Morgan Sindall Group plc · LSE:MGNS
Morgan Sindall — H1 2018 Earnings Presentation
45 slides from Morgan Sindall's earnings presentation, August 2018
Slide 1: Half Year Results to 30 June 2018
HALF YEAR RESULTS to 30 June 2018 AUGUST 2018
Slide 2: Agenda
Agenda Introduction | John Morgan HY 2018 Financial & Operational Review | Steve Crummett Strategy & Prospects | John Morgan
Slide 3: Highlights
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 targets1 Strength of balance sheet gives flexibility to invest 1 Medium-term targets as set out in February
Slide 4: HY 2018 Financial & Operational Review
HY 2018 Financial & Operational Review Steve Crummett
Slide 5: HY 2018 Financial Highlights
HY 2018 Financial Highlights £ 1.4bn 27% £ 113m 19% Revenue up Profit before tax1 Average daily Interim dividend 9% up 27% to £30.2m net cash up 19% to 19p per share £97m closing net cash 1 Adjusted 5
Slide 6: Summary Income Statement
Summary Income Statement £m HY 2018 HY 2017 % change Revenue 1,423 1,307 +9% Operating profit1 31.9 24.9 +28% Operating margin1 2.2% 1.9% +30bps Profit before tax1 30.2 23.7 +27% Earnings per share1 55.6p 43.6p +28% Interim dividend per share 19.0p 16.0p +19% 1 Before intangible amortisation of £0.3
Slide 7: Divisional performance
Divisional performance £m Revenue Operating Operating Margin1 Profit/(Loss)1 HY 2018 % HY 2018 % HY 2018 bps Construction & Infrastructure 662 -5% 11.3 +49% 1.7% +60bps Fit Out 426 +26% 18.8 +29% 4.4% +10bps Property Services 49 +58% 0.5 +67% 1.0% - Partnership Housing 231 +16% 4.6 -16% 2.0% -80bps
Slide 8: Cash flow – six months to June 2018
Cash flow – six months to June 2018 • Reflects usual working 10.3 (8.9) £m capital movements from 31.9 year end • Includes increase in capital 0 employed in regeneration activities of c£60m 3.6 (1.3) (6.6) • No material change to (57.9) pattern of receivables or (94.8) (65.8) payables Net capex & Op
Slide 9: Cash flow – last 12 months
Cash flow – last 12 months £m 14.6 (13.3) £ 69.6m Operating cash flow 92% (15.8) 75.6 8.5 69.6 (2.1) Cash (9.9) conversion 57.6 0 Operating Non-cash Net capex & Working Operating Net interest Free cash Other 3 Tax Profit 1 adjmts 2 finance leases Capital cash flow (non JV) flow 1 Before intangible a
Slide 10: Trade payables & other items
Trade payables & other items (£81m) at HY 2018 Total net working capital £ 98m Contract Liabilities at HY 2018 £ 202m Trade Payables at HY 2018 • Vs contract asset of £237m • Increase of £2m since HY 2017 28 ‘Trade Payable Days’1 at HY 2018 £ m 5 receivable Net retentions at HY 2018 • Reduction of t
Slide 11: Net cash movement
Net cash movement 193.4 (65.8) £ 113m Average daily net cash £97m £m Period end net cash (12.9) (17.8) 96.9 • Total bank facilities of £180m expiring in 2022 • FY 2018 average daily net cash expected to be > £80m Opening Free cash Closing net Dividends Other 1 net cash flow cash 1 ‘Other’ includes n
Slide 12: Balance sheet
Balance sheet £m HY FY 2018 2017 Strong balance sheet Intangibles 215.5 215.8 Net cash and significant undrawn PP&E 57.3 14.4 committed facilities Investments (incl JVs) 94.7 83.9 Pension risk eliminated Shared equity loan receivables 14.7 15.6 Net working capital (81.4) (164.2) ‘Buy-in’ completed w
Slide 13: Order book/regeneration & development pipeline
Order book/regeneration & development pipeline £ 3.6bn Order book £ 3.4bn Regeneration & development pipeline • Down 6% from FY 2017 • Up 5% from FY 2017 • Aggregate of various divisional • Only includes secured schemes (no movements preferred bidder or ‘prospectives’) • Common theme across Group is
Slide 14: Divisional performances
Divisional performances MORGAN SINDALL GROUP
Slide 15: Construction & Infrastructure
Revenue split Construction & Infrastructure 52% Construction £m HY 2018 HY 2017 Change 48% Infrastructure Revenue 662 694 -5% Revenue vs HY 2017 Operating profit1 11.3 7.6 +49% Margin % 1.7% 1.1% +60bps - 16% Construction (at £342m) +12% Infrastructure (at £320m) Performance again reflects the focus
Slide 16: Order book Construction & Infrastructure
Construction & Infrastructure £1,855m £1,761m Divisional order book of £1.76bn £478m £452m Down 5% from year end with continued focus on quality Order book £1,377m £1,309m 93% of Construction order book by value continuing to be derived through negotiated/framework/two-stage bidding processes Infras
Slide 17: Fit Out
Revenue split Fit Out 80% London £m Revenue HY 2018 426 HY 2017 339 Change +26% 20% Other regions Operating profit1 18.8 14.6 +29% Margin % 4.4% 4.3% +10bps 87% Traditional fit out Record H1 revenue and profit 13% ‘Design & build’ Further margin improvement, up to 4.4% • Driven by operational delive
Slide 18: Fit Out Order Book
Fit Out Order Book of £528m £568m • Down 7% on HY 2017’s record order book £528m • 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 Next six months £208m Beyond six months
Slide 19: Property Services
Property Services £777m Order book £m HY 2018 HY 2017 Change Revenue 49 31 +58% Operating profit1 0.5 0.3 +67% • Up 10% from HY 2017 • Down 7% from FY 2017 Margin % 1.0% 1.0% - Significant revenue growth, up 58% • Driven by new contract wins and increase of scope on various existing contracts • Reve
Slide 20: Partnership Housing
