TIDMMGNS
RNS Number : 8893L
Morgan Sindall Group PLC
08 August 2011
MORGAN SINDALL GROUP plc
('Morgan Sindall Group' or 'the Group')
Half year report for the six months to 30 June 2011
Morgan Sindall Group plc, the construction and regeneration
group, today announces half year results.
Unaudited Unaudited
six months six months
( ) to to
30 June
( ) 2011 30 June 2010 Change
( ) Revenue GBP1,087m GBP982m +11%
( ) Profit before tax, amortisation and
non-recurring items GBP19.5m GBP23.1m -16%
( ) Profit before tax GBP16.7m GBP18.4m -9%
( ) Period end cash balance GBP65m GBP138m -53%
( ) Average cash balance GBP43m GBP61m -30%
( ) Adjusted earnings per share(1) 35.1p 42.0p -16%
( ) Basic earnings per share 35.1p 30.9p +14%
( ) Interim dividend per share 12.0p 12.0p n/c
( )
(1) Basic earnings per share before amortisation of intangible assets
of GBP1.9m, non-recurring items of GBP0.9m and adjusted for one-off tax
benefit of GBP2.6m
Group Highlights
-- Solid performance, in line with expectations
-- Continuing challenging market conditions, which are impacting
margins
-- Increasing ability to exploit opportunities across a broad
range of sectors
-- Strategic progress achieved last year has further developed
our market leading positions
-- Construction & Infrastructure secured positions on a
number of major frameworks and won major contracts in the rail and
roads sectors
-- Growth at Affordable Housing driven by increase in new build
and response maintenance activity
-- Strong revenue growth at Fit Out as it continues to take
market share
-- Maintained interim dividend of 12.0p reflects balance sheet
strength and confidence in the medium-term outlook
Outlook
-- Strong order book of GBP3.5bn supplemented by regeneration
pipeline of GBP1.8bn, with a further GBP0.8bn of regeneration
schemes at preferred bidder stage
-- While market remains challenging the Group continues to
invest in order to position divisions for growth in the
medium-term
-- Group in robust operational and financial shape and we remain
confident of meeting our expectations for the full year
John Morgan, Executive Chairman, commented:
"Our broad sector spread, increasingly joined up approach and
focus on more complex projects has helped to underpin a solid set
of results. While market conditions remain challenging, we continue
to make the most of opportunities as they present themselves and
invest in our businesses in order to position them for growth in
the medium-term. We look to the future with cautious optimism and
are confident that we are well positioned to deliver long-term
sustainable growth."
Divisional Highlights
* Operating profit is profit from operations before the
amortisation of intangible assets and non-recurring items.
Construction & Infrastructure
-- Operating profit of GBP9.5m (2010: GBP12.2m) on revenue of
GBP617m (2010: GBP612m)
-- As expected, market conditions remained very competitive with
downward pressure on margins and changing work mix resulting in an
operating margin of 1.5% (2010: 2.0%)
-- Division successful in securing positions on a number of
major frameworks and won major contracts in targeted infrastructure
sectors of rail and roads
-- Public sector construction market set to contract over next
two years; commercial sector, particularly in London, and economic
infrastructure set for growth
-- Well placed to exploit opportunities in aviation, rail,
energy distribution and commercial/industrial sectors
-- Order book of GBP1.9bn (2010: GBP2.1bn) maintained since the
start of the year
Affordable Housing
-- Operating profit up 20% to GBP8.3m (2010: GBP6.9m) on revenue
of GBP228m (2010: GBP173m)
-- Revenue growth driven by increases in response maintenance
work following acquisitions in 2010 and new build social
housing
-- Operating margin of 3.6% (2010: 4.0%), down due to changing
mix of work
-- Division traded well across mixed tenure, new build social
housing and planned and response maintenance projects given
challenging market conditions
-- Recent acquisitions provide platform for further growth in
response and planned maintenance while mixed tenure remains
important to division's performance
-- Order book steady since the start of the year at GBP1.5bn
(2010: GBP1.4bn)
Fit Out
-- Strong revenue growth in competitive market environment with
revenue up by 24% to GBP222m (2010: GBP179m)
-- Division continues to take market share
-- Operating profit of GBP6.1m (2010: GBP6.9m) resulting in an
operating margin of 2.7% (2010: 3.8%)
-- Division focusing on growth sectors of technology and retail
banking
-- Gradual market recovery expected from 2012; market leading
position leaves division well placed to benefit
-- Order book of GBP133m (2010: GBP213m). Order book expected to
rebound in near-term on confirmation of major contract awards
Urban Regeneration
-- Improved operating profit of GBP1.0m (2010: GBP0.8m) on
increased revenue of GBP19m (2010: GBP15m)
-- Division continues to secure opportunities and is benefitting
from a lack of competition from developers
-- Outlook set to continue to improve with division shortlisted
on a number of development opportunities
-- Regeneration pipeline of GBP1.4bn, with a further GBP0.4bn at
preferred bidder stage
Investments
-- Directors' portfolio valuation of GBP42m (2010: GBP39m)
-- Total equity invested of GBP14m with further GBP12m
committed; carrying value at 30 June 2011 of GBP19m
-- Division closed some notable schemes in the period; GBP0.4bn
Bournemouth regeneration scheme and next phase of the GBP0.4bn Hull
Building Schools for the Future programme
-- GBP0.4bn Southampton regeneration scheme at preferred bidder
stage
-- Short-term focus on developing innovative financing for a
number of complex land swap schemes
-- PFI expected to emerge later this year in a different
form
Key financial information
-- Revenue up 11% to GBP1.09bn (2010: GBP0.98bn)
-- Adjusted PBT (before amortisation and non-recurring items) of
GBP19.5m (2010: GBP23.1m)
-- Amortisation of GBP1.9m (2010: GBP2.8m) and non-recurring
items of GBP0.9m (2010: GBP1.9m) relating to modification of IT
systems following the merger of our construction and infrastructure
activities in 2010
-- PBT of GBP16.7m (2010: GBP18.4m)
-- Average cash balance of GBP43m (2010: GBP61m)
-- Period end cash of GBP65m (2010: GBP138m) reflects
significant investment in land and developments and the unwinding
of working capital following a strong performance at the 2010
year-end
-- Fair value tax matter successfully resolved with HMRC leading
to GBP2.6m one-off benefit to tax charge
ENQUIRIES:
Morgan Sindall Group plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
Blythe Weigh Communications Tel: 020 7138 3204
Tim Blythe Mobile: 07816 924626
Paul Weigh Mobile: 07989 129658
Morgan Sindall Group will hold its half year report presentation
for analysts and institutional investors at 9.30am on 8 August 2011
at Kent House, 14-17 Market Place, London W1W 8AJ.
A copy of the presentation and an audio webcast will be
available from 12.00pm at
www.corporate.morgansindall.com/investors.
This half year report and other information about Morgan Sindall
Group plc are available at
www.corporate.morgansindall.com/investors.
