Morgan Sindall Group Plc · LSE:MGNS
Morgan Sindall — H1 2015 Earnings Presentation
41 slides from Morgan Sindall's earnings presentation, Aug 4, 2015
Slide 1: Half year results to 30 June 2015
Half year results to 30 June 2015 Morgan Sindall Group plc 4 August 2015
Slide 2: Agenda
Agenda • Introduction John Morgan • HY 2015 Financial and Operational Review Steve Crummett • Update - Construction and Fit Out John Morgan • Outlook John Morgan 2
Slide 3: Introduction
Introduction • HY results show progress being made Within Construction Activities Within Regeneration Activities excellent performance from Fit Out good performance from Urban Regeneration challenges continue in Construction & mixed-tenure Affordable Housing and Infrastructure in London & So
Slide 4: HY 2015 Financial and Operational Review
HY 2015 Financial and Operational Review Steve Crummett 4
Slide 5: Summary income statement
Summary income statement1 £m HY 2015 HY 2014 % change Revenue 1,152 998 +15% Operating profit1 15.5 15.2 +2% Operating margin1 1.3% 1.5% -20bps Profit before tax1 13.3 14.2 -6% Earnings per share1 24.5p 28.6p -14% Interim dividend per share 12.0p 12.0p - 1 Before intangible amortisation of £1.1m and
Slide 6: Divisional performance
Divisional performance1 £m Revenue Operating Operating Profit1 Margin1 HY 2015 % HY 2015 % HY 2015 Construction & Infrastructure 623 +10% 0.3 -95% - -100bps Fit Out 299 +53% 10.4 +89% 3.5% +70bps Affordable Housing 202 +5% 3.0 +11% 1.5% +10bps Urban Regeneration 26 -38% 5.0 +43% 19.2% n/a Investment
Slide 7: Exceptional operating item
Exceptional operating item • Circumstances first announced in May, estimated at the time at approximately £35m • Exceptional charge of £39.4m taken in the period relates to impairment of receivables on two construction contracts both contracts transferred as part of the acquisition from Amec in
Slide 8: Operating cash flow
Operating cash flow £m 15.5 (1.4) (4.1) (62.7) (53.3) (56.1) 0 (0.6) (1.5) (1.3) Operating Non-cash Net capex Working Other 3 Operating Net Tax Free cash Profit 1 adjmts 2 & finance Capital cash flow interest flow leases (non JV) 1 Before intangible amortisation of £1.1m and exceptional operating it
Slide 9: Working capital
Working capital1 Total Working Movement in Period Inventory Debtors Creditors Capital £m £m £m £m Total 54.2 14.1 -5.6 62.7 • Excludes the impact of exceptional operating item • Investment of £54.2m in inventory in Regeneration activities of Affordable Housing mixed-tenure and Urban Regeneration • R
Slide 10: Net cash/debt movements
Net cash/debt movements • Average net debt of £35m £m • Continued investment in Regeneration 55.7 (56.1) activities in H2 rate of investment faster than previously anticipated as schemes accelerate average net debt for year expected to be in range of £50m- £60m (6.6) (7.6) 0 (0.6) ongoing bank
Slide 11: Investment in Regeneration across the Group
Investment in Regeneration across the Group • Expected increase in capital employed across the Regeneration activities As at 30 June (£m) Total Affordable Urban Housing Mixed- Investments Regeneration Regeneration Tenure Total net land & regeneration WIP 224 123 100 1 Unsold completed units (excl JV
Slide 12: Construction & Infrastructure
Construction & Infrastructure £m HY 2015 HY 2014 % Revenue 623 567 +10% Operating profit1 0.3 5.9 -95% Margin % -% 1.0% -100bps • Impacted by poor performance in London & South East construction activities main problem jobs now completed other older contracts working through to completion; takin
Slide 13: Fit Out
Fit Out £m HY 2015 HY 2014 % Revenue 299 195 +53% Operating profit1 10.4 5.5 +89% Margin % 3.5% 2.8% +70bps • Excellent performance with strong revenue growth of 53% • Margin up to 3.5% focus on operational delivery, customer and supply chain relationships supports the continuing improvement in ma
