilities build upon the Group's existing strong bank
relationships, and are on similar terms and conditions to the
previous facilities.
The total dividend for the year has been increased by 29% to
45.0p per share (FY 2016: 35.0p), which includes a proposed
increase in the final dividend of 32% to 29.0p per share (FY 2016:
22.0p), reflecting the improved result in the year and the Board's
confidence in the future prospects of the Group.
Outlook
Looking ahead to 2018, it is expected that there will be
continued margin progression in Construction & Infrastructure,
another strong performance from Fit Out, further growth from Urban
Regeneration and Partnership Housing and positive contributions
from Property Services and Investments.
Consequently, there is confidence of another good year of
progress and with this positive momentum, the Group is well-placed
to deliver a result for the year which is slightly above its
previous expectations.
Business Review
Headline results by business segment
Revenue Operating Operating
Profit/(Loss) Margin
GBPm change GBPm change % change
---------------------- ------ ------- -------- ------- ------- --------
Construction
& Infrastructure 1,395 +6% 20.4 +129% 1.5% +80bps
Fit Out 735 +16% 39.1 +42% 5.3% +100bps
Property Services 66 +20% (1.3) n/a (2.0%) -330bps
Partnership Housing 474 +9% 14.1 +5% 3.0% -10bps
Urban Regeneration 175 +12% 10.0 -25% n/a n/a
Investments 11 n/a 0.5 n/a n/a n/a
Central/Eliminations (63) (14.2)
---------------------- ------ ------- -------- ------- ------- --------
Total 2,793 +9% 68.6 +41% 2.5% +60bps
---------------------- ------ ------- -------- ------- ------- --------
Order book and regeneration & development pipeline
The Group's committed order book(*) at 31 December 2017 was
GBP3,849m, an increase of 6% from the previous year end. The
divisional split is shown below.
FY 2017 FY 2016 Change
GBPm GBPm
------------------------------- ------- ------- ------
Construction & Infrastructure 1,855 1,886 -2%
Fit Out 500 466 +7%
Property Services 836 687 +22%
Partnership Housing 523 445 +18%
Urban Regeneration 141 203 -31%
Investments 7 16 -56%
Inter-divisional eliminations (13) (66)
------------------------------- ------- ------- ------
Group committed order
book 3,849 3,637 +6%
------------------------------- ------- ------- ------
(*) "Committed order book" comprises the secured order book and
framework order book. The secured order book represents the Group's
share of future revenue that will be derived from signed contracts
or letters of intent. The framework order book represents the
Group's expected share of revenue from the frameworks on which the
Group has been appointed. This excludes prospects where
confirmation has been received as preferred bidder only, with no
formal contract or letter of intent in place.
In addition, the Group's regeneration & development
pipeline(**) was GBP3,233m, up 1% on the previous year end.
FY 2017 FY 2016
GBPm GBPm Change
----------------------- ------- ------- ------
Partnership Housing 851 764 +11%
Urban Regeneration 2,063 2,233 -8%
Investments 319 213 +50%
----------------------- ------- ------- ------
Group regeneration &
development pipeline 3,233 3,210 +1%
----------------------- ------- ------- ------
(**) "Regeneration & development pipeline" represents the
Group's share of the gross development value of secured schemes
including the development value of open market housing schemes.
Construction & Infrastructure
FY 2017 FY 2016 Change
GBPm GBPm
-------------------------------- ------- ------- ------
Revenue 1,395 1,321 +6%
Operating profit - adjusted 20.4 8.9 +129%
Operating margin - adjusted 1.5% 0.7% +80bps
-------------------------------- ------- ------- ------
"Further progress was made in the year, with disciplined
contract selectivity and improved operational delivery enhancing
the quality of earnings."
Revenue of GBP1,395m was up 6% on the prior year (FY 2016:
GBP1,321m). Split by type of activity, Construction (including
Design) was up 2% at GBP807m (58% of divisional revenue), while
Infrastructure increased 10% to GBP588m (42% of divisional
revenue).
Profitability improved significantly, driven by the continued
focus on contract selection and project delivery. The divisional
operating margin of 1.5% was up from 0.7% in the prior year and
showed improvement throughout the year. The first half margin of
1.1% compared to a second half margin of 1.8%, reflecting the
continued and significant progress being made towards achieving a
normalised margin.
When split by activity, Construction's (including Design)
operating margin for the year was 1.3%, up from break-even in the
prior year. Its margin in the second half was 1.6% (1.0% in the
first half) and was reflective of the benefit from its ongoing
focus on contract selectivity and operational delivery.
Infrastructure delivered an operating margin of 1.7% for the year,
slightly up on the prior year. Its margin also showed a strong
second half weighting (1.2% in the first half, 2.2% in the second
half), which was a result of the work mix in the period.
The committed order book at the year end was GBP1,855m, down 2%
compared to the prior year end. Infrastructure continued to grow
its order book, up 6% from the prior year to GBP1,377m (74% of the
total by value), with the focus maintained on its key sectors of
highways, rail, aviation, nuclear, energy and water. The
Construction (including Design) order book was GBP478m (26% of
total value), a reduction of 19% against the prior year. Consistent
with its focus on contract selectivity, the appropriate risk
profile has been maintained within the Construction order book,
with 93% of the value derived through negotiated, framework or
two-stage bidding procurement processes, and only 7% derived
through competitive tenders.
Construction
In Education, projects delivered include the GBP40m Littleport
Academy in Cambridgeshire and the GBP25m Science Centre for Anglia
Ruskin University as well as the GBP15m Glenwood Special
Educational Needs School for Essex County Council. In addition,
work has continued on the GBP40m Collaborative Teaching Laboratory
for the University of Birmingham.
In Healthcare, projects completed include a new GBP10m care home
in North East Enfield for Enfield Council, while work started on a
GBP40m programme to build two new health and social care hubs for
the NHS in Gorbals and Woodside in Glasgow, in collaboration with
Investments through its hub West Scotland joint venture.
In Defence, projects completed include a GBP90m project for BAE
Systems to develop industrial facilities at their submarine
building site in Barrow-in-Furness, and a GBP39m training facility
for the Civil Nuclear Constabulary in West Cumbria.
In other sectors, significant completions in the year include
the GBP107m mixed-use scheme at Marischal Square in Aberdeen for
Urban Regeneration; a GBP30m redevelopment of 55 Colmore Row in
Birmingham city centre; a GBP24m extension of car storage and
handling facilities at the Port of Southampton and, in early 2018,
a GBP48m Operational Command Centre for Merseyside Police. Work
continues on a GBP26m new office project for BUPA UK in Salford
Quays and the division has started on site on the first of two
projects totalling GBP47m for Liverpool City Council as part of its
Paddington Village scheme, with the second due to start in
mid-2018.
Construction was also appointed to a number of other new and
renewed public sector frameworks during the year that offer future
projects across its core markets. These include the new four-year
Scape Group framework for public sector projects in the upper
Midlands, covering the largest projects in the framework from GBP1m
to GBP5m, and the new ESFA framework to build schools valued
between GBP4.5m and GBP16m over four years.
Infrastructure
In Highways, Infrastructure was awarded two Highways England
Smart Motorway upgrade contracts in joint venture, on the M62 and
M27 (worth more than GBP300m to the joint venture) while also
securing four projects (Stanford-le-Hope Station Redevelopment,
A414 Edinburgh Way, Stratton Park Phase 5 and A421 Dualling) with a
combined value of cGBP32m as part of the Eastern Highways Alliance
framework. In addition, the division won its first project under
Transport for London's (TfL) GBP500m Civils Projects framework, the
cGBP15m upgrade of Old Street roundabout. Work also continued on
the cGBP100m repair of the M5's Oldbury viaduct (in joint
venture).
