Morgan Sindall Group Plc · LSE:MGNS
Morgan Sindall — FY2022 Earnings Presentation
44 slides from Morgan Sindall's earnings presentation, Feb 23, 2023
Slide 1: Full year results to 31st December 2022
Full year results to 31st December 2022 23rd February 2023
Slide 2: Agenda
Agenda • Introduction / John Morgan • Financial & operational review / Steve Crummett • ESG update / Steve Crummett • Strategy & outlook / John Morgan FY Results 2022 2
Slide 3: Introduction
Introduction • Record results despite inflation and market headwinds • Continued balance sheet strength with significant daily cash • High-quality order book with good prospects in the pipeline • Exceptional building safety charge taken in year as previously flagged • Decentralised and empowered str
Slide 4: Financial & operational review
Financial & operational review Steve Crummett
Slide 5: Summary of Group results
Summary of Group results Adjusted1 basis £m FY 22 FY 21 Change Revenue 3,612 3,213 +12% Operating profit 139.2 131.3 +6% Operating margin 3.9% 4.1% -20bps Net interest (3.0) (3.6) +£0.6m Profit before tax 136.2 127.7 +7% Tax (27.0) (23.5) -£3.5m Profit after tax 109.2 104.2 +5% Earnings per share (p
Slide 6: Summary by division
Summary by division Operating Operating Revenue Profit/(Loss)1 Margin1 £m change £m change % change Construction & Infrastructure 1,569 +3% 52.1 -10% 3.3% -50bps Fit Out 968 +22% 52.2 +18% 5.4% -20bps Property Services 163 +22% 4.3 +5% 2.6% -50bps Partnership Housing 696 +22% 37.4 +13% 5.4% -40bps U
Slide 7: Operating cash flow
Operating cash flow 17.9 -28.4 £64.5m • Operating cash inflow of £48.0m 139.2 Net working -7.8 -56.7 capital outflow • Net working capital outflow of £64.5m Includes working capital investment in Regeneration activities of £56.7m -16.2 48.0 Increased WIP (contract assets) in Property D Services
Slide 8: Daily net cash balance
Daily net cash balance MAX: £368m • Average daily net cash £ 256m (FY 2021: £291m) • Year end net cash £ 355m MIN: £179m (FY 2021: £358m) £m D 1 Jan 30 Jun 31 Dec • FY 2023 average daily net cash expected to be broadly similar to FY 2022 FY Results 2022 8
Slide 9: Building safety
Building safety • Final form ‘developers pledge’ contract received from DLUHC in January 2023 • Partnership Housing and Urban Regeneration both formally written to DLUHC confirming their intention to sign within the required timescale • Exceptional charge of £48.9m taken as at 31 December 2022 In
Slide 10: Summary balance sheet
Summary balance sheet £m 31 Dec 22 31 Dec 21 Intangibles 221.2 221.9 PP&E 74.8 66.6 Investments (including JVs)1 84.8 94.9 Net working capital (89.9) (153.6) Current and deferred tax (12.4) (5.3) Net cash 354.6 358.0 Lease liabilities (56.9) (52.8) Provisions1 (76.9) (57.3) Other2 (3.1) 1.8 Net asse
Slide 11: £8.5bn Group secured order book
Secured order book £8.5bn Group secured order book -2% vs FY 21 Construction order book Regeneration order book • includes Construction & • includes Partnership Housing Infrastructure, Fit Out and £4.7bn £3.8bn and Urban Regeneration Property Services • strict definition where +2% -6% • long-term in
Slide 12: Divisional performances
Divisional performances Steve Crummett
Slide 13: Construction & Infrastructure
Construction & Infrastructure £m FY 22 Change Revenue 1,569 +3% Operating profit 52.1 -10% Operating margin 3.3% -50bps Secured order book 2,601 -4% • Steady performance against strong prior year comparatives • Successfully navigated through inflationary headwinds and supply chain issues • Risk mana
Slide 14: Construction & Infrastructure – by activity
Construction & Infrastructure – by activity Revenue Operating Operating Change Change Change (£m) profit (£m) margin Construction 808 +16% 22.6 +3% 2.8% -40bps Infrastructure 761 -8% 29.5 -19% 3.9% -50bps Order book C&I division 1,569 +3% 52.1 -10% 3.3% -50bps £2,601m • Construction at the ‘sharp en
Slide 15: Fit Out
Fit Out £m FY 22 Change Commercial offices Revenue 968 +22% Operating profit 52.2 +18% 73% of revenue (FY 2021: 76%) Operating margin 5.4% -20bps London region Secured order book 841 -6% 60% of revenue (FY 2021: 58%) • Another record result for the division ‘Traditional’ fit out work • Result driven