Partnership Housing Revenue split £m Revenue HY 2018 231 HY 2017 200 Change +16% 38% Mixed-tenure (up 50%) Operating profit1 Margin % 4.6 2.0% 5.5 2.8% -16% -80bps 62% Contracting (up 1%) Profit down 16%, impacted by Contracting activities • Mixed-tenure performing as planned • Operational delivery
Slide 21: Partnership Housing order book
Partnership Housing £418m order book • up 11% from HY 2017 £m HY 2018 HY 2017 • down 20% from FY 2017 Capital employed1 at period end 118.2 102.4 • reflects lower construction activity £744m regeneration pipeline LTM average capital employed1 103.5 94.6 • down 13% from FY 2017 • significant visible
Slide 22: Urban Regeneration
Urban Regeneration £m HY 2018 HY 2017 Change capital employed Capital employed1 at period end 114.0 88.7 +£25.3m £114m at period end LTM average capital employed1 102.1 79.4 +£22.7m • includes £42m of non-recourse debt Revenue 62 71 -13% • up £25.3m from HY 2017 • up £29.0m from FY 2017 Operating pr
Slide 23: Urban Regeneration Pipeline
Urban Regeneration Pipeline BY REGION BY SECTOR Regeneration & development Scotland Retail pipeline up 3% to £2.1bn 1% SE & 3% Other 2% Yorks & London Offices NE 18% Preferred bidder > £350m GDV 47% 28% not included Broad geographic and sector split Leisure Significant activity currently ‘on site’ 6
Slide 24: Urban Regeneration Pipeline
Urban Regeneration Pipeline Expected flow of turnover and profit from top projects (by GDV of schemes) £ GDV (100%) Project 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028+ 180m Victoria Station, Manchester 130m Chester 130m Logic Leeds 100m Rolls Royce Huc
Slide 25: Investments
Investments £516m £m HY 2018 HY 2017 Change Regeneration Operating (loss)/profit (1.1) 0.6 n/a pipeline • Up 62% from FY 2017 Loss in period due to slippage in scheme completions £2bn • Profit generated from residential sales and PRS deal through GDV of Hertfordshire strategic JVs CC partnership • £
Slide 26: Summary and Outlook for remainder of 2018
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
Slide 27: Strategy and Prospects
Strategy and Prospects John Morgan
Slide 28: Overview
Overview We are in the sectors Strong balance sheet Self help and we want to be in organic growth Important for all stakeholders Expect to retain net average daily cash 28
Slide 29: Progress
Progress Medium-term target1 Forecast 2% Ahead Margin in Construction 2.5% On Track Margin in Infrastructure Profits in Fit Out £25m-£30m p.a. Well Over Margin in Property Services >3% margin On Track ROCE in Partnership Housing >20% ROCE Slightly Behind ROCE in Urban Regeneration Towards 20% ROCE S
Slide 30: Construction & Infrastructure
Construction & Infrastructure CONSTRUCTION INFRASTRUCTURE Progress ahead of target 1 Progress comfortably on target 1 Margin improvement priority over turnover Strong pipeline of bid opportunities Disciplined bidding and great execution Expect turnover to increase in the medium term Medium-term targ
Slide 31: Fit Out
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 1 Medium-term target set out in February 2017 was £25m-£30m 31
Slide 32: Property Services
Property Services Strong good quality order book Long-term visibility Concentrating on operational excellence Fragmented market Excellent opportunity 32
Slide 33: Partnership Housing
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
Slide 34: Urban Regeneration
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
Slide 35: Investments
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
Slide 36: Summary
Summary POSITION Very Strong Teams Clear Strategy STRONG Strong Balance Sheet Continuing Positive Momentum FY 2018 slightly higher than previously expected 36
Slide 37: Questions
Questions MORGAN SINDALL GROUP
Slide 38: Appendices
Appendices AT. MORGAN SINDALL GROUP
Slide 39: Capital employed in Regeneration
Capital employed in Regeneration £m Partnership Urban Regeneration Housing Regeneration Total net land & regeneration WIP 298 180 118 Unsold completed units (excl JVs) 3 3 - Amounts invested in joint ventures 53 6 47 Shared equity loans and investment properties 21 21 - Other working capital -103 -9
Slide 40: Net Finance Expense
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 1.0 0.6 Other (0.1) (0.2) Total (1.7) (1.2) 40
Slide 41: Tax
Tax £m HY 2018 HY 2017 Profit before tax 29.9 23.1 Less: share of net JV profit1 (0.3) - Profit subject to tax 29.6 23.1 Statutory tax rate 19.0% 19.25% Current tax charge at statutory rate (5.6) (4.4) Other adjustments 0.2 - Tax charge (5.4) (4.4) 1 Certain of the Group’s joint ventures are partner
Slide 42: Adjusted earnings per share
Adjusted earnings per share £m HY 2018 HY 2017 Profit after tax and minority interest 24.5 18.7 Adjusted for: Amortisation of intangibles (net of tax) 0.2 0.5 Adjusted earnings 24.7 19.2 Average number of shares 44.4m 44.0m Adjusted earnings per share 55.6p 43.6p 42
Slide 43: IFRS 15
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
Slide 44: IFRS adjustment to opening reserves in 2018
IFRS adjustment to opening reserves in 2018 Adjustment at £m 1 Jan 2018 Recognition of uncertain revenue (£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
Slide 45: IFRS 16
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