half year results to 30 june 2014 - morgansindall.com · regeneration and development pipeline 14...
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Half year results to 30 June 2014
Morgan Sindall Group plc Constructing & Regenerating
4 August 2014
Disclaimer
2
Certain statements included or incorporated by reference in this presentation are forward-looking statements in respect of Morgan Sindall Group plc’s operations, performance, prospects and/or financial condition. These forward-looking statements speak only as at the date of this presentation. These statements concern, or may affect, future matters and include matters that are not facts. Such statements are based on current expectations and beliefs concerning future events and, by their nature, are subject to a number of known and unknown risks and uncertainties that could cause actual events, results or outcomes to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Such statements are also based on numerous assumptions regarding Morgan Sindall Group plc’s present and future strategy and the environment in which it operates, which may not be accurate. You are cautioned not to place undue reliance on these forward-looking statements. The information and opinions expressed in this presentation are subject to change without notice and neither the Company nor any other person assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained within this presentation, regardless of whether those statements are affected as a result of new information, future events or otherwise.
Highlights
3
• First half results in line with expectations
PBTA1 of £14.2m
• Order book improved
Committed order book up 14% from year end, with regeneration & development pipeline up 5%
Higher quality through more favourable procurement routes
• Shift in balance of profits, with significant contribution from Urban Regeneration
Reinforces Group strategy of focusing on Construction and Regeneration activities
• General construction margins still under significant pressure
• Interim dividend of 12p per share - level with last year
1 Profit before tax and intangible amortisation
Steve Crummett Finance Director
4
Financial Review
Headline income statement1
5
£m HY 2014 HY 2013 % change
Revenue 998 1,019 -2%
Gross profit1
Gross margin1
83.6 8.4%
82.6 8.1%
+1% +30bps
Operating profit1
Operating margin1
15.2 1.5%
16.2 1.6%
-6% -10bps
Net interest (1.0) (0.8)
Profit before tax1 14.2 15.4 -8%
Tax
Effective adjusted tax rate
(2.1) 15%
(2.1) 14%
Profit after tax1 12.1 13.3 -9%
Adjusted earnings per share1 28.6p 31.5p -9%
Dividend per share 12.0p 12.0p -
1 Before intangible amortisation (£1.2m) (HY 2013: intangible amortisation (£1.4m) and exceptional operating items (£13.0m))
Segmental analysis1
6
£m Revenue Operating Profit1
Operating Margin
HY14 % change
HY14 % change
HY14 change
Construction & Infrastructure
567 -4% 5.9 -8% 1.0% -10bps
Fit Out 195 -8% 5.5 +10% 2.8% +50bps
Affordable Housing 193 +4% 2.7 - 1.4% -10bps
Urban Regeneration 42 +24% 3.5 +775% 8.3% n/a
Investments 9 n/a 1.3 n/a 14.4% n/a
Central/Elims (8) (3.7)
Total 998 -2% 15.2 -6% 1.5% -10bps
1 Before intangible amortisation £1.2m (HY 2013: intangible amortisation (£1.4m) and exceptional operating items (£13.0m))
16.2 (4.2)
2.1 2.7
(1.7) 0.1 15.2
1.6
£m
Operating profit1 – key movements
1 Before intangible amortisation (£1.2m) (HY 2013: intangible amortisation (£1.4m) and exceptional operating items (£13.0m))
7
£m
0.6
1.6
Cash flow
15.2 (7.8)
(4.3)
(39.8)
(0.9) (1.8)
(37.1)
(41.2)
1.0
1 Before intangible amortisation (£1.2m) 2 ‘Other’ includes JV dividends and interest income, receipts from disposals of investment properties and shared equity loan receivables, less additional pension payments
0
8
(41.2) • Expected c£20m inventory increase in Urban Regeneration and Affordable Housing since FY13
• Payable and receivable days in line with prior year
Net cash and debt reconciliation
4.5
Net
cas
h £
m
69.7 (39.8)
(6.4) 34.1
5.9
0
• Period end net cash £34m
• Average daily net debt of £6m
Includes £14m of non-recourse third party debt in Urban Regeneration
• Expected increase in average debt through H2 and 2015
Investment in Urban Regeneration and Affordable Housing (mixed-tenure)
1 Disposal of Hull BSF investment 2 ‘Other’ includes net loan repayments from JVs £4.6m and proceeds from issue of shares £0.1m
9
4.7
Bank facilities
4.5
1.6
10
• Main bank facilities renewed and increased during July 2014
• New £140m facility agreed, expiring in September 2018
Single “club” facility
Four banks, including two new lending banks
• Additionally still retain £30m of facilities maturing in 2016 and £20m facility maturing in 2015.