Slide 14: Affordable Housing
Affordable Housing £m HY 2015 HY 2014 % Revenue 202 193 +5% Operating profit1 3.0 2.7 +11% Margin % 1.5% 1.4% +10bps • Regeneration mixed-tenure (22% of revenue) as expected, lower open market house completions in period (195 vs 233 in H1 prior year) construction completions to accelerate in Q3,
Slide 15: Affordable Housing – Response Maintenance
Affordable Housing – Response Maintenance £m HY 2015 HY 2014 Revenue 32 34 Operating loss1 (0.8) (1.7) • Losses reduced as operational improvements start to show benefit operational efficiency, contract management, overhead management • Challenge is winning work at acceptable margins to drive crit
Slide 16: Urban Regeneration
Urban Regeneration £m HY 2015 HY 2014 % Capital employed1 at period end 83.5 39.0 +114% LTM average capital employed1 58.3 51.0 +14% Revenue 26 42 -38% Operating profit2 5.0 3.5 +43% • Strong performance, with increase in profit to £5.0m LTM ROCE3 of 16% good performance through its JVs in Salfo
Slide 17: Investments
Investments £m HY 2015 HY 2014 % Capital employed1 at period end 15.4 14.8 +4% Average capital employed 19.0 18.9 - Operating profit2 0.4 1.3 -69% • Small profit due to achieving completion on schemes in joint ventures and LABVs prior year included £1.7m profit on disposal of investment • FY opera
Slide 18: Order book and regeneration & development pipeline
Order book and regeneration & development pipeline Order • Group committed order book of Regeneration book £2.6bn Pipeline £m £2,658m £m £0.5bn from frameworks £3,227m £2,572m £3,209m reduction due to Construction & Infrastructure and Fit Out • Group regeneration & development pipeline steady at
Slide 19: Update - Construction and Fit Out
Update - Construction and Fit Out John Morgan
Slide 20: Group overview
Group overview Construction Regeneration Construction Affordable Affordable Urban & Fit Out Housing Construction & Housing Regeneration Investments Infrastructure Mixed-tenure Services • Cash generative • Cash invested • Measured by margin • Measured by ROCE • Focus today on our Construction and Fit
Slide 21: Construction division
A voRcaN SINDALL MORGAN SINDALL CONSTRUCTION INFRASTRUCTURE
Slide 22: Overview of performance
Overview of performance • Construction & Infrastructure HY revenue of £623m of which 56% is Construction (£348m, up 20%) and 44% Infrastructure (£275m, down 1%) • Infrastructure made a profit of c£4m in HY (margin of c1.5%) • Construction made a loss of c£4m in HY. Of this, London & South East lost
Slide 23: London & South East
London & South East • London ‘problem’ jobs are now finished; took longer and cost more • Other lower margin jobs being worked out this year • Turnover down 7% • Order book down 22% • Concentrating on frameworks, works through Investments-related business and Urban Regeneration • Costs associated wi
Slide 24: Regional activities
Regional activities Headquartered in Rugby - central functions East - c£150m annual revenue • Strong business, well established team • Exposed to strong Cambridge and regional market • Education focus • Good supply chain and contracts South West - c£90m annual revenue • Turnover lower than expected
Slide 25: Regional activities
Regional activities Scotland - c£130m annual revenue • Well established, successful team • Marischal Square in Aberdeen with Urban Regeneration • Scottish Hub framework with Investments London and South East - c£100m annual revenue • Poor project selectivity and performance • Extensive leadership ch
Slide 26: Order book movement year-on-year