Half year report for the six months to 30 June 2011
Market overview and performance
We have delivered a resilient performance in the six months to
30 June 2011, in line with our expectations. The strategic
progress, enhanced service capability and improved positioning we
achieved last year have all contributed to a solid result in market
conditions that continue to be challenging. The Connaught
acquisition has given us a stronger presence in response and
integrated maintenance opportunities, part of our full-service
offering in Affordable Housing. Broadening the scope of Perfect
Delivery allowed us to improve client satisfaction across the
Group, and to continue to provide better value year on year to our
clients. We are also well placed to take advantage of opportunities
in new markets such as photo-voltaics ('PV'), and sectors that are
set to grow, such as energy distribution, rail, airports and the
commercial sector in London. The Group remains in a robust
financial position, with a healthy and stable forward order
book.
Underlying profit before tax, amortisation of intangible assets
and non-recurring items was GBP19.5m (2010: GBP23.1m) reflecting
the tough market conditions, on increased revenue of GBP1.09bn
(2010: GBP0.98bn). Adjusted earnings per share on the same basis
were 35.1p (2010: 42.0p). Non-recurring items of GBP0.9m have been
incurred as expected relating to the modification of IT systems
following the integration of our construction and infrastructure
services activities in 2010. Profit before tax for the period
(after amortisation of intangible assets of GBP1.9m and
non-recurring items of GBP0.9m) was GBP16.7m (2010: GBP18.4m). The
interim dividend has been maintained at 12.0p (2010: 12.0p).
An essential part of our success has been the diversification of
the Group across a wide spread of sectors, reducing reliance on any
one in particular. Underlying trends in the market are a shift from
public to private investment and from investment in social to
economic infrastructure. As conditions evolve we continue to
position our divisions to take advantage of new opportunities as
they present themselves. Our broad range of skills has led to
involvement in large, complex construction and infrastructure
schemes, projects involving land swaps and major, long-term urban
regeneration schemes that enable a more joined up approach from our
divisions. Our sector spread is now 50% public (60% a year ago),
15% regulated and 35% commercial, the commercial sector expected to
improve over time as public sector spending reduces. Anticipating
improvement in the construction market in the medium-term, we
continue to invest in our business in order to emerge from the
current challenging market conditions in a stronger position.
The Fit Out and Construction & Infrastructure markets have
been especially competitive, with operating margins under downward
pressure in both. Encouragingly, revenue growth in Fit Out has been
strong, suggesting the division is still taking market share. This
puts us in the right place to benefit from the gradual improvement
expected in the sector from 2012. The Construction &
Infrastructure division is similarly well placed to exploit
commercial sector recovery, especially in London, and take
advantage of investment driven, economic infrastructure
opportunities in energy distribution, airports and rail.
The broader capabilities of Affordable Housing enabled it to
secure major contracts in mixed tenure and new build social housing
over the last six months. In addition the division secured its
first PV installation contracts for Flintshire County Council and
Clwyd Alyn Housing Association. Urban Regeneration is well placed
to build on the encouraging progress it has made this year, as we
expect market conditions in the commercial sector to improve
further. The Investments division continues to build on its
successful track record, winning a substantial regeneration
contract through an innovative financial model, and being appointed
as the preferred developer on a major regeneration scheme in the
last six months.
Divisional performance
The performance of each of the operating divisions for the six
months to 30 June 2011 is set out below. Divisional operating
profits are profits from operations stated before the amortisation
of intangible assets and non-recurring items.
Construction & Infrastructure
Construction & Infrastructure delivered a reduced operating
profit of GBP9.5m (2010: GBP12.2m) on maintained revenue of GBP617m
(2010: GBP612m). The division traded in line with our expectations,
with operating margins falling, as expected, by 0.5% to 1.5% (2010:
2.0%) reflecting the competitive market and changing work mix. This
result includes revenue from the division's construction activities
of GBP402m (2010: GBP345m) and revenue from its infrastructure
activities of GBP215m (2010: GBP267m).
Private sector and economic infrastructure work is expected to
grow despite the significant fall in public sector construction
forecast over the next two years. This growth will be driven by the
GBP200bn, five-year National Infrastructure Plan and a revival in
the commercial sector, particularly in London. Airports, rail,
energy distribution and commercial/industrial are all sectors where
the division is well placed to exploit emerging opportunities.
Over the last six months the division was particularly
successful in securing places on key major frameworks including the
GBP500m Smarte East Alliance, the GBP400m South East Wales Schools
Capital Working Group and the GBP1.2bn Gatwick Airport upgrade and
improvement framework. We were also reappointed to the GBP100m
Milton Keynes major building framework and the GBP1bn Improvement
and Efficiency South East (iESE) framework. The education sector
remains important with the division securing significant contracts
including University of Reading (GBP28m), King's College, London
(GBP26m), Manchester School of Art at Manchester Metropolitan
University (GBP23m), North Lanarkshire Council (GBP22m) and three
further contracts through the Hull Building Schools for the Future
programme (GBP65m).
Important contracts secured in the rail sector include two major
Crossrail contracts, the Pudding Mill Lane C350 station works
(circa GBP50m), and in joint venture, the GBP235m Whitechapel and
Liverpool Street Station Tunnels contracts, while in the roads
sector the division, in joint venture, secured a GBP136m Highways
Agency contract to upgrade the M62. The division continues to
successfully deliver its gas and electricity frameworks and has
recently won contracts in high and extra high voltage segments of
the energy distribution sector.
Looking forward, the market is expected to remain highly
competitive with public sector work and roads construction
continuing to shrink. However, we are focused on sectors that are
expanding and, as set out above, we have recently secured several
large economic infrastructure projects and positions on a number of
key frameworks. The forward order book at 30 June 2011 was GBP1.9bn
(2010: GBP2.1bn).
Affordable Housing
In the six months to 30 June 2011, Affordable Housing delivered
an operating profit up by 20% to GBP8.3m (2010: GBP6.9m) on
increased revenue of GBP228m (2010: GBP173m) driven by the growth
in response maintenance following last year's acquisitions and new
build social housing. The operating margin was lower than last year
at 3.6% (2010: 4.0%) due to the changing mix of work.
Our close partnerships with housing associations and local
authorities together with our reputation for delivering market
leading service helped us secure major opportunities in social
housing over the last six months. The division traded well across
its business streams, in mixed tenure, new build social housing,
and on planned and response maintenance frameworks. In a steady but
competitive market, contracts secured over the last six months
included two mixed tenure development schemes in Doncaster worth
GBP20m, a GBP25m mixed tenure scheme in Hackney, a mixed tenure
development in Skipton worth GBP30m and a GBP40m planned
maintenance improvements programme for Cartrefi Cymunedol Gwynedd.
In Scotland, we secured a place on new build social housing
frameworks for Port of Leith and West of Scotland Housing
Associations, valued at up to GBP210m. Lovell's joint venture,
Compendium Living, was selected as preferred bidder for Derby's
GBP100m Castleward Urban Village development.
There has been a slight improvement in conditions for open
market housing, though the division continues to support sales
through shared equity and other initiatives for first time buyers,
which are important alternatives to financing home ownership given
ongoing limited mortgage availability. In March, Lovell began
construction on the first phase of 150 residential units for the
GBP300m Northshore regeneration scheme in Stockton-on-Tees in
conjunction with our Urban Regeneration division.
