AUGUST HALF YEAR RESULTS to 30 June 2018

Transcription

1 AUGUST 2018 HALF YEAR RESULTS to 30 June 2018

2 Agenda Introduction John Morgan HY 2018 Financial & Operational Review Steve Crummett Strategy & Prospects John Morgan

3 Highlights Strategic and operational progress delivers another strong period of growth Positive momentum set to deliver further growth in the second half Good progress against our medium-term targets 1 Strength of balance sheet gives flexibility to invest 3 1 Medium-term targets as set out in February 2017

4 HY 2018 Financial & Operational Review Steve Crummett

5 HY 2018 Financial Highlights 1.4bn 27% 113m 19% Revenue up 9% Profit before tax 1 up 27% to 30.2m Average daily net cash 97m closing net cash Interim dividend up 19% to 19p per share 5 1 Adjusted

6 Summary Income Statement m HY 2018 HY 2017 % change Revenue 1,423 1,307 +9% Operating profit Operating margin 1 2.2% % +28% +30bps Profit before tax % Earnings per share p 43.6p +28% Interim dividend per share 19.0p 16.0p +19% 6 1 Before intangible amortisation of 0.3m (HY 2017: intangible amortisation of 0.6m)

7 Divisional performance m Revenue Operating Profit/(Loss) 1 Operating Margin 1 HY 2018 % HY 2018 % HY 2018 bps Construction & Infrastructure 662-5% % 1.7% +60bps Fit Out % % 4.4% +10bps Property Services % % 1.0% - Partnership Housing % % 2.0% -80bps Urban Regeneration 62-13% % n/a n/a Investments 3 n/a (1.1) n/a n/a n/a Elims/Central (10) (8.3) Total 1,423 +9% % 2.2% +30bps 7 1 Before intangible amortisation of 0.3m (HY 2017: intangible amortisation of 0.6m)

8 Cash flow six months to June 2018 m (8.9) Reflects usual working capital movements from year end 0 Includes increase in capital employed in regeneration activities of c 60m (94.8) 3.6 (57.9) (1.3) (6.6) (65.8) No material change to pattern of receivables or payables Operating Profit 1 Non-cash adjmts 2 Net capex & finance leases Working Capital Other 3 Operating cash flow Net interest (non JV) Tax Free cash flow 8 1 Before intangible amortisation of 0.3m 2 Non-cash adjustments include depreciation 8.5m and share option charge 3.1m, less shared equity valuation movements 0.2m and share of JV profits 1.1m 3 Other includes JV dividends and interest income 1.0m, provision movements 1.7m, shared equity redemptions 1.1m less gain on disposals 0.2m

9 Cash flow last 12 months m 14.6 (13.3) 69.6m Operating cash flow 75.6 (15.8) (2.1) (9.9) % Cash conversion 0 Operating Profit 1 Non-cash adjmts 2 Net capex & finance leases Working Capital Other 3 Operating cash flow Net interest (non JV) Tax Free cash flow 9 1 Before intangible amortisation of 0.9m 2 Non-cash adjustments include depreciation 11.6m and share option charge 6.6m, less shared equity valuation movements 0.4m and share of JV profits 3.2m 3 Other includes JV dividends and interest income 4.1m, provision movements 1.6m, shared equity redemptions 2.6m, investment property disposals 0.4m less gain on disposals 0.2m

10 Trade payables & other items ( 81m) 202m Total net working capital at HY 2018 Trade Payables at HY 2018 Increase of 2m since HY m Contract Liabilities at HY 2018 Vs contract asset of 237m 28 Trade Payable Days 1 at HY 2018 Reduction of two days from HY 2017 (30 days) 5m receivable Net retentions at HY 2018 No change to Trade Receivable Days 18 days 10 1 Trade Payable Days = (Trade Payables/Cost of Sales) x Trade Receivable Days = (Trade Receivables less retentions due)/revenue) x 365