Slide 16: Fit Out - workload
Fit Out - workload Order book • Sizeable order book at £841m, albeit down 6% 1000 £897m • £591m relates to 2023 £841m 12% higher than same time last year 750 • In addition: £m > £100m in ‘preferred bidder’ 500 £591m for next 12 £528m months > £300m already tendered & ‘pending decision’ for nex
Slide 17: Property Services
Property Services £m FY 22 Change Revenue 163 +22% Operating profit1 4.3 +5% Operating margin1 2.6% -50bps Secured order book 1,204 +27% • Slightly improved performance • Strong revenue growth driven by mobilisation of new contracts in the year • Profit and margin impacted by time-lag to administer
Slide 18: Partnership Housing
Partnership Housing £m FY 22 Change 58 ‘active’ mixed-tenure sites Revenue 696 +22% 157 open market units per site Average site duration: 48 months Operating profit1 37.4 +13% Operating margin1 5.4% -40bps Mixed-tenure revenue up 15% 53% of total (at £371m) Secured order book 1,984 +32% Average capi
Slide 19: Urban Regeneration
Urban Regeneration £m FY 22 Change Year end capital employed of Revenue 244 +20% £100.4m Operating profit1 18.9 +56% +£16.4m on FY 2021 Secured order book 1,847 -28% c£100m 1 Average capital employed 96.5 -£2.2m Average capital forecast for 2023 ROCE – last 12 months1 20% ROCE – average last 3 years
Slide 20: Summary
Summary • Group is in good shape • PBT up 7% despite inflation and market headwinds • Continued balance sheet strength • High-quality order book • Total dividend up 10% FY Results 2022 20
Slide 21: ESG update
ESG update Steve Crummett
Slide 22: A reminder of our ESG credentials
A reminder of our ESG credentials • Framework for a common strategy focused on all stakeholders. In place since 2008 • Report on progress through set of established KPIs. See Annual Report • Supports the UN Sustainable Development Goals ‘AAA’ MSCI ESG rating maintained FY Results 2022 22
Slide 23: Environmental
Environmental Improving the Working with the Enhancing environment supply chain communities • CDP score of ‘A’ for leadership on climate change maintained in 2022 – third year • Carbon emission targets first accredited by Science-Based Targets Initiative in 2018 • 2022 data indicates a 4% reduction
Slide 24: Environmental
Environmental Improving the Working with the Enhancing environment supply chain communities • The big prize is reducing and eliminating ‘Total Emissions’ i.e. the whole value chain from supply chain to end-users of buildings. Not just our operational scope 3 (as currently measured) • Total Emissio
Slide 25: Environmental
Environmental Improving the Working with the Enhancing environment supply chain communities • Not just about Carbon emissions… Total waste reduced by 57% in 2022 96% of waste diverted from landfill 65% of electricity purchased from renewable sources 109 BREEAM, CEEQUAL, LEED, SKA or other in
Slide 26: Social
Social Protecting Developing Enhancing Working with the people People communities supply chain • Delivering social value helps us win work 25% 9% • Payment practices to supply chain of of employees are • Improvement in number of RIDDOR1 incidents. Down to 28 (FY 2021: 44) employees from ethnic are f
Slide 27: Markets & outlook
Markets & outlook John Morgan
Slide 28: General market backdrop
General market backdrop • Markets as a whole are stable • Very strong market for Fit Out • Housing slowdown will have an impact on Partnership Housing • Early signs that inflation, particularly labour, starting to fall • Risk of financial failure in supply chain FY Results 2022 28
Slide 29: Construction
Construction • Good market especially the public sector Market conditions • Clients and supply chain value balance sheet strength • Supply chain risk • Focus on quality and margin above volume Strategy • Strengthen regions where we have lower market share • Continue to seek long-term workstreams • M
Slide 30: Infrastructure
Infrastructure • Political support for investment Market conditions • High level of bidding activity • Projects can take time to commence on site • Key sectors: highways, rail, nuclear, energy and water • Remain disciplined on contract selection. In excess of Strategy 90% work through frameworks • O
Slide 31: Fit Out