In Rail, the division won its first project under London
Underground's GBP350m Civils and Tunnelling Works framework, a
cGBP20m train modification unit depot in Acton. Additionally, a
cGBP18m project was awarded by Network Rail for the electrification
of the Stirling, Alloa and Dunblane lines to improve journey times
for passengers travelling to Edinburgh or Glasgow.
In Aviation, key projects secured include a cGBP30m project from
IAG Cargo and British Airways to construct a cargo building at
Heathrow Airport, incorporating an automated handling system.
In Energy, Infrastructure secured a cGBP30m joint venture
project for Scottish and Southern Energy Networks (SSEN) to design
and build approximately 18.5 km of new overhead lines in northern
Scotland, and a separate GBP3.5m contract to install c9 km of 132kV
cabling. The division was also awarded a GBP23m project related to
National Grid's IFA2, a high-voltage, direct current interconnector
cable running between England and France. In Water, projects
awarded include a cGBP14m water quality improvement project at
Irton Water Treatment Works in Scarborough, under the Yorkshire
Water framework.
Infrastructure was also appointed to places on multiple lots of
the GBP1bn YORcivil2 framework, set up to deliver civil engineering
and construction works for local authorities and other public
sector bodies across the Yorkshire and Humber regions. The
framework is scheduled to run for four years with a possible
two-year extension and with an estimated total value of GBP324m for
the North and East framework and GBP720m for the South and West
section.
Divisional outlook
Looking ahead, Construction & Infrastructure will continue
to focus on margin improvement and securing higher quality work
with the appropriate risk balance. The target for Construction
(including Design) is an operating margin of 2%, while the target
for Infrastructure is an operating margin of 2.5%. 2018 is expected
to show further progress towards these targets, supported by the
quality of core sector work in the division's secured order
book.
Fit Out
FY 2017 FY 2016 Change
GBPm GBPm
----------------------------- ------- ------- -------
Revenue 735 634 +16%
Operating profit - adjusted 39.1 27.5 +42%
Operating margin - adjusted 5.3% 4.3% +100bps
----------------------------- ------- ------- -------
"Another excellent performance from Fit Out, benefiting from
consistently strong project delivery and its focus on enhanced
customer experience."
Fit Out delivered another excellent result, with revenue for the
year up 16% to GBP735m (FY 2016: GBP634m), operating profit up 42%
to GBP39.1m (FY 2016: GBP27.5m), and operating margin increasing to
5.3% (FY 2016: 4.3%).
Of the total revenue for the year, 84% related to traditional
fit out work (2016: 81%), while 16% related to 'design and build'
(FY 2016: 19%), a broadly similar split to previous years. In terms
of the nature of work undertaken, the proportion of revenue
generated from the fit out of existing office space reduced
slightly to 77% (FY 2016: 82%), while the remaining 23% related to
new office fit out (FY 2016: 18%). Of the fit out of existing
office space, 64% related to refurbishment 'in occupation'.
By sector, the commercial office market remains the largest,
contributing 84% of revenue (2016: 86%), however there was a small
change in the overall balance in favour of higher education which
accounted for 12% of revenue, compared to 6% in the prior year.
Retail banking, government and local authority work made up the
remainder.
Geographically, the London region remained the division's
largest market, accounting for 71% of revenue. Although this
proportion was an increase from the prior year when 65% of total
revenue was derived from London, this is not viewed as a
significant trend.
Significant project completions in the year included an 85,000
sq ft office fit out for Network Rail in Birmingham, 64,000 sq ft
for Freshfields Bruckhaus Deringer at One New Bailey in Manchester,
and 42,000 sq ft for EY in Manchester. In addition, the division
finished a three-year refurbishment programme for Bristol City
Council at City Hall and 100 Temple Street to deliver their new
workplace strategy, and a major refurbishment of 70,000 sq ft for
Sony Playstation in Soho, London. Completed design and build
projects include a collaborative workspace in Croydon for
Superdrug, new London headquarters of global media company, AMC
Networks International, and an activity-based workspace for Costa
Coffee at its recently-opened flagship roastery in Basildon, Essex.
Work also continues on projects for Deloitte and Schroder Corporate
Services in London and, in education, a GBP44m refurbishment for
King's College London.
Continued strong operational delivery and a focus on customer
experience and better procurement has driven the increase in
operating profit and margin. Performance in the second half of the
year was particularly strong, with an operating margin of 6.2%,
compared to a first half margin of 4.3%, due to the blend of higher
margin contracts and the operational leverage benefit from
increased activity in the second half.
At the year end, the secured order book was GBP500m, an increase
of 7% on the prior year end. Of this year end total, GBP468m (94%)
relates to 2018 and provides significant visibility of workload for
the year. This level of orders of GBP468m for the next 12 months is
14% higher than it was at the same time last year of GBP410m.
Key business wins during the year include the appointment to
three lots of the GBP1bn Government Hubs Programme, a national
framework run by the Government Property Unit, which will provide a
four-year pipeline of opportunities. The division also secured a
place on a GBP250m four-year framework to deliver improvements to
the Metropolitan Police Estate in London and the South East for
projects ranging from GBP2.5m to GBP10m, which will include the fit
out of existing buildings, offices, stations and training
facilities. Other key projects won include a 450,000 sq ft fit out
for the Cabinet Office in Canary Wharf, London, 57,000 sq ft fit
out for Amazon in Cambridge, and a 400,000 sq ft fit out for a
leading asset manager in London, which started on site in January
2018.
Divisional outlook
Fit Out's stated target is to deliver annual profit in the range
of GBP25m-GBP30m. In 2017, this target was significantly exceeded.
Looking ahead to 2018, based upon its strong order book and visible
pipeline of opportunities through its various frameworks, Fit Out
is expected to deliver a performance in excess of the top end of
this range.
Property Services
FY 2017 FY 2016 Change
GBPm GBPm
----------------------------- ------- ------- -------
Revenue 66 55 +20%
Operating (loss)/profit
- adjusted (1.3) 0.7 -286%
Operating margin - adjusted (2.0%) 1.3% -330bps
----------------------------- ------- ------- -------
"The restructuring and streamlining of the contract portfolio
undertaken in 2017 leaves Property Services well-set for future
profitable growth."
Property Services made an operating loss of GBP1.3m on revenue
of GBP66m. Although revenue was up 20% compared to the prior year,
the result was impacted by costs of GBP1.1m incurred on exiting its
legacy insurance services business and GBP1.3m of costs relating to
the streamlining of its contract portfolio by exiting
underperforming contracts.
The committed order book has increased 22% to GBP836m, compared
to GBP687m at the prior year end. Latest appointments include a
GBP10m, five-year contract with housing association Optivo to
deliver gas servicing, boiler replacements and heating upgrades for
more than 8,000 homes in and around Croydon. Earlier in the year,
the division secured a place on the GBP52m planned maintenance
framework for Network Homes, which manages over 19,000 homes mainly
in London and the Home Counties; a 10-year, GBP38m contract by
social housing provider EastendHomes to provide repairs,
maintenance and refurbishment services for 3,600 homes in Tower
Hamlets, London; and a number of repairs and maintenance contracts
for CityWest Homes, which manages properties on behalf of
Westminster City Council, with a combined expected value of GBP219m
over 10 years.