Social housing planned and response maintenance projects traded
well over the last six months. The Connaught acquisition widened
our client base and strengthened our position in response and
integrated maintenance opportunities. Social housing maintenance
contracts secured from Connaught performed as expected, and to date
the recovery of the debts and WIP acquired from the administrator
totals GBP17m, which is in line with our expectations, and we
remain confident of recovering our GBP28m target by the end of
2012. The retro-fit sector, raising environmental standards in the
social housing sector, continues to mature. One example is PV
installation contracts where recent tendering activity has been
high and we enjoyed success in securing contracts for Flintshire
County Council and Clwyd Alyn Housing Association.
Recent acquisitions mean we can look to grow volume in planned
and response maintenance nationally, while open market and new
build housing remain important to the division's performance.
Affordable Housing's forward order book stood at GBP1.5bn (2010:
GBP1.4bn) at 30 June 2011, in line with the start of the year.
Fit Out
In the six months to 30 June 2011, Fit Out delivered a slightly
lower operating profit of GBP6.1m (2010: GBP6.9m) on growing
revenue of GBP222m (2010: GBP179m), an increase of 24%. The
operating margin was 2.7% (2010: 3.8%).
With fewer major commercial projects being completed, a shortage
of prime office space, and the public sector still affected by a
moratorium on major new projects, the Fit Out division saw a
scarcity of large contracts over the last six months. Competitive
conditions have affected the operating margin, as expected, but
revenue grew strongly over the corresponding period last year. We
believe we continue to take market share and by providing
exceptional customer service remain market leaders in the
sector.
Strategies to broaden Fit Out's offering are already achieving
results. The recently established Technology team, delivering
data-centre and technology-led projects, won its first project in
April for Northern Trust. The Retail and Education teams made good
progress in expanding their client base of retail banks and
universities, and the division has successfully targeted
international banks continuing to invest in London's financial
services sector, for example delivering a fit out for Macquarie
Group.
Our leading market position means we are ideally placed to
exploit the expected gradual recovery in the market from 2012. In
the short-term, a scarcity of Grade A offices offers opportunities
for refurbishment in London as a wave of lease renewals are
expected over the next 18 months. With further Far Eastern
investment also expected into London over the same period, there
will be further potential opportunities.
In the short-term we anticipate margins in Fit Out remaining at
current levels with gradual improvement expected to begin from
2012. Public sector fit out is expected to recover slowly from 2012
from a low base, and we are confident of securing major
refurbishment opportunities as new fit out opportunities remain
constrained. The forward order book at 30 June 2011 was GBP133m
(2010: GBP213m). We currently await confirmation of some major
contract awards and expect the order book to return to more normal
levels in the near-term.
Urban Regeneration
With revenue of GBP19m (2010: GBP15m) in the period, Urban
Regeneration delivered as expected an increased operating profit of
GBP1.0m (2010: GBP0.8m). The division is currently on site
delivering an increased number of new buildings with a construction
value of GBP110m (2010: GBP58m). In the period, we were appointed
development partner on Warrington Borough Council's GBP130m
regeneration of Bridge Street. In Bearsden, Glasgow, the division
is set to deliver 108 homes in a GBP35m joint venture with Miller
Homes. Planning consent has also been secured for a GBP200m
residential-led mixed-use development in Brentford, West London,
for 48 waterfront homes at Millbay, Plymouth and for a mixed-use
scheme in Larkhall comprising a food store for Asda and 330
residential units.
Renewed activity in the commercial sector is encouraging. With
many developers left inactive as a result of the banking crisis
there is reduced competition for new opportunities which is helping
the division to make progress. Sustained by the Group's strong
balance sheet, the last six months have seen the division
short-listed on a greater number of potential projects than in the
whole of last year. The next six months for the division hold the
prospect of securing further development opportunities as current
bidding activity is healthy.
The outlook for the division is set to continue to improve, with
reduced competition from other developers keeping market conditions
favourable. The food retail sector is currently strong and there is
a shortage of new office accommodation in certain provincial cities
while, in the longer-term, the continuing housing shortage should
increase the potential for new residential development as part of
wider mixed-use regeneration. The division's share of its future
regeneration pipeline stood at GBP1.4bn on 30 June 2011, with a
further GBP0.4bn of regeneration schemes at preferred bidder stage,
an increase of GBP130m since the start of the year.
Investments
For the six months to 30 June 2011 the Investments division
reported a loss of GBP2.1m (2010: loss of GBP0.4m), a figure that
represents its net costs on bidding for investment opportunities,
on revenue of GBP1m (2010: GBP3m). This result includes its share
of operating profits of equity accounted joint ventures of GBP0.6m
(2010: GBP0.5m).
At 30 June 2011 the Group had total equity and debt in its
investments of GBP14m (2010: GBP14m). The directors' valuation of
the division's portfolio of investments is GBP42m (2010: GBP39m)
using discount rates of 7-9%. This increase in value of the
portfolio is mainly as a result of schemes achieving financial
close. The valuation is based on discounting expected future cash
flows but does not include potential refinancing gains on projects
at preferred bidder stage or profits made by Investments from
providing services or profit made by other parts of the Group in
performing construction, maintenance or facilities management work.
In addition to this valuation is committed, but not currently
invested, subordinated debt of GBP12m (2010: GBP12m). The carrying
value of these investments at 30 June 2011 was GBP19m.
The financing provided by our Investments division is an
important element in the Group's integrated offer. While
constraints remain on the public purse, there is still a clear need
for investment in infrastructure projects, which provides
opportunities for investment-led construction projects. The last
six months have seen the division secure some notable
opportunities.
Our use of the innovative Local Asset Backed Vehicle ('LABV')
financial model secured a GBP350m regeneration contract for
Bournemouth Borough Council. An exclusive agreement integrating
investment and construction with Southampton City Council, the
Crown Estate and Associated British Ports, has given the Group
access to a potential GBP450m waterfront regeneration scheme. In
Hull, financial close was reached on the next tranche of schools in
the GBP400m Hull City Council Building Schools for the Future (BSF)
programme.
Short-term opportunities are limited in the PFI market and while
PFI is expected to emerge later this year in a different form, with
schemes subject to intense competition, the Investments division is
instead currently focusing on developing a number of complex land
swap opportunities. A complex land swap project is when public
sector owned land is released, typically for residential or
commercial development, and the land value created by its
development is then used to subsidise the building of civic
facilities. This approach allows the public sector to use its land
assets to deliver public buildings and services. The division's
financing expertise also looks likely to benefit Affordable
Housing, in seeking to secure further opportunities for the
division in the PV sector.
The diverse skills of the division mean that from project
finance for PV to BSF schemes, the Group is well placed to win
complex, finance-led construction work over the next 18 months
which can be delivered through its construction and regeneration
divisions. At 30 June 2011 the division's regeneration pipeline
stood at GBP0.4bn with a further GBP0.4bn of opportunities at
preferred bidder stage.
Financial review
Revenue for the period was GBP1.09bn (2010: GBP0.98bn), an
increase of 11% on the same period last year. The increase was due
to significant rises in revenue in Affordable Housing and Fit Out,
offset by a small fall in Construction & Infrastructure.
Underlying operating profit prior to the amortisation of intangible
assets and non-recurring items was GBP19.6m (2010: GBP22.7m).