Excludes the non-recourse facilities in Urban Regeneration
• Facilities provide the headroom and flexibility for future investments in Urban Regeneration and Affordable Housing (mixed-tenure)
Summary balance sheet
11
£m HY 2014 FY 2013 HY 2013
Intangibles 219.3 220.5 221.8
PP&E 19.8 18.3 19.2
Investments (incl JVs) 57.4 64.4 64.4
Shared equity loan receivables 20.1 19.7 19.2
Net working capital (26.0) (67.0) (45.8)
Current and deferred tax (21.3) (21.3) (22.1)
Pension scheme 0.3 - (1.4)
Net cash 34.1 69.7 39.7
Other 1 (41.2) (47.3) (47.7)
Net assets - reported 262.5 257.0 247.3
1 ‘Other’ includes provisions, finance lease liabilities, deferred consideration and assets held for sale
12
Construction Regeneration
• Cash generative • Measured by margin and working
capital/revenue ratios
• Long term investment • Measured by return on capital
(ROCE)
Working capital and capital employed
Cons 60%
As at 30 June 2014
Working Capital1
£m
Construction & Infrastructure
(117)
Fit Out (21)
Affordable Housing - construction & services
(11)
As at 30 June 2014
Capital Employed2
£m
Affordable Housing3
- mixed-tenure 104
Urban Regeneration4 59
Investments 15
1 Defined as: Inventories plus trade and other receivables, less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees) 2 Defined as: Total assets (excl goodwill, intangible assets and cash) less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees) 3 Includes £20m of shared equity loan receivables, £10m of investment/rental properties and £18m of ’legacy’ land 4 After deducting non-recourse bank debt of £18.3m
Order book
13
£m
322
322 322
Construction & Infrastructure
Fit Out
Affordable Housing
Urban Regeneration & Investments
500
1,000
H2 2014 2015 2016+
£1.0bn
£0.85bn £0.85bn
• Committed order book of £2.7bn, up 14% from FY 2013
Fit Out up 57%, Affordable Housing up 27%
Generally higher quality – more negotiated, framework and two-stage work
• £1.0bn covered for H2 2014
Order book at 30 June 2014
Regeneration and development pipeline
14
£m
322
322 322
Affordable Housing
Urban Regeneration & Investments H2 2014 2015 2016+
£0.1bn
£0.3bn
£2.8bn
1 Includes the appropriate share of joint venture pipeline
• Regeneration & development pipeline1 of £3.2bn, up 5% from FY 2013
Includes development value of open market housing schemes in Affordable Housing
Longer term in nature
• Increase driven by new wins in Urban Regeneration
Combined Urban Regeneration order book and pipeline up 9% to £2.3bn
Regeneration & development pipeline at 30 June 2014
£0.6bn
£2.2bn
Urban Regeneration Order book, regeneration pipeline and preferred bidder
15
*Includes Muse share of GDV for projects carried out in joint venture
Remaining GDV £m* 2014 2015 2016 2017 2018 2019
Aberdeen Office 90
Basingstoke Office and retail 190
Blackpool Office and leisure 60
Chester CBQ Office and residential 130
Lewisham Gateway Residential 210
Leeds - Sovereign Street Offices - Pre-let to KPMG 20
Logic Leeds Distribution 100
Manchester Victoria Office and residential 120
Stockton Office and residential 110
Reading - Chatham Square Residential 40
Stockport Grand Central Offices and hotel 120
South Shields Car park, leisure and retail 100
Swindon Office and residential 270
Brixton/Lambeth Office and residential 140
Other Projects (10) Various 230
Joint Ventures (3) Various 42
Strategic Partnerships Various 320
Total Order Book & Pipeline 2,292
Preferred Bidder Various 120
John Morgan Chief Executive
16
Operational Review
17
Construction Regeneration
Construction &
Infrastructure
Fit Out
Affordable
Housing Construction &
Services
Affordable
Housing Mixed-tenure
Urban
