Full year results to 31 December Morgan Sindall Group plc Constructing & Regenerating

Transcription

1 Full year results to 3 December 203 Morgan Sindall Group plc Constructing & Regenerating 8 February 204

2 Disclaimer 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. 2

3 FY Overview 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%. Adjusted operating profit down 30% Margins under pressure, mainly in Construction & Infrastructure and Affordable Housing Strong cash management with average debt levels showing improvement on 202. Net cash of 70m at year end Total dividend of 27p per share - level with last year 3 Before intangible amortisation ( 2.7m) and exceptional operating items ( 4.7m)

4 Financial Review Steve Crummett Finance Director 4

5 Headline adjusted income statement m FY 203 FY 202 % change Revenue 2,095 2,047 +2% Gross profit 7.3 Gross margin 8.2% % -8% -90bps Operating profit Operating margin % % -30% -70bps Net Interest (2.3) (.0) Profit before tax % Tax Effective adjusted tax rate (5.3) 7% (8.0) 7% Profit after tax % Adjusted earnings per share 60.9p 92.0p -34% 5 Before intangible amortisation ( 2.7m), exceptional operating items ( 4.7m) and (in the case of earnings per share) deferred tax credit 2.5m (FY 202: intangible amortisation ( 2.9m), exceptional operating items ( 0.0m) and deferred tax credit.5m)

6 Segmental analysis m Revenue Operating Profit Construction & Infrastructure FY3 % change FY3 % change Operating Margin FY3 change,234 +6% %.0% -70bps Fit Out 427-2% 0.9-4% 2.6% Level Affordable Housing 38 -% % 2.3% -70bps Urban Regeneration %.6% n/a Investments 9 +25% 6. -8% 68% n/a Central/Elims (8) - (5.7) -27% - - Total 2,095 +2% %.6% -70bps 6 Before intangible amortisation ( 2.7m) and exceptional operating items ( 4.7m) (FY 202: intangible amortisation ( 2.9m) and exceptional operating items ( 0.0m))

7 m Operating profit key movements (4.8) 4.4 (9.8) Impact of gross margin down 90 bps to 8.2%, offset in part by effective cost management 5.2 (0.6) Before intangible amortisation ( 2.7m) and exceptional operating items ( 4.7m) (FY 202: intangible amortisation ( 2.9m) and exceptional operating items ( 0.0m))

8 Exceptional operating items 4.7m 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.7m to H charge of 3.0m 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 3.9m (FY 202: 34.2m) and basic eps of 35.4p (FY 202: 72.5p) 8

9 m Cash flow 33.6 (4.4).6 (8.4) Positive operating cash flow of 4.9m Free cash flow of.9m compared to 0.6 prior year outflow of 53.0m (4.8) (.) 4.9 (.2) (.8) Before intangible amortisation ( 2.7m) and exceptional operating items ( 4.7m) 2 Excludes exceptional operating items ( 4.7m) 3 Other includes JV dividends and interest income.7m, less other movements including additional pension payments ( 0.7m) & release of property dilaps provision ( 2.8m)

10 Net cash m Net cash and debt reconciliation.6.9 (.5) 23.6 (4.7) 69.7 Year end net cash 70m Improvement in average daily net debt to 9m 50.4 Dividend covered by free cash 4.5 flow 40m committed bank facilities: 0m expires in Sept 5 5m expires in May 6 5m expires in Sept 6 0 Investments in Urban Regen and Affordable Housing (mixed-tenure) Average daily net debt of 9m Increase average net debt and interest charge in 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 (.3m) and proceeds from issue of shares 0.2m

11 Balance sheet m FY 203 FY 202 Intangibles PP&E Investments (incl JVs) Shared equity loan receivables Net working capital (67.0) (60.7) Current and deferred tax (2.3) (24.2) Pension scheme - (.5) Net cash Key movements: Reduction in investments driven by disposals Reported net working capital of ( 67.0m) reflects 4.7m noncash exceptional impairment to trade & other receivables Underlying net working capital increased by 8.4m to ( 52.3m) Reduction in payables Other (47.3) (5.) Net assets Other includes provisions, finance lease liabilities, deferred consideration and assets held for sale

12 m Order book and regeneration & development pipeline, bn 322 Order Book 0.5bn Committed order book of 2.4bn, up 8% from FY 202.3bn covered for 204 Regeneration & development pipeline of 3.0bn, up 23% from FY 202 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 bn Includes the appropriate share of joint venture pipeline 0.4bn for Construction & Infrastructure Fit Out Affordable Housing Urban Regeneration 2