Fit Out • Very strong demand driven by: lease renewals; Market conditions repurposing offices; greater energy efficiency • High level of enquiries • Continued focus on enhanced customer experience Strategy • Maintain current market share • No compromise on quality of delivery • Increased medium-term
Slide 32: Property Services
Property Services • Local authority clients more focused on housing maintenance Market conditions • Stable market with long-term workstreams • Inflation affecting the profitability of contracts • Improve operational efficiency and service levels Strategy • Continue to complement services with social
Slide 33: Partnership Housing
Partnership Housing • Strong pipeline of large mixed-tenure schemes • Good market for contracting work. Provides resilience Market conditions • Lower sales in mixed-tenure sites in Q4 2022. Slight pick up in the first few weeks of 2023 • Increase in the size and number of mixed-tenure sites Strategy
Slide 34: Urban Regeneration
Urban Regeneration • Strong government support for mixed-use urban regeneration Market conditions • Good prospects for new mixed-use schemes of scale • Lots of bidding activity • Increase size and length of mixed-use regeneration schemes Strategy • Grow presence in Midlands region. Arden Cross • Gre
Slide 35: Outlook - summary
Outlook - summary 2022 Medium-term target 2023 Outlook actual Operating margin of 2.5%-3% pa 2.8% margin Margin in range Construction Revenue of £1bn Revenue £808m Positive progress towards £1bn revenue in 2023 Operating margin of 3.5%-4% pa 3.9% margin Margin in range Infrastructure Revenue of £1bn
Slide 36: Summary
Summary • All markets generally favourable, with exception of housing • Continue to keep a strong balance sheet to hold significant net cash balance at all times • Focus on long-term workstreams • Invest in organic growth across all the businesses • Increased medium-term target for Fit Out • Strong
Slide 37: Appendices
Appendices
Slide 38: Net finance expense
Net finance expense £m FY 22 FY 21 Interest income on bank deposits 2.2 - Amortisation of fees & non-utilisation fees (2.2) (2.5) Interest expense on lease liabilities (IFRS 16) (1.9) (1.5) Interest from JVs - 0.6 Other (1.1) (0.2) Total (3.0) (3.6) FY Results 2022 39
Slide 39: Adjusted earnings per share
Adjusted earnings per share £m FY 22 FY 21 Profit after tax 60.9 97.9 Adjusted for: Exceptional Building safety charge (net of tax) 46.7 - Amortisation of intangibles (net of tax) 1.6 1.2 Impact of change in tax rate on deferred tax balances - 5.1 Adjusted earnings 109.2 104.2 Basic average number o
Slide 40: Payment practices
Payment practices 6m to 31st December 2022 Invoices not Average time Invoices paid paid within to pay invoices within 60 days agreed terms 24 days 4% 99% Construction & Infrastructure 2 days - - 26 days 6% 96% Fit Out 1 day 1% - 43 days 6% 97% Property Services 2 days 2% - 32 days 13% 96% Partnershi
Slide 41: Net cash movement
Net cash movement 27.7 -43.5 358.0 12.4 354.6 • Year end net cash of £354.6m Operating cash flow (Slide 7) £48.0m Tax (£20.3m) Free cash flow (A) £27.7m D Opening A B C Closing net cash net cash A = Free cash flow. See table B = Dividends C = Other. Includes net loan receipts from interests in joint
Slide 42: Provisions
Provisions £m Provisions as at 31 December 2021 57.3 Additions: Exceptional Building safety (non-JV element) 39.1 Other 18.5 Less: Includes release of £22.7m insurance Utilised in year 8.5 provision offset by equal & opposite Released 29.5 reduction in Provisions as at 31 December 2022 76.9 receivab
Slide 43: Tax
Tax £m FY 22 FY 21 Profit before tax 85.3 126.2 Less: share of underlying1 net JV profit (14.3) (5.4) Profit subject to tax 71.0 120.8 Statutory tax rate 19.0% 19.0% Current tax charge at statutory rate (13.5) (23.0) Tax on joint venture profits (2.6) (0.7) Non-deductible portion of exceptional item
Slide 44: Capital employed in Regeneration
Capital employed1 in Regeneration £m Total Partnership Urban Regeneration Housing Regeneration Total net land & regeneration WIP 221.6 190.1 31.5 Unsold completed units (excl. joint ventures) 47.8 24.1 23.7 Amounts invested in joint ventures1 89.8 53.2 36.6 Shared equity loans and investment propert