Operating profit margin fell in Construction & Infrastructure
to 1.5% (2010: 2.0%), in Affordable Housing to 3.6% (2010: 4.0%)
and in Fit Out to 2.7% (2010: 3.8%) reflecting more competitive
markets, as well as anticipated lower short-term margins on
response maintenance work in Affordable Housing. Investments'
operating loss increased to GBP2.1m (2010: loss of GBP0.4m)
reflecting the timing of financial closure on projects and a
sustained level of bidding activity. The Group continues to address
its cost base where appropriate.
Net finance expense for the period was GBP0.1m (2010: income of
GBP0.4m) mainly reflecting lower treasury balances compared with
the corresponding period last year. Profit before tax, amortisation
of intangible assets and non-recurring items was GBP19.5m (2010:
GBP23.1m). Income tax expense was reduced at GBP1.8m (2010:
GBP5.3m). The reduction in the tax charge was due to the Group
successfully resolving its discussions with HMRC concerning
corporation tax matters following the acquisition of certain
businesses and assets from Amec in 2007 leading to a one-off credit
of GBP2.6m to the tax charge in the period. Further details can be
found in note 8 to the condensed financial statements.
Cash at 30 June 2011 was GBP65m (2010: GBP138m). Average cash
for the period of GBP43m (2010: GBP61m) was lower than in the
corresponding period last year but slightly exceeded our
expectations of between GBP30m and GBP40m. The lower level of
average cash compared with the corresponding period in 2010 is
mainly due to the cash impact of the Connaught acquisition in the
second half of 2010. Net cash outflow from operating activities at
GBP66.8m (2010: inflow of GBP44.1m) reflected a significant
increase in working capital in the period. The principal reasons
for this increase were investment in land and developments in
Affordable Housing and Urban Regeneration (GBP19m), the unwinding
of working capital following a strong cash performance at the 2010
year-end (approximately GBP40m) and the delayed financial close on
Hull BSF (GBP12m). In addition other significant cashflows were
capital expenditure of GBP3.9m (2010: GBP1.5m) and dividends paid
of GBP12.7m (2010: GBP12.7m). Overall the net decrease in cash and
cash equivalents was GBP83.7m (2010: increase of GBP20.4m). In the
period, the Group refinanced its banking facilities and now has
GBP100m of committed banking facilities through to mid-2015 as well
as an existing GBP25m facility through to mid-2012.
Outlook
A solid performance in the first half of the year combined with
our leading positions in a range of growing sectors leaves us
confident of meeting our expectations for this financial year. The
Group's forward order book stood at GBP3.5bn as at 30 June 2011, in
line with the start of the year, and is supplemented by a growing
regeneration pipeline of GBP1.8bn, with a further GBP0.8bn of
regeneration schemes at preferred bidder stage. The forward order
book represents the expected future revenue from secured projects
and a conservative estimate of work to be awarded under framework
arrangements.
While trading conditions remain challenging we remain cautious
about the short-term outlook for the construction markets in which
we operate. However, we continue to take advantage of opportunities
as they present themselves and continue to invest in our divisions
in order to position them for growth in the medium-term. We expect
to see gradual improvement in a number of our key markets over the
course of next year and beyond and the recent strategic progress
within the Group leaves us ideally positioned to capitalise on
these trends.
Financially and operationally, the Group is in robust condition.
We look to the future with cautious optimism and are confident that
we are well positioned to deliver long-term sustainable returns for
our shareholders.
Principal risks and uncertainties
The principal risks that the directors consider may have a
material impact on the Group's performance in the remaining six
months of the year are explained in more detail in note 15 to the
condensed financial statements.
Going concern
As stated in note 3 to the condensed financial statements, the
directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not
less than 12 months from the date of this report. Accordingly, they
continue to adopt the going concern basis in preparing the
condensed financial statements.
Forward looking statements
This half year report has been prepared solely to assist
shareholders in assessing the strategies of the board and in
gauging their potential to succeed. It should not be relied on by
any other party or for other purposes. Forward looking statements
have been made by the directors in good faith using information
available up until the day that they approved this half year
report. Forward looking statements should be regarded with caution
because of the inherent uncertainties in economic trends and
business risks.
Condensed consolidated income statement (unaudited)
For the six months to 30 June 2011
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Notes GBPm GBPm GBPm
------------------------------ ----- ------------ ------------ -----------
Continuing operations
Revenue 7 1,086.7 982.1 2,101.9
Cost of sales (985.8) (877.2) (1,884.7)
------------------------------ ----- ------------ ------------ -----------
Gross profit 100.9 104.9 217.2
------------------------------ ----- ------------ ------------ -----------
Amortisation of intangible
assets 7 (1.9) (2.8) (5.5)
Non-recurring items 7 (0.9) (1.9) (5.1)
Other administrative expenses (81.6) (82.5) (165.2)
------------------------------ ----- ------------ ------------ -----------
Total administrative expenses (84.4) (87.2) (175.8)
------------------------------ ----- ------------ ------------ -----------
Share of net profit of equity
accounted joint ventures 7 0.3 0.3 0.1
Other gains and losses - - 0.3
------------------------------ ----- ------------ ------------ -----------
Profit from operations 7 16.8 18.0 41.8
------------------------------ ----- ------------ ------------ -----------
Finance income 1.3 1.3 1.7
Finance costs (1.4) (0.9) (2.8)
------------------------------ ----- ------------ ------------ -----------
Net finance (expense)/income (0.1) 0.4 (1.1)
------------------------------ ----- ------------ ------------ -----------
Profit before income tax
expense 7 16.7 18.4 40.7
------------------------------ ----- ------------ ------------ -----------
Income tax expense 8 (1.8) (5.3) (10.9)
------------------------------ ----- ------------ ------------ -----------
Profit for the period 14.9 13.1 29.8
------------------------------ ----- ------------ ------------ -----------
Attributable to:
Owners of the Company 14.9 13.1 29.9
Non-controlling interests - - (0.1)
------------------------------ ----- ------------ ------------ -----------
14.9 13.1 29.8
------------------------------ ----- ------------ ------------ -----------
Earnings per share
From continuing operations
Basic 10 35.1p 30.9p 70.5p
Diluted 10 34.5p 30.6p 69.7p
------------------------------ ----- ------------ ------------ -----------
There were no discontinued operations in either the
current or comparative period.