13 Strategic and Operational Review John Morgan Chief Executive 3

14 Group strategy Construction Regeneration Construction & Infrastructure Fit Out Affordable Housing Construction Affordable Housing Mixed-tenure Urban Regeneration Investments 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 4 Cons 60%

15 Construction & Infrastructure m FY 203 FY 202 Change % Revenue,234,68 +6% Operating profit % Margin %.0%.7% -70bps 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.5bn, down % from FY 202 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 (4% revenue) Energy small but strategic; underpinned by Sellafield ISA 5 Adjusted, before intangible amortisation and exceptional operating items

16 Construction & Infrastructure Heathrow Runway Rehabilitation Project Outlook Expertise in challenging environments 3m contract to repair and replace existing wearing course on southern and northern runways Work on southern runway completed in 203 Activity on northern runway scheduled for 204 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 6

17 Fit Out m FY 203 FY 202 Change % Revenue % Operating profit % Margin % 2.6% 2.6% - 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 42m, down 6% since 202 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 7 Adjusted, before intangible amortisation

18 Fit Out 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 BREEAM Outstanding rating Outlook Measured market recovery anticipated in 204 and beyond Driven by lease expiries and London commercial activity Improving profitable pipeline of opportunities Well placed to benefit 8 BREEAM = Building Research Establishment Environmental Assessment Method

19 Affordable Housing m FY 203 FY 202 Change % Revenue % Operating profit % Margin % 2.3% 3.0% -70bps 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 75m, up 02% 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 58m, up 25% 9 Adjusted, before intangible amortisation and exceptional operating items

20 Affordable Housing % of revenue Response Maintenance 8% Regeneration Mixed-Tenure 28% New Build Housing Contracting 24% Planned Maintenance 30% % of gross margin Response Maintenance 2% Regeneration Mixed-Tenure 44% Planned Maintenance 25% New Build Housing Contracting 9% Regeneration Activities Strategic focus on complex regeneration mixedtenure schemes. 44% of divisional gross margin Driven by house completions up 36% on 202 and ASP of 77k, up 4% on FY 202 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 20

21 Affordable Housing Outlook Beacon Barracks, Stafford In addition to the year end order book as awarded in January 204 New Build Housing Contracting - 5m contract to build 346 new homes for MOD Complete by Summer 205 when troops from 6 Signal Regiment and Armoured Division Signal Regiment will move to Beacon Barracks allowing the closure of Rhine Garrison in Germany Develop the existing portfolio of higher margin mixed-tenure schemes Increased investment in working capital (mainly mixed-tenure inventory) in 204 to deliver profits in 205 and beyond Manage cost inflation pressures materials & subcontractors On-going investment in infrastructure in Response Maintenance 2

22 Urban Regeneration m FY 203 FY 202 Change % Capital employed % Revenue Operating profit % 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 20% Capital employed of 76m Will increase through 204, with more sites becoming active 22 Adjusted, before intangible amortisation

23 Urban Regeneration Residential 42% Pipeline < year Other 6% Commercial Offices 23% Retail 4% Leisure 5% Includes the appropriate share of joint venture pipeline Outlook Basing View, Basingstoke Agreement signed with John Lewis Partnership to deliver a 3,000 sq ft combined Waitrose and John Lewis at Home store Planning approval now being sought Construction programme to commence in spring 204 Current pipeline well-spread across all sectors Residential 3,600 plot units Significantly increased profit expected as schemes mature Benefit from market improvements in 204 and beyond Increased working capital investment as schemes 23 become active

24 Investments m FY 203 FY 202 Operating profit Directors portfolio valuation (discount rate 7-9%) Current carrying value 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 24 Adjusted, before intangible amortisation and exceptional operating items

25 FY 203 Summary and Outlook FY 203 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 Outlook 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 25

26 Questions 26

27 Appendices 27

28 m Cash flow FY (8.6).6 (76.9) (42.7) (53.0) (3.5) (.8) (8.) (2.2) 28 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

29 Urban Regeneration Order book, regeneration pipeline and preferred bidder Remaining GDV m* Aberdeen Office 90 Basingstoke Office / retail 90 Blackpool Office / leisure 70 Chester CBQ Office / residential 40 Lewisham Gateway Residential 200 Leeds - Sovereign Street Offices - pre-let to KPMG 20 Logic Leeds Distribution 00 Manchester Victoria Office / residential 60 Stockton Office / residential 30 Reading - Chatham Square Residential 40 Stockport Grand Central Car park, offices and hotel 40 South Shields Car park, leisure and retail 00 Swindon Office / residential 280 Other Projects (0) Various 30 Joint Ventures (3) Various 70 Strategic Partnerships Various 240 Preferred Bidder Various 340 2, *Includes Muse share of GDV for projects carried out in joint venture