Under the GBP140m 'Better Homes' framework for Camden Council,
Property Services is also currently delivering two internal works
projects including 459 kitchen and 171 bathroom refurbishments,
re-wiring and heating system replacements; GBP7m of upgrades in the
borough following fire risk assessments; and a GBP1m refurbishment
to two residential blocks at the Gamages Estate in Hatton Garden.
In addition during the year, GBP2m of extensive external
refurbishment works to Flaxman Court, a six-storey block in Camden
containing 84 properties, were completed.
Divisional outlook
The target for Property Services is to grow its operating margin
to at least 3%. Looking ahead to 2018, the strong order book is
expected to deliver increased revenue and the operational leverage
impact of additional volumes, together with the benefit of the
restructuring undertaken this year, underpin the expected growth in
margin towards this target.
Partnership Housing
FY 2017 FY 2016 Change
GBPm GBPm
----------------------------- ------- ------- ------
Revenue 474 433 +9%
Operating profit - adjusted 14.1 13.4 +5%
Operating margin - adjusted 3.0% 3.1% -10bps
Average capital employed(1)
(last 12 months) 99.7 110.8
Capital employed(1)
at year end 88.0 63.9
----------------------------- ------- ------- ------
"The market opportunity for Partnership Housing remains
sizeable."
Revenue increased by 9% in the year up to GBP474m. Growth was
driven by the Contracting activities, where Contracting revenue
(including planned maintenance and refurbishment) was up 27% in the
year to GBP290m (61% of divisional total). Mixed-tenure revenue was
10% lower at GBP184m (39% of divisional total), which was impacted
by lower than expected sales completions in the fourth quarter of
the year.
In mixed-tenure, 887 units were completed across open market
sales and social housing, lower than the prior year number of
1,060. This in part was due to a lower number of sales than
expected completing in the fourth quarter. The average sales price
of GBP207k compared to the average of GBP192k in the prior
year.
Operating profit increased to GBP14.1m, up 5%, and resulted in
an operating margin of 3.0%, down 10bps on the prior year. The
lower margin was impacted by lower mixed-tenure open market sales
in the year and by unexpected cost escalation on one 'design &
build' contract in London.
The capital employed at year end was GBP88.0m, with the average
capital employed for the last 12-month period of GBP99.7m resulting
in an overall ROCE(2) of 14% (FY 2016: ROCE(2) of 12%). Capital
employed is expected to increase to cGBP120m in 2018 as
mixed-tenure developments come on stream.
In Mixed-tenure, the regeneration and development pipeline
increased 11% to GBP851m, supported by the committed order book for
the contracting element in mixed tenure of GBP78m. The division
currently has a total of 45 mixed tenure sites at various stages of
construction and sales, with an average of 102 open market units
per site. Average site duration is 39 months, providing long-term
visibility of activity.
Work started on site at several developments in the year,
including a GBP46m regeneration at Ponders End in partnership with
the London Borough of Enfield, while progress was made on a number
of ongoing schemes, including The Mill at Canton, Cardiff and
Trinity Walk in Woolwich. The division was chosen for a GBP45m
redevelopment in Hatfield, Hertfordshire to create c150 new homes
and shopping parade for Welwyn Hatfield Borough Council. Key
completions included the final 23 homes in a GBP25m development at
Towcester, as part of a regeneration scheme being delivered in
collaboration with Investments. As well as this, the division
secured a number of mixed tenure projects which ensure the division
is well placed for the future. These included: Priorslee in the
Midlands, a project for 220 homes; Lakeside Doncaster which
comprises 142 homes; Branston in Lincolnshire for 73 homes; Beck
Row in Norfolk which will see 117 homes being built; and Llantarnam
in South Wales which will produce 78 homes.
The division is continuing to develop partnerships with housing
associations and local authorities, supported by its extensive
research completed into under-utilised government land. New
partnership opportunities are being progressed with Clarion Housing
Group, Flagship Housing Association and Home Group. The division
was also appointed to two major frameworks: Homes England's
(formerly the Homes and Communities Agency) improved Delivery
Partner Panel, DPP3, which runs for four years until 2021 and is
used by a wide range of public sector bodies; and the GBP1.8bn
Sanctuary Housing Group Framework set up to deliver 30,000 new
homes over the next 10 years.
In Contracting, the secured order book increased 46% to GBP445m.
Performance was adversely impacted by unexpected cost escalation
and programme slippage on one 'design & build' contract in
London, which is due for completion in the first half of 2018.
The division was formally appointed by the Defence
Infrastructure Organisation on a GBP250m scheme to build 900 homes
at Salisbury Plain for service families returning from Germany.
Other appointments include the GBP6m phase three of the Nar Ouse
Regeneration Area project to deliver 50 houses for the Borough
Council of King's Lynn & West Norfolk; and a GBP5m scheme for
Hafod Housing, in partnership with Bridgend County Borough Council,
to provide 48 social rented homes in Bridgend, South East Wales. In
planned maintenance and refurbishment works, the division secured a
GBP10m improvement programme to three blocks of flats on the Lion
Farm Estate in Oldbury, for Sandwell Council.
Divisional outlook
The division's target is to generate a return on capital
employed of over 20%. Looking ahead to 2018, with its strong order
book and pipeline and other identified partnership opportunities,
the division is well-placed to deliver further progress towards its
returns target, at the same time as increasing overall
profitability.
(1) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts).
(2) Return On Average Capital Employed = Adjusted operating
profit divided by average capital employed.
Urban Regeneration
FY 2017 FY 2016 Change
GBPm GBPm
----------------------------- ------- ------- ------
Revenue 175 156 +12%
Operating profit - adjusted 10.0 13.4 -25%
Average capital employed(1)
(last 12 months) 88.5 80.0
Capital employed(1)
at year end 85.0 68.9
----------------------------- ------- ------- ------
"Urban Regeneration's portfolio of active development schemes
leaves it well-placed for future growth."
Urban Regeneration delivered operating profit for the year of
GBP10.0m, which although lower than the prior year, was in line
with its schedule of development completions. Revenue in the year
was up 12% to GBP175m, however this increase was determined more by
the type of development scheme from which the profits were
generated rather than being an indicator of underlying
activity.
Capital employed at the year end was GBP85.0m. Average capital
employed for the last 12-month period was GBP88.5m, with an overall
ROCE(2) of 9%. The average ROCE over the previous three years is
13%, diluted by the current year performance. Capital employed is
expected to increase in 2018 to within the range of GBP100m-GBP110m
as a result of the higher level of scheme activity.
Good progress was made on Urban Regeneration's existing town
centre developments. Key contributors to performance include the
completion of a landmark mixed use scheme at Marischal Square in
Aberdeen, and two residential developments delivered by English
Cities Fund (ECf), a joint venture with Legal & General and
Homes England (formerly the Homes and Communities Agency) as part
of the Salford regeneration: 36 townhouses at Timekeepers Square,
all sold by completion and a GBP16m, 10-storey block of 90
apartments at The Slate Yard, New Bailey, the first in Greater
Manchester to be institutionally funded and custom built for
private rental.
Other highlights in the year included the sale of One City
Place, a six-storey, Grade A office building in Chester's central
business district; and, ahead of forecast, the full letting of a
50,000 sq ft Grade A office building at Stockport Exchange. The
division is now working with Stockport Metropolitan Borough Council
to deliver the next phase of office development.