11 Net cash movement m (65.8) 113m Average daily net cash (12.9) (17.8) 97m Period end net cash 96.9 Total bank facilities of 180m expiring in 2022 FY 2018 average daily net cash expected to be > 80m Opening net cash Free cash flow Dividends Other 1 Closing net cash 11 1 Other includes net loans advanced to JVs ( 11.6m), deferred consideration paid in relation to the acquisition of a joint venture and other investment ( 2.2m), purchase of shares in the Company by the employee benefit trust ( 9.5m), proceeds from the issue of new shares ( 3.8m), and proceeds from the exercise of share options ( 1.7m)

12 Balance sheet Strong balance sheet Net cash and significant undrawn committed facilities Pension risk eliminated Buy-in completed with Aviva in H1 to insure the benefits of the defined benefit members IFRS 16 Inclusion of Lease liabilities arising from IFRS 16 adoption. Corresponding increase in PP&E m HY 2018 FY 2017 Intangibles PP&E Investments (incl JVs) Shared equity loan receivables Net working capital (81.4) (164.2) Current and deferred tax (18.9) (22.8) Pension scheme Net cash Lease liabilities (44.2) (0.9) Other 1 (21.8) (21.4) Net assets - reported Other includes provisions, deferred consideration, accrued/prepaid interest, derivative financial assets and liabilities

13 Order book/regeneration & development pipeline 3.6bn Order book 3.4bn Regeneration & development pipeline Down 6% from FY 2017 Aggregate of various divisional movements Common theme across Group is the focus on quality of earnings and risk management Projects only included in order book when signed contract or letter of intent in place Up 5% from FY 2017 Only includes secured schemes (no preferred bidder or prospectives ) Our share of Gross Development Value of schemes Long-term in nature. 91% is for 2020 onwards 13

14 Divisional performances

15 Construction & Infrastructure m HY 2018 HY 2017 Change Revenue % Operating profit % Margin % 1.7% 1.1% +60bps Revenue split 52% Construction 48% Infrastructure Revenue vs HY % Construction (at 342m) +12% Infrastructure (at 320m) Performance again reflects the focus on operational delivery, risk management and quality of earnings Further margin progression expected in H2 Margin vs HY bps Construction (at 1.7%) +50bps Infrastructure (at 1.7%) 15 1 Adjusted

16 Construction & Infrastructure 1,855m 1,761m Divisional order book of 1.76bn Order book 478m 452m 1,377m 1,309m Down 5% from year end with continued focus on quality 93% of Construction order book by value continuing to be derived through negotiated/framework/two-stage bidding processes Infrastructure Construction FY 17 HY 18 16

17 Fit Out m HY 2018 HY 2017 Change Revenue % Operating profit % Margin % 4.4% 4.3% +10bps Record H1 revenue and profit Further margin improvement, up to 4.4% Driven by operational delivery, focus on customer experience and a high quality workload Revenue split 80% London 20% Other regions 87% Traditional fit out 13% Design & build 55% Existing office space 45% New office space 17 1 Adjusted

18 Fit Out 568m 528m Order Book of 528m Down 7% on HY 2017 s record order book Up 6% compared to year end Order Book 325m 320m Work load indicates a strong H2 320m orders for H2. Similar to last year FY performance likely higher than expected 243m 208m HY 17 HY 18 Next six months Beyond six months Order Book beyond six months of 208m Down 14% from 243m at HY 2017 Relatively short-term visibility 18

19 Property Services m HY 2018 HY 2017 Change Revenue % Operating profit % Margin % 1.0% 1.0% - 777m Order book Up 10% from HY 2017 Down 7% from FY 2017 Significant revenue growth, up 58% Driven by new contract wins and increase of scope on various existing contracts Revenue expected to be > 100m for FY 2018 Profit up 67% Operational leverage benefit coming through, plus more efficient overhead structure from previous restructuring 19 1 Adjusted