Condensed consolidated statement of comprehensive income
(unaudited)
For the six months to 30 June 2011
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Profit for the period 14.9 13.1 29.8
------------------------------------- ------------ ------------ -----------
Other comprehensive income/(expense):
Actuarial gain arising on defined
benefit obligation - - 0.8
Deferred tax on defined benefit
obligation - - (0.3)
Movement on cash flow hedges in
equity accounted joint ventures 0.6 (1.5) (1.4)
------------------------------------- ------------ ------------ -----------
Other comprehensive income/(expense)
for the period, net of income tax 0.6 (1.5) (0.9)
------------------------------------- ------------ ------------ -----------
Total comprehensive income for the
period 15.5 11.6 28.9
------------------------------------- ------------ ------------ -----------
Attributable to:
Owners of the Company 15.5 11.6 29.0
Non-controlling interests - - (0.1)
------------------------------------- ------------ ------------ -----------
15.5 11.6 28.9
------------------------------------- ------------ ------------ -----------
Condensed consolidated balance sheet
(unaudited)
At 30 June 2011
Unaudited Unaudited Restated
six months six months
to to year ended
30 June 2011 30 June 2010 31 Dec 2010
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Non-current assets
Goodwill 214.3 188.7 214.3
Other intangible assets 14.7 14.6 16.6
Property, plant and equipment 25.5 30.1 27.8
Investment property 8.1 2.5 4.3
Investments in equity accounted joint
ventures 45.6 44.4 45.4
Investments 0.1 0.8 0.1
Shared equity loan receivables 15.7 11.4 13.9
Deferred tax assets - 3.8 3.2
------------------------------------- ------------ ------------ -----------
324.0 296.3 325.6
------------------------------------- ------------ ------------ -----------
Current assets
Inventories 157.7 147.3 141.1
Amounts due from construction
contract customers 289.1 223.5 178.4
Trade and other receivables 226.9 222.6 229.2
Cash and cash equivalents 64.9 138.1 148.6
------------------------------------- ------------ ------------ -----------
738.6 731.5 697.3
Total assets 1,062.6 1,027.8 1,022.9
------------------------------------- ------------ ------------ -----------
Current liabilities
Trade and other payables (708.8) (670.7) (667.2)
Amounts due to construction contract
customers (73.6) (89.5) (70.7)
Current tax liabilities (9.0) (30.1) (30.6)
Finance lease liabilities (1.4) (1.7) (1.7)
Provisions (4.3) - (7.7)
------------------------------------- ------------ ------------ -----------
(797.1) (792.0) (777.9)
Net current liabilities (58.5) (60.5) (80.6)
------------------------------------- ------------ ------------ -----------
Non-current liabilities
Finance lease liabilities (5.1) (6.9) (6.0)
Retirement benefit obligation (1.7) (3.0) (1.9)
Deferred tax liabilities (16.6) - -
Provisions (17.1) (16.6) (15.4)
------------------------------------- ------------ ------------ -----------
(40.5) (26.5) (23.3)
Total liabilities (837.6) (818.5) (801.2)
Net assets 225.0 209.3 221.7
------------------------------------- ------------ ------------ -----------
Equity
Share capital 2.2 2.2 2.2
Share premium account 26.7 26.7 26.7
Capital redemption reserve 0.6 0.6 0.6
Own shares (5.9) (5.9) (5.9)
Hedging reserve (2.5) (3.2) (3.1)
Retained earnings 204.1 189.0 201.4
------------------------------------- ------------ ------------ -----------
Equity attributable to owners of the
Company 225.2 209.4 221.9
Non-controlling interests (0.2) (0.1) (0.2)
------------------------------------- ------------ ------------ -----------
Total equity 225.0 209.3 221.7
Condensed consolidated cash flow
statement (unaudited)
For the six months ended 30
June 2011
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Notes GBPm GBPm GBPm
------------------------------ ----- ------------ ------------ -----------
Net cash (outflow)/inflow from
operating activities 11 (66.8) 44.1 93.1
------------------------------ ----- ------------ ------------ -----------
Cash flows from investing
activities
Interest received 1.1 1.5 1.9
Dividend from joint ventures - 1.4 0.8
Proceeds on disposal of
property, plant and
equipment 0.5 0.9 1.1
Purchases of property, plant
and equipment (3.9) (1.5) (3.1)
Payments to acquire interests
in joint ventures (0.3) (3.2) (4.3)
Repayment of investment in
joint ventures 0.2 - -
Payment to acquire trade
investment - (0.7) -
Payments for the acquisition
of subsidiaries and other
businesses (0.4) (7.4) (35.2)
------------------------------ ----- ------------ ------------ -----------
Net cash outflow from
investing activities (2.8) (9.0) (38.8)
Cash flows from financing
activities
Dividends paid (12.7) (12.7) (17.8)
Repayments of obligations
under finance leases (1.4) (2.0) (5.6)
Net cash outflow from
financing activities (14.1) (14.7) (23.4)
Net (decrease)/increase in
cash and cash equivalents (83.7) 20.4 30.9
Cash and cash equivalents at
the beginning of the period 148.6 117.7 117.7
------------------------------ ----- ------------ ------------ -----------
Cash and cash equivalents at
the end of the period
Bank balances and cash 64.9 138.1 148.6
Condensed consolidated statement of changes in
equity (unaudited)
For the six months ended 30
June 2011
Attributable to owners of the Company
----------------------------------------------------------- ------
Reserve
Share Capital for own Cash flow
Share premium redemption shares hedging Retained Non-controlling Total
capital account reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Balance at 1
January 2011 2.2 26.7 0.6 (5.9) (3.1) 201.4 221.9 (0.2) 221.7
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for the
period:
Net profit - - - - - 14.9 14.9 - 14.9
Other
comprehensive
income:
Movement on
cash flow
hedges in
equity
accounted
joint
ventures - - - - 0.6 - 0.6 - 0.6
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for
the period,
net of income
tax - - - - 0.6 14.9 15.5 - 15.5
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Share-based
payments - - - - - 0.5 0.5 - 0.5
Dividends
paid:
Final dividend
for 2010 - - - - - (12.7) (12.7) - (12.7)
Balance at 30
June 2011 2.2 26.7 0.6 (5.9) (2.5) 204.1 225.2 (0.2) 225.0
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Condensed consolidated statement of changes in
equity (unaudited)
For the six months ended 30
June 2011
Attributable to owners of the Company
----------------------------------------------------------- ------
Reserve
Share Capital for own Cash flow
Share premium redemption shares hedging Retained Non-controlling Total
capital account reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Balance at 1
January 2010 2.2 26.7 0.6 (6.0) (1.7) 187.6 209.4 (0.1) 209.3
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for the
period:
Net profit - - - - - 13.1 13.1 - 13.1
Other
comprehensive
income:
Movement on
cash flow
hedges in
equity
accounted
joint
ventures - - - - (1.5) - (1.5) - (1.5)
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for
the period,
net of income
tax - - - - (1.5) 13.1 11.6 - 11.6
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Share-based
payments - - - - - 1.1 1.1 - 1.1
Exercise of
share
options - - - 0.1 - (0.1) - - -
Dividends
paid:
Second interim
dividend for
2009 - - - - - (12.7) (12.7) - (12.7)
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Balance at 30
June 2010 2.2 26.7 0.6 (5.9) (3.2) 189.0 209.4 (0.1) 209.3
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Condensed consolidated statement of changes in
equity (unaudited)
For the six months ended 30
June 2011
Attributable to owners of the Company
----------------------------------------------------------- ------
Reserve
Share Capital for own Cash flow
Share premium redemption shares hedging Retained Non-controlling Total
capital account reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Balance at 1
January 2010 2.2 26.7 0.6 (6.0) (1.7) 187.6 209.4 (0.1) 209.3
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for the
year:
Net profit - - - - - 29.9 29.9 (0.1) 29.8
Other
comprehensive
income:
Actuarial gain
arising on
defined
benefit
obligation - - - - - 0.8 0.8 - 0.8
Deferred tax
on defined
benefit
obligation - - - - - (0.3) (0.3) - (0.3)
Movement on
cash flow
hedges in
equity
accounted
joint
ventures - - - - (1.4) - (1.4) - (1.4)
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Total
comprehensive
income for
the year, net
of income
tax - - - - (1.4) 30.4 29.0 (0.1) 28.9
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Share-based
payments - - - - - 0.7 0.7 - 0.7
Exercise of
share
options - - - 0.1 - (0.1) - - -
Movement on
deferred tax
asset on
share-based
payments - - - - - 0.6 0.6 - 0.6
Dividends
paid:
Second interim
dividend for
2009 - - - - - (12.7) (12.7) - (12.7)
Interim
dividend for
2010 - - - - - (5.1) (5.1) - (5.1)
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Balance at 31
December
2010 2.2 26.7 0.6 (5.9) (3.1) 201.4 221.9 (0.2) 221.7
-------------- ------- ------- ---------- ------- --------- --------- ------ --------------- ------
Share premium account
The share premium account represents the difference between the
fair value of consideration received and the nominal value of the
shares issued.