Additional completions include a health centre as part of the
Swindon regeneration programme; a multi-storey car park in
Warrington, part of the Time Square development; a second private
rental building of 68 new homes for Fizzy Living at Lewisham
Gateway; and a residential block at Brentford Lock West. In
Brixton, the GBP70m refurbishment of the Grade II listed town hall
continued, carried out by Construction & Infrastructure, with
the interior handed over to Lambeth Council. Work also progressed
on two residential developments in Brixton, Hambrook House and Ivor
House, both due to complete in autumn 2018.
The development portfolio continues to generate a high volume of
construction work, with cGBP400m currently on site and a further
cGBP420m expected to be awarded over the next 12 months. Key
projects that started on site include phase four of the Warrington
Bridge Street regeneration which will provide a 13-screen cinema
and seven restaurants, new indoor market and 105,000 sq ft of
council office space; a 160,000 sq ft office building at 2 New
Bailey in Salford; three industrial units totalling 100,000 sq ft
at Logic Leeds and 137 new homes at Millbay, Plymouth.
The regeneration and development pipeline of GBP2.1bn reduced 8%
in the year, however remains sizeable, with a diverse geographic
and sector split:
-- by value, 44% of the pipeline is in the South East and
London, 35% in the North West, 17% in Yorkshire and the North East,
and 4% in the rest of the UK;
-- by sector, 51% by value relates to residential, 30% to
offices, and the remainder is broadly split between retail,
leisure, and industrial.
Divisional outlook
The target for Urban Regeneration is to increase its ROCE(2)
towards 20%. Looking ahead to 2018, based upon the higher level of
scheme activity and the current profile of scheduled completions,
Urban Regeneration is expected to deliver increased profits from
higher average capital employed and to make progress towards its
target ROCE.
(1) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts).
(2) Return On Average Capital Employed = (Adjusted operating
profit less interest on non-recourse debt less unwind of discount
on deferred consideration) divided by (average capital employed).
Interest and fees on non-recourse debt was GBP1.5m (FY 2016:
GBP1.1m) and the unwind of discount on deferred consideration was
GBP0.2m (FY 2016: GBP0.3m).
Investments
FY 2017 FY 2016 Change
GBPm GBPm
------------------------- ------- ------- ------
Operating profit/(loss)
- adjusted 0.5 (2.0) n/a
------------------------- ------- ------- ------
"Investments has a portfolio of property partnerships which will
provide development profits for Investments as well as providing
high quality work for the rest of the Group."
During the year, the role of Investments within the Group has
evolved from being solely a source of securing prime long-term
construction and regeneration opportunities for the rest of the
Group, to also being a consistent profit contributor from the
capital employed in its property partnerships and development
schemes.
Capital employed at the year end was GBP38.6m (FY 2016:
GBP23.3m), with average capital employed for the last 12-month
period of GBP30.7m (FY 2016: GBP20.7m). A significant proportion of
this capital employed is invested in property partnership joint
ventures, the key ones being: Slough Urban Renewal (SUR), a joint
venture with Slough Borough Council; a joint venture partnership
with Bournemouth Borough Council; HB Villages, a partnership with
the original founders of the joint venture; and Morgan Ashley Care
Developments, a joint venture with Ashley House plc. Other
partnerships include the Priority Schools Building Programme North
West Batch (joint venture with Equitix and the Department for
Education); hub West Scotland, a partnership to develop a pipeline
of public sector health, education and community projects in the
Glasgow area; and strategic development partnerships with both
Oxleas NHS Foundation Trust and Burton Hospitals NHS Foundation
Trust to support the rationalisation, development and
transformation of their estates.
The operating profit of GBP0.5m in the year was derived from a
number of its partnership platforms, with the largest single
contribution coming from the Milestone residential development,
part of the SUR joint venture.
Through its existing joint venture partnerships, significant
progress was made in securing new opportunities and progressing
current developments. Through the SUR joint venture, there are
currently 10 projects under construction with a combined
construction value of cGBP95m: two residential developments; three
primary school extensions; one secondary school extension; and four
leisure projects. In addition, two new appointments were achieved:
Slough Borough Council agreed to appoint SUR to deliver a major,
mixed use development on the former Thames Valley University site;
and a deal was secured with Cycas Hospitality for a mixed use
development on the former site of Slough's central library,
including two new Marriott International hotels and residential
apartments.
In Bournemouth, through the partnership with Bournemouth Borough
Council, the regeneration of the town centre has continued,
including at Berry Court in St Peter's Road where 113 new private
rental homes are under construction on the former site of an
underused car park. The council also approved investment in a
second residential development at St Stephen's Road, which will
provide 46 high quality homes for market rent and in addition, a
planning application has been submitted for a GBP150m redevelopment
of Winter Gardens, a landmark site overlooking the seafront,
currently used as a car park.
Work has started on two health care centres in the Gorbals and
Woodside in Glasgow under the hub West Scotland joint venture,
while construction is also underway on a GBP15m extra care
development in Northampton to provide 80 assisted living apartments
and communal space, designed to support older people to live
independently through the HB Villages joint venture.
During the year, significant strategic progress was made in
widening the range of Investments' partners. Examples include the
acquisition of a 50% stake in a joint venture with Ashley House
plc, to focus on development activity in the extra care sector and
into which Ashley House transferred its pipeline of extra care and
supported living schemes, with a development value of GBP200m to
the joint venture; and a new strategic estates partnership with
Oxleas NHS Foundation Trust to deliver its Strategic Estate
Partnership (SEP) for an initial 10-year period.
During the year, GBP143m of construction and regeneration work
on schemes sourced by Investments was delivered across the Group
(primarily by Construction & Infrastructure). A further GBP135m
of work was secured for future delivery.
Divisional outlook
Looking ahead, Investments is expected to consistently deliver a
positive return from its capital employed each year, as well as
generating construction and regeneration work for the rest of the
Group. Its medium-term target is to increase ROCE(1) up towards
20%, however due to the phasing of its scheme developments,
progress towards this target is not expected to follow a uniform
profile.
(1) Return On Average Capital Employed = (adjusted operating
profit plus interest received from joint ventures) divided by
average capital employed.
Other Financial Information
----------------------------
1. Net finance expense. Net finance expense was GBP2.5m, a
GBP1.0m decrease versus FY 2016 which is broken down as
follows:
FY 2017 FY 2016 % change
GBPm GBPm
---------------------------- ------- ------- --------
Interest payable on
project financing & other
debt (0.9) (1.8) +50%
Amortisation of bank
fees & non-utilisation
fees (2.6) (2.1) -24%
Interest from JVs 1.3 1.1 +18%
Other (0.3) (0.7) +57%
Total net finance expense (2.5) (3.5) +29%
---------------------------- ------- ------- --------
2. Tax. A tax charge of GBP12.5m is shown for the year (FY 2016:
GBP7.1m).
FY 2017 FY 2016
GBPm GBPm
----------------------------------- ------- -------
Profit before tax 64.9 43.9
Less: share of net profit
in joint ventures (4.1) (7.4)
Profit before tax excluding
joint ventures 60.8 36.5
Statutory tax rate 19.25% 20.0%
Current tax charge at statutory
rate (11.7) (7.3)
Tax on joint venture profits(#) (0.6) (1.2)
Effect of tax rate change
on deferred tax - 0.7
Other adjustments (0.2) 0.7
Tax charge (12.5) (7.1)
----------------------------------- ------- -------
(#) certain of the Group's joint ventures
are partnerships where profits are taxed
within the Group rather than the joint
venture
3. Net working capital. 'Net Working Capital' is defined as
'Inventories plus Trade & Other Receivables, less Trade &
Other Payables' adjusted as below.