20 Partnership Housing m HY 2018 HY 2017 Change Revenue % Operating profit % Margin % 2.0% 2.8% -80bps Revenue split 38% Mixed-tenure (up 50%) 62% Contracting (up 1%) Profit down 16%, impacted by Contracting activities Mixed-tenure performing as planned Operational delivery issues in Contracting One under-performing design & build contract subject to further delays Cost escalation and penalties; due to complete in Q3 New management team appointed Immediate focus on operational improvement 20 1 Adjusted

21 Partnership Housing m HY 2018 HY 2017 Capital employed 1 at period end LTM average capital employed Increase in capital employed as planned 418m order book up 11% from HY 2017 down 20% from FY 2017 reflects lower construction activity 744m regeneration pipeline down 13% from FY 2017 significant visible opportunities don t yet meet criteria for inclusion Capital employed up by 30.2m from FY 2017; up 15.8m from HY 2017 Last 12 months average capital employed up to 103.5m, resulting in ROCE 2 of 13% Capital employed estimated to broadly remain at current levels of c 120m for the rest of the year 21 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

22 Urban Regeneration m HY 2018 HY 2017 Change Capital employed 1 at period end m LTM average capital employed m Revenue % Operating profit % Good performance with profit up to 6.1m High level of current activity across the development portfolio Profit generated across all sectors and geography Benefiting from diverse pipeline 114m includes 42m of non-recourse debt up 25.3m from HY 2017 up 29.0m from FY m capital employed at period end average capital employed LTM ROCE 2 of 12%. Suppressed by higher capital despite higher profits full year average capital expected to be in range 100m- 110m 22 1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash/overdraft) less total liabilities (excluding corporation tax, deferred tax and inter-company financing) 2 Return On Average Capital Employed = (Adjusted operating profit less interest/fees on non-recourse debt in the last twelve months) divided by (average capital employed). Interest and fees on non-recourse debt in the last twelve months was 2.2m 3 Adjusted

23 Urban Regeneration Pipeline BY REGION BY SECTOR Regeneration & development pipeline up 3% to 2.1bn Preferred bidder > 350m GDV not included Yorks & NE 18% Scotland 1% SE & London 47% Retail 3% Other 2% Offices 28% Broad geographic and sector split Significant activity currently on site North West 32% South West 2% Residential 52% Leisure 6% Industrial 9% 23

24 Urban Regeneration Pipeline Expected flow of turnover and profit from top projects (by GDV of schemes) GDV (100%) Project m Victoria Station, Manchester 130m Chester 130m Logic Leeds 100m Rolls Royce Hucknall 90m South Shields 300m Lewisham 150m Basingstoke 100m Brixton 100m Stroudley Walk 600m ECF Salford 210m WP Brentford 330m ECF Canning Town 24 Key: Profit earned

25 Investments m HY 2018 HY 2017 Change Operating (loss)/profit (1.1) 0.6 n/a 516m Up 62% from FY 2017 Regeneration pipeline Loss in period due to slippage in scheme completions Profit generated from residential sales and PRS deal through strategic JVs 58m of construction work sourced by Investments and delivered by other Group divisions 2bn GDV of Hertfordshire CC partnership Only 113m currently included in pipeline Operating loss expected for FY 25 1 Adjusted

26 Summary and Outlook for remainder of 2018 Strong performance in H1 FY 2018 slightly higher than previously expected Fit Out order book visibility and current performance Continued margin improvement in Construction & Infrastructure Development completions in Urban Regeneration indicate further good performance Average daily net cash for FY 2018 to be in excess of 80m Interim dividend up 19% 26

27 Strategy and Prospects John Morgan

28 Overview We are in the sectors we want to be in Strong balance sheet Important for all stakeholders Expect to retain net average daily cash Self help and organic growth 28

29 Progress Margin in Construction Margin in Infrastructure Profits in Fit Out Margin in Property Services Medium-term target 1 2% 2.5% 25m- 30m p.a. >3% margin Forecast Ahead On Track Well Over On Track ROCE in Partnership Housing ROCE in Urban Regeneration >20% ROCE Towards 20% ROCE Slightly Behind Slightly Ahead 29 1 Medium-term targets as set out in February 2017