Capital redemption reserve
The capital redemption reserve was created on the redemption of
preference shares in 2003.
Reserve for own shares held
The shares are held as 'treasury shares' and represent the cost
to Morgan Sindall Group plc of shares purchased in the market and
held by the Morgan Sindall Employee Benefit Trust (the 'Trust') to
satisfy options under the Group's share incentive schemes.
The number of shares held by the Trust at 30 June 2011 was
776,555 (2010: 781,444).
Cash flow hedging reserve
Under cash flow hedge accounting, movements on the effective
portion of hedges are recognised through the hedging reserve,
whilst any ineffectiveness is taken to the income statement.
1 General information
The financial information set out in this half year report does
not constitute the company's statutory accounts for the year ended
31 December 2010. A copy of the statutory accounts for that year
was delivered to the Registrar of Companies. The auditors reported
on those accounts: their report was unqualified, did not draw
attention to any matters by way of emphasis without qualifying
their report and did not contain a statement under s498(2) or (3)
of the Companies Act 2006.
This half year report was prepared solely to assist shareholders
in assessing the strategies of the Board and in gauging their
potential to succeed. It should not be relied on by any other party
or for other purposes. Forward looking statements have been made by
the directors in good faith based on the information available to
them up to the time of their approval of this half year report.
Such statements should be treated with caution due to the inherent
uncertainties, including both economic and business factors,
underlying any such forward looking information.
While the financial information included in this half year
report was prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
('IFRS'), this half year report does not itself contain sufficient
information to comply with IFRS.
2 Basis of preparation
The annual financial statements of Morgan Sindall Group plc are
prepared in accordance with IFRSs as adopted by the European Union.
The condensed consolidated financial statements included in this
half year report were prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting', as adopted by
the European Union.
3 Going concern
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing the condensed consolidated financial statements.
4 Accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed consolidated financial
statements as applied in the Group's latest annual audited
financial statements.
5 Restatement of comparative balances
As was stated in note 25 on pages 104 and 105 of the 2010 annual
report and accounts, the fair value adjustments arising on the
acquisition of the business, obligations and certain assets from
the administrators of Connaught Partnerships Limited were
provisional and subject to finalisation in accordance with IFRS 3
'Business Combinations'.
The fair value exercise has now been completed and the final
acquisition balance sheet and related fair value adjustments are
disclosed in note 14 of these condensed financial statements.
In accordance with IFRS 3 'Business Combinations' the affected
financial statement balances have been restated. None of the
restatements have had an impact on gross profit, profit from
operations or net assets. There was no impact on recognised income
or expense as stated.
6 Seasonality
The Group's Construction & Infrastructure, Affordable
Housing, Fit Out, Urban Regeneration and Investment activities are
generally not subject to significant seasonal variation.
7 Business segments
For management purposes, the Group is organised into five
operating divisions: Construction & Infrastructure, Affordable
Housing, Fit Out, Urban Regeneration and Investments. The
divisions' activities are as follows:
-- Construction & Infrastructure: offers a national service
for design, construction and infrastructure to public and private
clients;
-- Affordable Housing: development and construction of social
and open market affordable housing, and planned and response
maintenance of social housing;
-- Fit Out: undertakes refurbishment and fit out projects in the
offices, education, retail & hotel and leisure markets;
-- Urban Regeneration: development through partnership
agreements of large-scale mixed-use urban regeneration projects
with a view to letting and/or sale; and
-- Investments: facilitates project finance and provides
investment management expertise to the Group's PPP/PFI activities
and investment portfolio.
Group Activities represents costs and income arising from
corporate activities which cannot be allocated to the operating
segments. These include costs for central activities such as
treasury management, corporate tax coordination, insurance
management, pension administration and company secretarial and
legal services. The divisions are the basis on which the Group
reports its segment information. Segment information about the
Group's continuing operations is presented below:
Construction & Affordable Fit Urban Group
Six months to Infrastructure Housing Out Regeneration Investments Activities Eliminations Total
30 June 2011 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Revenue:
external 616.9 227.9 222.3 19.1 0.5 - 1,086.7 - 1,086.7
Revenue:
inter-segment - 4.6 - - - - 4.6 (4.6) -
Operating
profit/(loss)
before
amortisation
and
non-recurring
items 9.5 8.4 6.1 1.2 (2.7) (3.2) 19.3 - 19.3
Share of
results of
associates
and joint
ventures
after tax - (0.1) - (0.2) 0.6 - 0.3 - 0.3
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Profit/(loss)
from
operations
before
amortisation
and
non-recurring
items 9.5 8.3 6.1 1.0 (2.1) (3.2) 19.6 - 19.6
Amortisation
of intangible
assets - (0.4) - (1.5) - - (1.9) - (1.9)
Non-recurring
items (0.9) - - - - - (0.9) - (0.9)
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Profit/(loss)
from
operations 8.6 7.9 6.1 (0.5) (2.1) (3.2) 16.8 - 16.8
============== ============== ========== ===== ============ =========== ========== ============
Net finance
expense (0.1) (0.1)
------- -------
Profit before income
tax expense 16.7 16.7
======= =======
During the six month period to 30 June 2011, six month period to
30 June 2010 and the year ended 31 December 2010, inter-segment
sales were charged at prevailing market prices and significantly
all of the Group's operations were carried out in the UK.