Change
FY 2017 FY 2016 GBPm
-------
GBPm GBPm
------------------------------ ------- ------- -------
Inventories 295.0 213.9 +81.1
Trade & Other Receivables(1) 400.9 329.6 +71.3
Trade & Other Payables(2) (860.1) (747.1) -113.0
Net working capital (164.2) (203.6) +39.4
------------------------------ ------- ------- -------
(1) Adjusted to exclude capitalised arrangement fees (GBP1.6m)
(FY 2016: GBP0.3m) and derivative financial assets (GBP1.6m) (FY
2016: GBP2.9m)
(2) Adjusted to exclude deferred consideration payable (GBP2.2m)
(FY 2016: GBP7.5m), accrued interest (GBP0.4m) (FY 2016: GBP0.4m)
and derivative financial liabilities (GBP1.0m) (FY 2016:
GBP1.9m)
4. Cash flow. Operating cash flow was an inflow of GBP41.0m (FY
2016: inflow of GBP179.9m). Free cash flow was an inflow of
GBP27.1m (FY 2016: inflow of GBP173.7m). The cash inflow in 2016
reflected the benefit of a significant number of completions on
regeneration schemes in the latter stages of the year.
FY 2017 FY 2016
GBPm GBPm
-------------------------------------------- ------- -------
Operating profit - adjusted 68.6 48.8
Depreciation 5.6 5.5
Share option expense 5.5 4.6
Movement in fair value of shared
equity loans (0.5) (0.6)
Share of net profit of joint ventures (4.1) (7.4)
Other operating items (1) 6.1 5.9
Change in working capital (2) (37.8) 125.2
Net capital expenditure (including
repayment of finance leases) (6.1) (4.4)
Dividends and interest received
from joint ventures 3.7 2.3
Operating cash flow 41.0 179.9
Income taxes paid (9.6) (3.3)
Net interest paid (non-joint venture) (4.3) (2.9)
Free cash flow 27.1 173.7
-------------------------------------------- ------- -------
(1) 'Other operating items' includes provision movements
(GBP2.2m), shared equity redemptions (GBP3.3m), investment property
disposals (GBP0.7m) less gain on disposals (GBP0.1m)
(2) The cash flow due to change in working capital excludes net
GBP1.6m comprising: non-cash transfer of freehold land and
buildings from property, plant and equipment to inventories
(GBP2.4m); the unwind of discounting on land creditors (GBP0.6m);
and exchange differences on the translation of overseas operations
(GBP0.2m)
5. Net cash. Net cash at the end of the year was GBP193.4m.
GBPm
-------------------------- ------
Net cash as at 1 January
2017 208.7
Free cash flow (as
above) 27.1
Dividends (16.8)
Other(1) (25.6)
Net cash as at 31
December 2017 193.4
-------------------------- ------
(1) 'Other' includes net loans advanced to JVs (GBP14.2m),
consideration paid to acquire an additional interest in a JV
(GBP9.6m), payment to establish an 'other' investment (GBP1.1m),
proceeds from the issue of new shares (GBP0.1m), proceeds from the
exercise of share options (GBP0.3m) and purchase of shares in the
Company by the employee benefit trust (GBP1.1m).
6. Capital employed by strategic activity. An analysis of the
negative capital employed in the Construction activities shows a
decrease of GBP16.9m since the previous year, split as follows:
Capital employed(1) FY 2017 FY 2016 Change
in Construction GBPm GBPm GBPm
------------------------------- -------- -------- -------
Construction & Infrastructure (232.9) (226.3) -6.6
Fit Out (56.4) (47.3) -9.1
Property Services 3.9 5.1 -1.2
------------------------------- -------- -------- -------
(285.4) (268.5) -16.9
------------------------------- -------- -------- -------
An analysis of capital employed in the Regeneration activities
shows an increase of GBP40.2m since the previous year, split as
follows:
Capital employed in FY 2017 FY 2016 Change
Regeneration GBPm GBPm GBPm
------------------------ -------- -------- -------
Partnership Housing(2) 88.0 63.9 +24.1
Urban Regeneration(2) 85.0 68.9 +16.1
173.0 132.8 +40.2
------------------------ -------- -------- -------
1 Total assets (excluding goodwill, intangibles, inter-company
financing and cash) less total liabilities (excluding corporation
tax, deferred tax, inter-company financing and overdrafts)
2 Definition as per the Partnership Housing and Urban
Regeneration sections in the Business Review
7. Dividends. The Board of Directors has proposed a final
dividend of 29.0p per share (FY 2016: 22.0p), up 32% on the prior
year. This will be paid on 21 May 2018 to shareholders on the
register at 27 April 2018. The ex-dividend date will be 26 April
2018.
8. Post balance sheet event
At the balance sheet date the Group was working on a limited
number of projects with Carillion plc through joint operations.
Subsequently, on Monday 15 January 2018, the High Court appointed
the Official Receiver as liquidator of Carillion plc. The Group is
committed to completing these projects. The directors have reviewed
each of the contracts, and believe the completion of these will not
have a material adverse effect on the Group's reported financial
position.
9. Changes in Accounting Policies
9.1 IFRS 15 'Revenue from Contracts with Customers'
The Group will implement a new accounting standard, IFRS 15
'Revenue from Contracts with Customers', from 1 January 2018.
For a small number of contracts across the Group, this will
change the timing of revenue and cost recognition, but does not
affect the Group's expectation of the total revenue or cash flows
from these contracts. The effect of implementing this new standard
does not fundamentally change the basis on which the Group accounts
for contracts, and therefore the change will be applied at 1
January 2018 without restating prior years. The total net effect of
the transition will be to reduce opening net assets by cGBP7m,
reduce contract assets by cGBP8m and reduce the deferred tax
liability by cGBP1m.
9.2 IFRS 16 'Leases'
The Group is adopting a new accounting standard, IFRS 16
'Leases', from 1 January 2018. This is one year earlier than the
mandatory date.
This will require all leases to be recognised on the balance
sheet as a right of use asset with a corresponding lease liability.
The estimated gross asset and liability on transition is estimated
to be between GBP40m and GBP45m with a nil overall net impact on
shareholders' funds.
Cautionary forward-looking statement
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from any future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Group accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Consolidated income statement
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------------- ----- --------- ---------
Revenue 2,792.7 2,561.6
Cost of sales (2,518.3) (2,317.9)
------------------------------------- ----- --------- ---------
Gross profit 274.4 243.7
Administrative expenses (209.9) (202.3)
Share of net profit of joint
ventures 4.1 7.4
Operating profit before amortisation
of intangible assets 68.6 48.8
------------------------------------- ----- --------- ---------
Amortisation of intangible assets (1.2) (1.4)
------------------------------------- ----- --------- ---------
Operating profit 67.4 47.4
Finance income 1.6 1.3
Finance expense (4.1) (4.8)
------------------------------------- ----- --------- ---------
Profit before tax 64.9 43.9
Tax 3 (12.5) (7.1)
------------------------------------- ----- --------- ---------
Profit for the year 52.4 36.8
------------------------------------- ----- --------- ---------
Attributable to:
Owners of the Company 52.4 36.8
------------------------------------- ----- --------- ---------
Earnings per share
Basic 5 118.8p 83.8p
Diluted 5 112.7p 81.4p
------------------------------------- ----- --------- ---------
There were no discontinued operations in either the current or
comparative periods.