30 Construction & Infrastructure CONSTRUCTION INFRASTRUCTURE Progress ahead of target 1 Margin improvement priority over turnover Disciplined bidding and great execution Medium-term target increased to 2.5% Progress comfortably on target 1 Strong pipeline of bid opportunities Expect turnover to increase in the medium term Too early to increase 2.5% margin targets 30 1 Targets as set out in February 2017

31 Fit Out Expecting record profits in 2018 Growth in markets outside of London More frameworks available Profit target increased to 30m- 35m through the cycle 31 1 Medium-term target set out in February 2017 was 25m- 30m

32 Property Services Strong good quality order book Long-term visibility Concentrating on operational excellence Fragmented market Excellent opportunity 32

33 Partnership Housing Slightly behind targets Opportunity is as strong as ever New MD and FD Excellent track record throughout the UK Strong pipeline of schemes from 2020 onwards 33

34 Urban Regeneration Progress slightly ahead of target Strong visibility next few years Ambition to invest 150m in the medium term Strong pipeline of new schemes 34

35 Investments Good flow of bid opportunities Very important for partnership housing and construction Target 20% ROCE Working on the biggest opportunities for the Group 35

36 Summary Very Strong Teams STRONG POSITION Clear Strategy Strong Balance Sheet Continuing Positive Momentum FY 2018 slightly higher than previously expected 36

37 Questions

38 Appendices

39 Capital employed in Regeneration m Regeneration Partnership Housing Urban Regeneration Total net land & regeneration WIP Unsold completed units (excl JVs) Amounts invested in joint ventures Shared equity loans and investment properties Other working capital Non-recourse debt Other net assets Total capital employed at 30 June As at 31 December

40 Net Finance Expense m HY 2018 HY 2017 Interest payable on project finance & other debt (0.9) (0.2) Amortisation of fees & non-utilisation fees (1.1) (1.4) Interest expense on lease liabilities (0.6) - Interest from JVs Other (0.1) (0.2) Total (1.7) (1.2) 40

41 Tax m HY 2018 HY 2017 Profit before tax Less: share of net JV profit 1 (0.3) - Profit subject to tax Statutory tax rate 19.0% 19.25% Current tax charge at statutory rate (5.6) (4.4) Other adjustments Tax charge (5.4) (4.4) 41 1 Certain of the Group s joint ventures are partnerships where profits are taxed within the Group rather than the joint venture

42 Adjusted earnings per share m HY 2018 HY 2017 Profit after tax and minority interest Adjusted for: Amortisation of intangibles (net of tax) Adjusted earnings Average number of shares 44.4m 44.0m Adjusted earnings per share 55.6p 43.6p 42

43 IFRS 15 Areas of difference for Group: Recognition of uncertain revenue: probable vs highly probable (Construction, Infrastructure, Partnership Housing) Deduction from revenue of liquidated damages where contractually-entitled Formalised tests to meet higher threshold Recognition of revenue for forward-sold, pre-let developments (Urban Regeneration) Move from risk/reward transfer to performance obligations in contract Costs of fulfilment (Property Services) Mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination 43

44 IFRS adjustment to opening reserves in 2018 m Recognition of uncertain revenue Adjustment at 1 Jan 2018 ( 9m) Recognition of revenue for forward-sold, pre-let developments 1m Costs of fulfilment ( 4m) Tax effect of the above 2m Increase/(decrease) in opening equity ( 10m) 44

45 IFRS 16 IFRS 16 Leases being adopted a year early to align with implementation of IFRS 15 Requires all leases to be recognised on the balance sheet as a right of use asset with a corresponding lease liability Mainly relates to property leases Balance sheet impact is an increase in assets and liabilities of 42m Expense in the income statement comprises depreciation and finance costs rather than rental payments Increase in operating profit and interest expense of 1.2m in FY ( 0.6m HY 2018) 45