7 Business segments (continued)
Construction & Affordable Fit Urban Group
Six months to Infrastructure Housing Out Regeneration Investments Activities Eliminations Total
30 June 2010 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ---------- ----- ------------ ----------- ---------- ----- ------------ -----
Revenue:
external 611.7 172.6 179.3 15.1 3.4 - 982.1 - 982.1
Revenue:
inter-segment - - 0.3 - - - 0.3 (0.3) -
Operating
profit/(loss)
before
amortisation
and
non-recurring
items 12.2 7.1 6.9 0.8 (0.9) (3.7) 22.4 - 22.4
Share of
results of
associates
and joint
ventures
after tax - (0.2) - - 0.5 - 0.3 - 0.3
-------------- -------------- ---------- ----- ------------ ----------- ---------- ----- ------------ -----
Profit/(loss)
from
operations
before
amortisation
and
non-recurring
items 12.2 6.9 6.9 0.8 (0.4) (3.7) 22.7 - 22.7
Amortisation
of intangible
assets (0.3) - - (2.5) - - (2.8) - (2.8)
Non-recurring
items (1.7) (0.2) - - - - (1.9) - (1.9)
-------------- -------------- ---------- ----- ------------ ----------- ---------- ----- ------------ -----
Profit/(loss)
from
operations 10.2 6.7 6.9 (1.7) (0.4) (3.7) 18.0 - 18.0
============== ============== ========== ===== ============ =========== ========== ============
Net finance
income 0.4 0.4
----- -----
Profit before income
tax expense 18.4 18.4
===== =====
Construction & Affordable Fit Urban Group
Year ended Infrastructure Housing Out Regeneration Investments Activities Eliminations Total
31 December
2010 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Revenue:
external 1,249.8 387.3 415.1 45.8 3.9 - 2,101.9 - 2,101.9
Revenue:
inter-segment 49.6 2.2 3.5 - - - 55.3 (55.3) -
Operating
profit/(loss)
before
amortisation
and
non-recurring
items 26.9 16.3 14.8 2.5 (4.1) (4.1) 52.3 - 52.3
Share of
results of
associates
and joint
ventures
after tax - (0.2) - (0.5) 0.8 - 0.1 - 0.1
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Profit/(loss)
from
operations
before
amortisation
and
non-recurring
items 26.9 16.1 14.8 2.0 (3.3) (4.1) 52.4 - 52.4
Amortisation
of intangible
assets (0.5) (0.3) - (4.7) - - (5.5) - (5.5)
Non-recurring
items (3.2) (3.9) - 2.0 - - (5.1) - (5.1)
-------------- -------------- ---------- ----- ------------ ----------- ---------- ------- ------------ -------
Profit/(loss)
from
operations 23.2 11.9 14.8 (0.7) (3.3) (4.1) 41.8 - 41.8
============== ============== ========== ===== ============ =========== ========== ============
Net finance
expense (1.1) (1.1)
------- -------
Profit before income
tax expense 40.7 40.7
======= =======
8 Income tax expense
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Current tax expense: GBPm GBPm GBPm
UK corporation tax 4.4 5.3 11.7
Adjustment in respect of prior
periods as set out below (22.4) - (1.4)
------------------------------------- ------------ ------------ -----------
(18.0) 5.3 10.3
------------------------------------- ------------ ------------ -----------
Deferred tax expense:
Current year - - 0.1
Adjustment in respect of prior
periods as set out below 19.8 - 0.5
------------------------------------- ------------ ------------ -----------
19.8 - 0.6
------------------------------------- ------------ ------------ -----------
Income tax expense for the period 1.8 5.3 10.9
------------------------------------- ------------ ------------ -----------
During the period the Group resolved its discussions with HMRC
concerning corporation tax matters which arose following the
acquisition of certain businesses and assets from Amec in 2007.
This resulted in a significant deferral of the Group's net tax
liabilities. Consequently a provision of GBP22.4m for current
taxation was released, but a provision of GBP19.8m for deferred tax
(calculated at 26%) was created, with both these items shown as
"adjustments in respect of prior periods" in the table above. The
net effect, a prior period credit of GBP2.6m to the tax charge, is
due to reductions in UK corporation tax rates since 2007 as the
release of the current tax provision is calculated using higher tax
rates than the 26% used for creation of the provision for deferred
tax liabilities.
Income tax for the six month period is charged at 27.0% (2010:
29.0%), being the estimated annual effective tax rate expected for
the full financial year, applied to the profit before income tax
expense excluding the share of net profit/loss of equity accounted
joint ventures for the six month period (which are stated net of
income tax).
9 Dividends
Amounts recognised as distributions
to equity holders in the period:
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Final dividend for the year ended 31
December 2010 of 30.0p (2009: second
interim dividend 30.0p) per share 12.7 12.7 12.7
Interim dividend for the year ended
31 December 2010 of 12.0p (2009:
12.0p) per share - - 5.1
------------------------------------- ------------ ------------ -----------
12.7 12.7 17.8
------------------------------------- ------------ ------------ -----------
Proposed dividend:
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Final dividend for the year ended 31
December 2010 of 30.0p - - 12.8
Interim dividend for the period to
30 June 2011
of 12.0p (2010: 12.0p) per share 5.1 5.2 -
------------------------------------- ------------ ------------ -----------
The proposed interim dividend was approved by the Board on 8
August 2011 and was not included as a liability at 30 June
2011.
The interim dividend of 12.0p (2010: 12.0p) per share will be
paid on 16th September 2011 to shareholders on the register at 19th
August 2011. The ex-dividend date will be 17th August 2011.
10 Earnings per share
There are no discontinued operations in either the current or
comparative periods.
The calculation of the basic and diluted earnings per share is
based on the following data:
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Earnings Notes GBPm GBPm GBPm
------------------------------ ----- ------------ ------------ -----------
Earnings before tax 16.7 18.4 40.7
Deduct tax expense per the
income statement 8 (1.8) (5.3) (10.9)
Non-controlling interests - - 0.1
------------------------------ ----- ------------ ------------ -----------
Earnings for the purposes of
basic and dilutive earnings
per share being net profit
attributable to owners of the
Company 14.9 13.1 29.9
Add back:
amortisation expense 7 1.9 2.8 5.5
non-recurring items 7 0.7 1.9 4.0
Deduct:
non recurring credit to tax
charge 8 (2.6) - -
------------------------------ ----- ------------ ------------ -----------
Earnings for the purposes of
adjusted basic and dilutive
earnings per share being net
profit attributable to owners
of the Company adjusted for
amortisation expense and
non-recurring items 14.9 17.8 39.4
------------------------------ ----- ------------ ------------ -----------
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Number of shares No. '000s No. '000s No. '000s
------------------------------ ----- ------------ ------------ -----------
Weighted average number of
ordinary shares for the
purposes of basic earnings
per share 42,425 42,383 42,391
Effect of dilutive potential
ordinary shares:
Share options 262 43 93
Conditional shares not vested 522 382 389
------------------------------ ----- ------------ ------------ -----------
Weighted average number of
ordinary shares for the
purposes of diluted earnings
per share 43,209 42,808 42,873
------------------------------ ----- ------------ ------------ -----------
The average market value of the Company's shares for the purpose
of calculating the dilutive effect of share options and long-term
incentive plan shares was based on quoted market prices for the
period that the options were outstanding. The weighted average
share price for the period was GBP6.76 (2010: GBP5.53).
Earnings per share as calculated in accordance with IAS 33,
'Earnings per Share' are disclosed below:
Unaudited Unaudited
six months six months Year ended
to to
30 June 2011 30 June 2010 31 Dec 2010
------------------------------------- ------------ ------------ -----------
Basic earnings per share 35.1p 30.9p 70.5p
Diluted earnings per share 34.5p 30.6p 69.7p
------------------------------------- ------------ ------------ -----------
Earnings per share adjusted for amortisation expense and non-recurring
items:
Unaudited Unaudited
six months six months Year ended
to to
30 June 2011 30 June 2010 31 Dec 2010
------------------------------------- ------------ ------------ -----------
Basic earnings per share adjusted for 35.1p 42.0p 92.9p
amortisation expense and
non-recurring items
Diluted earnings per share adjusted 34.5p 41.6p 91.9p
for amortisation expense and
non-recurring items
------------------------------------- ------------ ------------ -----------
A total of 1,797,512 share options that could potentially dilute
earnings per share in the future were excluded from the above
calculations because they were anti-dilutive at 30 June 2011 (June
2010: 3,604,457; December 2010: 2,246,025).