Order book movement year-on-year Construction 2014 order book by Construction 2015 order book by procurement route procurement route 2% 8% Investment-related 12% 30% 6% Negotiated Framework 51% 33% Competitive 2-stage 13% 39% Competitive single-stage 7% 26
Slide 27: Construction – outlook
Construction – outlook • Reducing the scale of operations in London and the South East • Focus on improving the quality of the order book • Scotland – high-quality order book • North/Midlands/East – all good businesses and will continue to grow • 2016 – gradual reversion back to more normalised cons
Slide 28: Fit Out division
MORGAN SINDALL GROUP Fit Out division overbur § Y Morgan Lovell
Slide 29: Overview
Overview • Work purely through consultants • Design and Build • Market leader • Sells direct to end user • Short order book • High overheads • 90% pure office fit out • Higher margins • 10% education and retail banking • Longer lead-in times 29
Slide 30: Track record
Track record • Early cycle • Shows quality of earnings over 20 years • 2015 expected to show significant upturn 30
Slide 31: Regional activities – Overbury
Regional activities – Overbury Overbury CORE team - c£100m annual revenue • Central London focus on projects up to £5m • Established, high performing team • High margin; fast turnover of projects Overbury MAJOR PROJECTS - c£160m annual revenue • Central London focus on projects valued between £5m an
Slide 32: Regional activities – Overbury
Regional activities – Overbury Overbury NORTHERN team - c£45m annual revenue • Developing Design and Build solution alongside traditional offering • Maturing team • Improving margins Overbury CENTRAL team - c£35m annual revenue • Established team offering traditional and Design and Build services to
Slide 33: Regional activities – Morgan Lovell
Regional activities – Morgan Lovell Morgan Lovell LONDON - c£20m annual revenue • Design and Build service offering for London only • Team currently undergoing revamp following senior management changes • Workplace Consultancy providing early exposure to potential clients • Team underperforming agai
Slide 34: Fit Out – outlook
Fit Out – outlook • Market looks set to grow 4% pa to 2018* • Expect larger pre-lets to be available from Q3 2016 onwards • Expect record turnover this year • Expect further growth in margins to circa 4% for the full year * (source “INTERIOR REFURBISHMENT AND FIT OUT MARKET REPORT UK 2014-2018 ANALY
Slide 35: Summary
A voRcaN SINDALL GROUP Summary John Morgan
Slide 36: Outlook
Outlook • Strong performance from Fit Out expected to continue in H2 • Urban Regeneration and Affordable Housing to maintain and build off the positive momentum going into H2 • Construction & Infrastructure need to complete older construction contracts in London & South East by end of 2015. Will l
Slide 37: Questions?
A voRcaN SINDALL GROUP Questions?
Slide 38: Appendices
A voRcaN SINDALL GROUP Appendices
Slide 39: Net finance expense
Net finance expense £m HY 2015 HY 2014 Net interest charge on debt (1.2) (0.7) Amortisation of fees & non-utilisation fees (1.0) (0.6) Interest from JVs 0.4 0.3 Other (0.4) - Total (2.2) (1.0) 39
Slide 40: Tax
Tax £m HY 2015 HY 2014 (Loss)/profit before tax (27.2) 13.0 Less: share of net profit in taxed JVs1 (0.5) (0.5) Less: gain on disposal of JVs - (1.7) Profit subject to tax (27.7) 10.8 Statutory tax rate 20.25% 21.5% Current tax charge at statutory rate 5.6 (2.3) Other adjustments (0.1) 0.5 Tax credi
Slide 41: Summary balance sheet
Summary balance sheet £m HY 2015 HY 2014 Intangibles 217.7 219.3 PP&E 19.8 19.8 Investments (incl JVs) 71.0 57.4 Shared equity loan receivables 20.6 20.1 Net working capital (31.9) (26.0) Current and deferred tax (14.9) (21.3) Pension scheme 1.2 0.3 Net (debt)/cash (7.6) 34.1 Other1 (34.2) (41.2) Ne