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Profit for the year 52.4 36.8
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gain arising on retirement
benefit asset 0.1 0.7
Deferred tax on retirement benefit
asset - (0.1)
----------------------------------------- ----- -----
0.1 0.6
----------------------------------------- ----- -----
Items that may be reclassified
subsequently to profit or loss:
Foreign exchange movement on translation
of overseas operations (0.2) 0.6
Gains arising during the year on
cash flow hedges 0.3 0.8
Reclassification from cash flow
hedges to the income statement (0.7) -
Deferred tax relating to items
that may be reclassified 0.1 (0.2)
----------------------------------------- ----- -----
(0.5) 1.2
----------------------------------------- ----- -----
Other comprehensive (expense)/income (0.4) 1.8
----------------------------------------- ----- -----
Total comprehensive income 52.0 38.6
----------------------------------------- ----- -----
Attributable to:
Owners of the Company 52.0 38.6
----------------------------------------- ----- -----
Consolidated balance sheet
At 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------- ----- ------- -------
Assets
Goodwill and other intangible
assets 215.8 217.0
Property, plant and equipment 14.4 16.6
Investment property 5.9 6.6
Investments in joint ventures 76.7 56.9
Other investments 1.3 -
Shared equity loan receivables 6 15.6 18.4
Retirement benefit asset 2.8 2.6
------------------------------- ----- ------- -------
Non-current assets 332.5 318.1
Inventories 295.0 213.9
Trade and other receivables 7 404.1 332.8
Cash and cash equivalents 8 221.2 228.5
Current assets 920.3 775.2
------------------------------- ----- ------- -------
Total assets 1,252.8 1,093.3
------------------------------- ----- ------- -------
Liabilities
Trade and other payables 10 (854.1) (748.3)
Current tax liabilities (8.9) (7.7)
Finance lease liabilities (0.5) (0.5)
Borrowings 8 (27.8) (4.8)
Current liabilities (891.3) (761.3)
------------------------------- ----- ------- -------
Net current assets 29.0 13.9
Trade and other payables (9.6) (8.6)
Finance lease liabilities (0.4) (0.7)
Borrowings 8 - (15.0)
Deferred tax liabilities (13.9) (11.7)
Provisions (21.0) (18.8)
------------------------------- ----- ------- -------
Non-current liabilities (44.9) (54.8)
------------------------------- ----- ------- -------
Total liabilities (936.2) (816.1)
------------------------------- ----- ------- -------
Net assets 316.6 277.2
------------------------------- ----- ------- -------
Equity
Share capital 2.2 2.2
Share premium account 33.8 33.7
Other reserves (0.3) 0.2
Retained earnings 280.9 241.1
------------------------------- ----- ------- -------
Equity attributable to owners
of the Company 316.6 277.2
Total equity 316.6 277.2
------------------------------- ----- ------- -------
Consolidated cash flow statement
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
----------------------------------- ----- ------ ------
Operating activities
Operating profit 67.4 47.4
Adjusted for:
Amortisation of intangible assets 1.2 1.4
Share of net profit of equity
accounted joint ventures (4.1) (7.4)
Depreciation 5.6 5.5
Share option expense 5.5 4.6
Gain on disposal of property,
plant and equipment (0.1) (0.2)
Movement in fair value of shared
equity loan receivables 6 (0.5) (0.6)
Additional pension contributions - (0.4)
Disposals of investment properties 0.7 2.2
Repayment of shared equity loan
receivables 6 3.3 2.5
Increase in provisions 2.2 1.8
Operating cash inflow before
movements in working capital 81.2 56.8
(Increase)/decrease in inventories (78.7) 32.8
(Increase)/decrease in receivables (71.3) 22.6
Increase in payables 112.2 69.8
----------------------------------- ----- ------ ------
Movements in working capital (37.8) 125.2
----------------------------------- ----- ------ ------
Cash inflow from operations 43.4 182.0
----------------------------------- ----- ------ ------
Income taxes paid (9.6) (3.3)
----------------------------------- ----- ------ ------
Net cash inflow from operating
activities 33.8 178.7
----------------------------------- ----- ------ ------
Investing activities
Interest received 1.4 1.3
Dividend from joint ventures 2.6 1.2
Proceeds on disposal of property,
plant and equipment 0.6 3.6
Purchases of property, plant
and equipment (6.3) (4.7)
Purchases of intangible fixed
assets - (1.1)
Net increase in loans to joint
ventures (14.2) (0.4)
Payment for the acquisition
of subsidiaries, joint ventures
and other businesses (9.6) (7.7)
Payment for other investments (1.1) -
Net cash outflow from investing
activities (26.6) (7.8)
----------------------------------- ----- ------ ------
Financing activities
Interest paid (4.6) (3.1)
Dividends paid 4 (16.8) (13.2)
Repayments of obligations under
finance leases (0.4) (2.2)
Proceeds from/(repayment of)
borrowings 8 8.0 (38.0)
Proceeds on issue of share capital 0.1 1.7
Payments by the Trust to acquire
shares in the Company (1.1) (3.3)
Proceeds on exercise of share
options 0.3 -
----------------------------------- ----- ------ ------
Net cash outflow from financing
activities (14.5) (58.1)
----------------------------------- ----- ------ ------
Net (decrease)/increase in cash
and cash equivalents (7.3) 112.8
Cash and cash equivalents at
the beginning of the year 228.5 115.7
----------------------------------- ----- ------ ------
Cash and cash equivalents at
the end of the year 8 221.2 228.5
----------------------------------- ----- ------ ------
Consolidated statement of changes in equity
For the year ended 31 December 2017
Share
Share premium Other Retained Non-controlling Total
capital account reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------- --------- --------- ------ --------------- -------
1 January 2016 2.2 32.0 (1.0) 216.5 249.7 (0.7) 249.0
Total comprehensive
income - - 1.2 37.4 38.6 - 38.6
Share option
expense - - - 4.6 4.6 - 4.6
Issue of shares
at a premium - 1.7 - - 1.7 - 1.7
Purchase of
additional stake
in subsidiary
undertaking - - - (0.9) (0.9) 0.7 (0.2)
Purchase of
shares in the
Company by the
Trust - - - (3.3) (3.3) - (3.3)
Dividends paid - - - (13.2) (13.2) - (13.2)
---------------------- -------- -------- --------- --------- ------ --------------- -------
1 January 2017 2.2 33.7 0.2 241.1 277.2 - 277.2
Total comprehensive
income - - (0.5) 52.5 52.0 - 52.0
Share option
expense - - - 5.5 5.5 - 5.5
Tax relating
to share option
expense - - - (0.6) (0.6) - (0.6)
Issue of shares
at a premium - 0.1 - - 0.1 - 0.1
Purchase of
shares in the
Company by the
Trust - - - (1.1) (1.1) - (1.1)
Exercise of
share options - - - 0.3 0.3 - 0.3
Dividends paid - - - (16.8) (16.8) - (16.8)
---------------------- -------- -------- --------- --------- ------ --------------- -------
31 December
2017 2.2 33.8 (0.3) 280.9 316.6 - 316.6
---------------------- -------- -------- --------- --------- ------ --------------- -------
Other reserves
Other reserves include:
-- Capital redemption reserve of GBP0.6m (2016: GBP0.6m) which
was created on the redemption of preference shares in 2003.