Regeneration
Investments
Group strategy
Cons 60%
• Continue to focus on the two distinct but complementary business activities of ‘Construction’ and ‘Regeneration’
• Maximising returns from existing schemes - regeneration developments and construction frameworks
• Complex construction and development schemes which benefit from an integrated ‘Group’ approach
Construction & Infrastructure
18
£m HY 2014 HY 2013 Change %
Revenue 567 593 -4%
Operating profit1 5.9 6.4 -8%
Margin % 1.0% 1.1% -10bps
1 Adjusted (HY 2013: before exceptional operating items)
• Overall trading conditions remain difficult
Dual challenge of inflation and competitively tendered work from previous years
Particularly relevant to construction activities
• Infrastructure revenue up 3%.
Transport – good progress in aviation, highways & rail
Energy, Water – AMP6 renewals
• Construction revenue down 10%
London and South regions where margin pressure is greatest
Lower activity from greater contract selectivity
Construction & Infrastructure
19
Outlook
• Strong order book growth, up 9% to £1.6bn
Higher proportion of negotiated, framework and two-stage tenders
Confidence in medium and longer term
• Short term challenges likely to remain
No improvement in performance and margin expected in H2
Manchester Rail Operating Centre
• £19.7m contract for Network Rail’s regional operation centre
• Completed and handed over in May 2014 • Rail capability - Manchester Victoria Railway
Station – new roof as part of overall investment in station
Fit Out
20
• Strong performance through the period as market recovers
Margin improvement driven by operating efficiency
Tender margins remain competitive
• London office market 75% of revenue
Refurbishment work 35%, new office fit out 65%
79% traditional fit-out, 21% ‘design & build’
• Strong order book growth, up 57% on year end to £223m
Higher proportion through more favourable procurement routes
Prospects & pending tenders up 13% (by value) on prior year
£m HY 2014 HY 2013 Change %
Revenue 195 2131 -8%
Operating profit 5.5 5.0 +10%
Margin % 2.8% 2.3% +50bps
1 Restated to include inter-company revenue
Fit Out
21
Canadian High Commission, London
• £30m refurbishment of an iconic Grade II listed building situated on Trafalgar Square
• Creating the new permanent home of the Canadian High Commission in the UK
• Consolidation of two buildings; connecting Canada House with the adjacent building at 2-4 Cockspur Street
• A 45,000 sq ft refurbishment to be carried out in 38 weeks - appointed February 2014
Outlook
• Positive market recovery expected to continue
• Improving profitable pipeline of opportunities
• Revenue growth and continued margin enhancement expected in H2
Affordable Housing
22
£m HY 2014 HY 2013 Change %
Revenue 193 1862 +4%
Operating profit1 2.7 2.7 -
Margin % 1.4% 1.5% -10bps
1 Adjusted, before intangible amortisation 2 Restated to include inter-company revenue
• Regeneration mixed-tenure (25% of revenue)
c75% from open-market sales & c25% from social housing contracting
233 house completions, up 4% - supply constrained
Regeneration & Development pipeline up 7% to £765m
• Construction & Services (75% of revenue)
New Build Housing Contracting
margin impacted by inflation, but signs of levelling off
Planned Maintenance
margin held level against volume decline
Response Maintenance
Affordable Housing – Response Maintenance
23
• Underperformance from a combination of operational delivery inefficiencies, insufficient volume and ageing business systems
Full year loss expected to be c£3m-£3.5m
• Significant addressable market in response maintenance plus opportunity to widen service offering