-- Hedging reserve of (GBP0.3m) (2016: nil) arising under cash
flow hedge accounting. Movements on the effective portion of hedges
are recognised through the hedging reserve, whilst any
ineffectiveness is taken to the income statement.
-- Translation reserve of (GBP0.6m) (2016: (GBP0.4m)) arising on
the translation of overseas operations into the Group's functional
currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc
purchased in the market and held by the Morgan Sindall Employee
Benefit Trust (the 'Trust') to satisfy options under the Group's
share incentive schemes. The number of shares held by the Trust at
31 December 2017 was 555,104 (2016: 759,098) with a cost of GBP4.2m
(2016: GBP5.8m).
Notes to the consolidated financial statements
For the year ended 31 December 2017
1 Basis of preparation
General information
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2017 or
2016 but is derived from those accounts. A copy of the statutory
accounts for 2016 was delivered to the Registrar of Companies and
those for 2017 will be delivered following the Company's annual
general meeting. The auditor reported on those accounts: their
report was unqualified, did not draw attention to any matters by
way of emphasis without qualifying their report and did not contain
a statement under s498(2) or (3) of the Companies Act 2006.
This preliminary announcement 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 for other purposes. Forward looking statements
have been made by the directors in good faith based on the
information available to them up to the time of their approval of
this preliminary announcement. Such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business factors, underlying any such forward looking
information. Actual future results may differ materially from those
expressed in or implied by these statements.
While the financial information included in this preliminary
announcement was prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
('IFRS'), this announcement does not itself contain sufficient
information to comply with IFRS.
The consolidated financial statements will be available in March
2018. A copy will be delivered to the Registrar of Companies
following the Company's annual general meeting.
Further information on the Group, including the slide
presentation document which will be presented at the Group's
results meeting on 22 February 2018, can be found on the Group's
corporate website www.morgansindall.com.
Basis of preparation
The Group's activities and the key risks facing its future
development, performance and position are set out in this
preliminary announcement and in its annual report and accounts for
the year ended 31 December 2017.
Going concern
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing the condensed consolidated financial statements.
Changes in accounting policies
There have been no significant changes to accounting policies,
presentation or methods of preparation since the financial
statements for the year ended 31 December 2016 and the year ended
31 December 2017.
2 Business segments
For management purposes, the Group is organised into six
operating divisions: Construction & Infrastructure, Fit Out,
Property Services, Partnership Housing, Urban Regeneration and
Investments. The divisions' activities are as follows:
-- Construction & Infrastructure: provides infrastructure
services in the highways, rail, aviation, energy, water and nuclear
markets, including tunnel design; and construction services in
education, healthcare, defence, commercial, industrial, leisure and
retail. BakerHicks offers a multidisciplinary design and
engineering consultancy.
-- Fit Out: Overbury specialises in fit out and refurbishment in
commercial, central and local government offices, further education
and retail banking. Morgan Lovell provides design and build
services for the office sector.
-- Property Services: provides planned asset management and
responsive maintenance to social housing and the wider public
sector.
-- Partnership Housing: works in partnerships with local
authorities and housing associations. Activities include
mixed-tenure developments, building and developing homes for open
market sale and affordable rent, design and build contracting and
planned maintenance and refurbishment.
-- Urban Regeneration: works with landowners and public sector
partners to transform the urban landscape through the development
of multi-phase sites and mixed-use regeneration, including
residential, commercial, retail and leisure.
-- Investments: works to provide the Group with construction and
regeneration opportunities through various strategic partnerships
to develop under-utilised property assets.
Group Activities represents costs and income arising from
corporate activities which cannot be meaningfully allocated to the
operating segments. These include the costs of the Group Board,
treasury management, corporate tax coordination, Group finance and
internal audit, insurance management, company secretarial services,
interest revenue and interest expense. The divisions are the basis
on which the Group reports its segmental information as presented
below:
2017
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- -------
Construction
& Fit Property Partnership Urban Group
Infrastructure Out Services Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- -------
External
revenue 1,332.6 734.5 66.2 473.5 175.3 10.6 - - 2,792.7
Inter-segment
revenue 62.2 0.4 - - - - - (62.6) -
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- -------
Total revenue 1,394.8 734.9 66.2 473.5 175.3 10.6 - (62.6) 2,792.7
Operating
profit/(loss)
before
amortisation
of intangible
assets 20.4 39.1 (1.3) 14.1 10.0 0.5 (14.2) - 68.6
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- -------
Amortisation
of intangible
assets - - (0.6) (0.4) (0.2) - - - (1.2)
Operating
profit/(loss) 20.4 39.1 (1.9) 13.7 9.8 0.5 (14.2) - 67.4
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- -------
2016
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- ---------
Construction
& Fit Property Partnership Urban Group
Infrastructure Out Services Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- ---------
External
revenue 1,272.0 633.6 54.8 430.1 156.5 14.6 - - 2,561.6
Inter-segment
revenue 49.5 - - 2.9 - - - (52.4) -
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- ---------
Total revenue 1,321.5 633.6 54.8 433.0 156.5 14.6 - (52.4) 2,561.6
Operating
profit/(loss)
before
amortisation
of intangible
assets 8.9 27.5 0.7 13.4 13.4 (2.0) (13.1) - 48.8
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- ---------
Amortisation
of intangible
assets - - - (0.6) (0.8) - - - (1.4)
Operating
profit/(loss) 8.9 27.5 0.7 12.8 12.6 (2.0) (13.1) - 47.4
-------------- -------------- ----- -------- ------------- ------------ ------------- ---------- -------------- ---------
During the year ended 31 December 2017 and the year ended 31
December 2016, inter-segment sales were charged at prevailing
market prices and significantly all of the Group's operations were
carried out in the UK.
3 Tax
2017 2016
GBPm GBPm
------------------------------------- ----- -----
Current tax:
Current year 11.0 8.1
Adjustment in respect of prior
years (0.2) (0.5)
-------------------------------------- ----- -----
10.8 7.6
------------------------------------- ----- -----
Deferred tax:
Current year 1.9 0.9
Revaluation of deferred tax balances
due to changes in statutory tax
rate - (0.7)
Adjustment in respect of prior
years (0.2) (0.7)
-------------------------------------- ----- -----
1.7 (0.5)
------------------------------------- ----- -----
Tax expense for the year 12.5 7.1
-------------------------------------- ----- -----
Corporation tax is calculated at 19.25% (2016: 20.0%) of the
estimated assessable profit for the year. The table below
reconciles the tax charge for the year to tax at the UK statutory
rate:
2017 2016
GBPm GBPm
------------------------------------- ------ -----
Profit before tax 64.9 43.9
Less: post tax share of profits
from joint ventures (4.1) (7.4)
-------------------------------------- ------ -----
60.8 36.5
UK corporation tax rate 19.25% 20.0%
Income tax expense at UK corporation
tax rate 11.7 7.3
Tax effect of:
Non-taxable income and expenses 0.4 0.4
Tax liability upon joint venture
profits(1) 0.6 1.2
Adjustments in respect of
prior years (0.4) (1.2)
Expected forthcoming change
in tax rates upon deferred
tax balance - (0.7)
Other 0.2 0.1
-------------------------------------- ------ -----
Tax expense for the year 12.5 7.1
-------------------------------------- ------ -----
(1) Certain of the Group's joint ventures are partnerships for
which profits are taxed within the Group rather than within the
joint venture.
4 Dividends
Amounts recognised as distributions
to equity holders in the year:
------------------------------------ ---- ----
2017 2016
GBPm GBPm
------------------------------------ ---- ----
Final dividend for the year ended
31 December 2016 of 22.0p per
share 9.7 -
Final dividend for the year ended
31 December 2015 of 17.0p per
share - 7.5
Interim dividend for the year
ended 31 December 2017 of 16.0p
per share 7.1 -
Interim dividend for the year
ended 31 December 2016 of 13.0p
per share - 5.7
------------------------------------ ---- ----
16.8 13.2
------------------------------------ ---- ----
The proposed final dividend for the year ended 31 December 2017
of 29.0p per share is subject to approval by shareholders at the
AGM and has not been included as a liability in these financial
statements. The final dividend will be payable to shareholders on
21 May 2018 to shareholders on the register on 27 April 2018. The
ex-dividend date is 26 April 2018.
5 Earnings per share
2017 2016
GBPm GBPm
----------------------------------- ------ -----
Profit attributable to the owners
of the Company 52.4 36.8
Adjustments:
Amortisation of intangible assets
net of tax 1.0 1.1
Deferred tax credit arising
due to change in UK corporation
tax rates - (0.7)
------------------------------------ ------ -----
Adjusted earnings 53.4 37.2
------------------------------------ ------ -----
Basic weighted average ordinary
shares (m) 44.1 43.9
Dilutive effect of share options
and conditional shares not vested
(m) 2.4 1.3
------------------------------------ ------ -----
Diluted weighted average ordinary
shares (m) 46.5 45.2
------------------------------------ ------ -----
Basic earnings per share 118.8p 83.8p
Diluted earnings per share 112.7p 81.4p
Adjusted earnings per share 121.1p 84.7p
Diluted adjusted earnings per
share 114.8p 82.3p
------------------------------------ ------ -----
The average market value of the Company's shares for the purpose
of calculating the dilutive effect of share options and long-term
incentive plan shares was based on quoted market prices for the
year. The weighted average share price for the year was GBP12.03
(2016: GBP7.33).
A total of 38,938 share options that could potentially dilute
earnings per share in the future were excluded from the above
calculations because they were anti-dilutive at 31 December 2017
(2016: 2,070,131).
6 Shared equity loan receivables
2017 2016
GBPm GBPm
------------------------------------ ----- -----
1 January 18.4 20.3
Net change in fair value recognised
in the income statement 0.5 0.6
Repayments by borrowers (3.3) (2.5)
------------------------------------- ----- -----
31 December 15.6 18.4
------------------------------------- ----- -----
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans
arising from the sale of specific properties under the scheme, and
therefore the Group has developed a model for determining the fair
value of the portfolio of loans based on national property prices,
expected property price increases, expected loan defaults and a
discount factor which reflects the interest rate expected on an
instrument of similar risk and duration in the market. Details of
the key assumptions made in this valuation are as follows:
2017 2016
---------------------------------- -------- --------
Assumption
Period over which shared equity
loan receivables are discounted:
First Buy and Home Buy schemes 20 years 20 years
Other schemes 9 years 9 years
Nominal discount rate 5.3% 5.3%
Weighted average nominal annual
property price increase 2.4% 2.3%
Forecast default rate 4.6% 2.0%
Number of loans under the shared
equity scheme outstanding at
the year end 489 595
----------------------------------- -------- --------
Sensitivity analysis
At 31 December 2017, if the nominal discount rate had been
100bps higher at 6.3% and all other variables were held constant,
the fair value of the shared equity loan receivables would decrease
by GBP0.3m with a corresponding reduction in both the result for
the period and equity (excluding the effects of tax).
At 31 December 2017, if the period over which the shared equity
loan receivables (excluding those relating to the First Buy and
Home Buy schemes) are discounted had been 10 years and all other
variables were held constant, the fair value of the shared equity
loan receivables would decrease by GBP0.2m with a corresponding
reduction in both the result for the period and equity (excluding
the effects of tax).
7 Trade and other receivables
2017 2016
GBPm GBPm
------------------------------- ----- -----
Amounts due from construction
contract customers 174.2 147.9
Trade receivables 208.0 163.9
Amounts owed by joint ventures 2.1 1.5
Prepayments 10.2 10.6
Other receivables 9.6 8.9
-------------------------------- ----- -----
404.1 332.8
------------------------------- ----- -----
8 Net cash
2017 2016
GBPm GBPm
------------------------------- ------ ------
Cash and cash equivalents 221.2 228.5
Non-recourse project financing
due in less than one year (26.5) (4.8)
Borrowings due within one
year (1.3) -
Borrowings due between two
and five years - (15.0)
Net cash 193.4 208.7
-------------------------------- ------ ------
The Group's committed bank loan facilities of GBP180m were
undrawn at 31 December 2017. Additional project finance borrowings
of GBP26.5m (2016: GBP4.8m) were drawn from separate facilities to
fund specific projects. These project finance borrowings are
without recourse to the remainder of the Group's assets.
9 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. During the year, Group companies entered
into transactions to provide construction and property development
services with related parties, all of which were joint ventures,
not members of the Group, amounting to GBP86.6m (2016:
GBP112.5m).
Remuneration of key management personnel
The Group considers key management personnel to be the members
of the group management team, and sets out below in aggregate,
remuneration for each of the categories specified in IAS 24
'Related Party Disclosures'.
2017 2016
GBPm GBPm
----------------------------- ---- ----
Short-term employee benefits 8.0 8.8
Post-employment benefits 0.1 0.4
Termination benefits 0.2 0.9
Share option expense 2.8 2.9
------------------------------ ---- ----
11.1 13.0
----------------------------- ---- ----
Directors' transactions
There have been no related party transactions with any director
in the year or in the subsequent period to 22 February 2018.
Directors' material interests in contracts with the Company
No director held any material interest in any contract with the
Company or any Group company in the year or in the subsequent
period to 22 February 2018.
10 Trade and other payables
2017 2016
GBPm GBPm
------------------------------- ----- -----
Trade payables 162.0 144.6
Amounts due to construction
contract customers 58.3 52.0
Amounts owed to joint ventures 0.2 0.2
Other tax and social security 37.5 33.2
Accrued expenses 573.3 482.0
Deferred income 2.7 -
Other payables 20.1 36.3
-------------------------------- ----- -----
854.1 748.3
------------------------------- ----- -----
11 Contingent liabilities
Group banking facilities and surety bond facilities are
supported by cross guarantees given by the Company and
participating companies in the Group. There are contingent
liabilities in respect of surety bond facilities, guarantees and
claims under contracting and other arrangements, including joint
arrangements and joint ventures entered into in the normal course
of business.
12 Subsequent events
At the balance sheet date the Group was working on a limited
number of projects with Carillion plc through joint operations.
Subsequently, on Monday 15 January 2018, the High Court appointed
the Official Receiver as liquidator of Carillion plc. The Group is
committed to completing these projects. The directors have reviewed
each of the contracts, and believe the completion of these will not
have a material adverse effect on the Group's reported financial
position. There were no other subsequent events that affected the
financial statements of the Group.
The responsibility statement below has been prepared in
connection with the Company's annual report and accounts for the
year ended 31 December 2017. Certain parts thereof are not included
within this announcement.
We confirm to the best of our knowledge:
1. The financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
2. The strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties they face; and
3. The annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
This responsibility statement was approved by the Board on 22
February 2018 and is signed on its behalf by:
John Morgan Steve Crummett
Chief Executive Finance Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UASARWVAUUUR
(END) Dow Jones Newswires
February 22, 2018 02:01 ET (07:01 GMT)
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