eg Property and other FM services across Group divisions
• New management team recruited externally
highly experienced in response services and wider FM sector
• Investment of c£2m in business systems over 18 months
£m HY 2014 HY 2013
Revenue 33.5 34.3
Operating loss (1.7) (1.5)
Affordable Housing
24
The Tynings and Old Common, Michinhampton
Outlook
• Increase in investment in Regeneration through H2 and 2015
• Newer and more profitable mixed-tenure schemes
• Focus on turning “sticky” legacy assets into cash
• H2 performance impacted by Response Maintenance and timing of construction completions in Regeneration activities
• Turnaround plan in Response Maintenance
• A £9.3m contract for Stroud District Council for completion at the end of 2015
• Mixed tenure – 31 new council homes and 35 open market sale properties over two sites
• Selected by Stroud District Council via the HCA Delivery Partner Panel (DPP)
• Building the first Council homes in Stroud district for over 30 years
Urban Regeneration
25
£m HY 2014 HY 2013 Change %
Average capital employed 71 54 +31%
Revenue 42 34 +24%
Operating profit1 3.5 0.4 +775%
• Significant increase in profit in H1
Driven by completion of scheme phases in Blackpool, Brentford, Stockport
Progress towards target ROCE of 15%
1 Adjusted, before intangible amortisation 2 Includes £364m being the appropriate share of joint venture pipeline
• Combined order book and regeneration & development pipeline up 9%, to £2.3bn
• Pipeline remains well-spread across all sectors and regions
Residential 42% - 4,200 plot units. Commercial 37%
London 15%, South East 19%, North West 27%
Commercial 37%
Retail 8%
Leisure 4%
Industrial 8%
Residential 42%
Other 1%
Regeneration & Development pipeline by sector2
Urban Regeneration
26
Stockport Exchange: £145m mixed-use ‘gateway’ scheme
• Phase 1 completed Feb 2014: 1,000 space MSCP adjacent to the station
• Planning secured for Phase 2 May 2014: 115 bed hotel plus 43,000 sq ft BREEAM Excellent office building with ground floor retail space
Salford Central: £560m area-wide scheme through English Cities Fund JV
• £60m L&G funding and planning permission for Phase 1 office scheme secured May 2014
• Premier Inn hotel topped out June 2014. ‘Vimto Gardens’ residential element launched July 2014
Outlook
• Increase in capital employed throughout H2 and 2015
• Good visibility of future profits and returns
Market drivers remain positive - residential, PRS, commercial
Timing of profits dependent upon construction completions and programmes
Investments
27
£m HY 2014 HY 2013
Average capital employed 19 23
Operating profit 1.3 4.6
• Profit includes £1.7m from sale of investments
No material disposals expected in H2
Carrying value of remaining ‘PFI-type’ investments is £4.1m
Other capital employed includes interests in other schemes, LABVs etc
• Recurring revenue and profit from management service agreements through its Community Solutions business
• Focus is to maximise construction opportunities for Group from existing frameworks and new schemes
HY 2014 Summary and Outlook
28
HY 2014
Outlook
• Significant contribution from Urban Regeneration, in line with Group strategy
• General construction margins still under severe pressure
• No easing of pressure on construction margins expected in H2. Likely to remain difficult
• Continued positive momentum in Fit Out and Urban Regeneration
• Investment in Regeneration activities to increase in H2 and 2015
• Higher quality order book supports delivery of future growth beyond 2014
Questions
29
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