11 Cash flow from operating
activities
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
Notes GBPm GBPm GBPm
------------------------------ ----- ------------ ------------ -----------
Profit from operations for the
period 16.8 18.0 41.8
Adjusted for:
Amortisation of fixed life
intangible assets 1.9 2.8 5.5
Share of net profit of equity
accounted joint ventures (0.3) (0.3) (0.1)
Depreciation of property,
plant and equipment 5.7 4.5 8.8
Expense in respect of share
options 0.5 1.1 0.7
Defined benefit obligation
payment (0.3) (0.3) (0.7)
Defined benefit obligation
charge 0.1 0.1 0.2
Net gain from bargain purchase
of subsidiary previously
held as equity interest 14 - - (2.0)
Gain on disposal of property,
plant and equipment - (0.4) (0.5)
Increase in shared equity loan
receivables (1.8) (2.4) (4.3)
Increase/(decrease) in
provisions 1.7 (0.2) (1.4)
------------------------------ ----- ------------ ------------ -----------
Operating cash flows before
movements in working capital 24.3 22.9 48.0
------------------------------ ----- ------------ ------------ -----------
(Increase)/decrease in
inventories (19.2) 6.3 12.8
Increase in receivables (108.2) (106.6) (66.8)
Increase in payables and
short-term provisions 41.2 125.5 107.7
------------ ------------ -----------
Movements in working capital (86.2) 25.2 53.7
------------------------------ ----- ------------ ------------ -----------
Cash (utilised in)/generated
from operations (61.9) 48.1 101.7
------------------------------ ----- ------------ ------------ -----------
Income taxes paid (3.6) (3.4) (6.4)
Interest paid (1.3) (0.6) (2.2)
------------------------------ ----- ------------ ------------ -----------
Net cash (outflow)/inflow from
operating activities (66.8) 44.1 93.1
------------------------------ ----- ------------ ------------ -----------
Additions to leased property, plant and equipment during the
year amounting to GBPnil (2010: GBP0.7m) were financed by new
finance leases. Cash and cash equivalents (which are presented as a
single class of assets on the face of the balance sheet) comprise
cash at bank and other short-term, highly liquid investments with a
maturity of three months or less.
12 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its
joint ventures are disclosed below.
Trading transactions
During the period, Group companies entered into transactions to
provide construction and property development services with related
parties, all of which were joint ventures, not members of the
Group. Transactions and amounts owed at the period end are as
follows:
Unaudited Unaudited
six months six months
to to Year ended
30 June 2011 30 June 2010 31 Dec 2010
GBPm GBPm GBPm
------------------------------------ ------------ ------------ -----------
Provision of goods and services to
related parties 34.1 21.5 80.2
Net amounts owed by related parties 7.6 1.2 9.0
Directors' transactions
In the course of the half year, Eurocentral Partnership Limited
(a wholly owned subsidiary of the Group) sold some land and
buildings in the ordinary course of business to a syndicate of
investors on arm's length terms. Certain senior employees and
directors of Muse Developments Limited together with John Morgan
(GBP0.6m) and Paul Smith (GBP0.4m) participated in the syndicate.
Their investments were carried out on an arm's length basis and on
the same terms as other investors in the syndicate and there are no
amounts outstanding.
Directors' material interests in contracts with the Company
No director held any material interest in any contract with the
Company or any Group company in the period or in the subsequent
period to 8 August 2011.
13 Contingent liabilities
Group banking facilities and surety bond facilities are
supported by cross guarantees given by the Company and
participating companies in the Group. There are contingent
liabilities in respect of surety bond facilities, guarantees and
claims under contracting and other arrangements, including joint
arrangements and joint ventures entered into in the normal course
of business.
14 Acquisition of subsidiaries
Final acquisition balance sheet
On 9 September 2010, the Group acquired the business,
obligations and certain assets from the administrators of Connaught
Partnerships Limited ('Connaught'). On pages 104 and 105 of the
Group's 2010 annual report and accounts, the provisional fair
values of the net assets and goodwill acquired were reported. The
Group has since completed the fair value exercise. This led to
further adjustments of GBP1.1m. The goodwill arising and fair
values are as follows:
GBPm
------------------------------ ----
Total purchase consideration:
cash 28.0
Net assets acquired 4.5
------------------------------ ----
Goodwill 23.5
------------------------------ ----
Goodwill arising on this acquisition represents the value of
people, track record, expertise and opportunity to access new
markets acquired within acquisitions that are not capable of being
individually identified and separately recognised.
Provisional
Acquiree's fair value Final fair value
carrying adjustments made adjustments made Fair value
amount 31 December 2010 30 June 2011 30 June 2011
GBPm GBPm GBPm GBPm
---------------- ---------- ---------------- ---------------- ------------
Intangible fixed
asset - 4.0 - 4.0
Trade
receivables and
amounts on
construction
contracts
recorded by
Connaught 72.4 (44.4) - 28.0
Provisions - (26.4) (1.1) (27.5)
---------------- ---------- ---------------- ---------------- ------------
Net assets
acquired 72.4 (66.8) (1.1) 4.5
---------------- ---------- ---------------- ---------------- ------------
The final fair value of certain provisions reflects the
directors' best assessment of redundancy and other costs associated
with contracts that did not novate and currently there remains some
inherent uncertainty over the final determination of these
liabilities.
Purchase consideration settled
in cash 28.0
Cash and cash equivalents
acquired -
------------------------------- ----
Cash outflow on acquisition 28.0
------------------------------- ----
Acquisition of investment from partner in a joint venture
In the period, the Group acquired the investment of its partner
in a joint venture for a consideration of GBP1.3m. This company is
now a wholly owned subsidiary and is no longer accounted for using
the equity method.
At 30 June 2011 certain fair value adjustments in relation to
this acquisition are subject to finalisation.
15 Key risks
The Group's achievement of its goals and strategies is subject
to a number of key risks. Risk management processes are designed to
continually assess, identify and understand the key risks and
challenge the effectiveness of mitigating actions. The directors do
not consider that the principal risks and uncertainties have
changed significantly since the publication of the annual report
for the year ended 31 December 2010. The Board considers that the
most significant risks and the main mitigating actions are:
Market and economic environment
The market sectors in which the Group operates are affected to
varying degrees by general macroeconomic conditions and changes in
Government spending priorities. The Group is particularly focused
at present on managing the impact of the challenging economic
conditions and continuing to invest for the long-term to be
prepared for opportunities when they arise.
Risks
------------------------------------------------------------------------------
-- Shortage of opportunities caused by macroeconomic factors
-- Changes in Government spending
-- Reliance on key customers and sectors and increased competition
-- Projects consuming excessive capital inhibit growth
-- Inability to manage overheads during downturn
-- More onerous financial security such as bonding and other financial
guarantees required in the current market in order to qualify for work
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Loss of revenue
-- Profit effect magnified if overheads not managed appropriately
-- Increased competition leads to falling margin on work
-- Reduced pipeline of work
-- Excessive consumption of cash leads to inability to carry out work
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- Investigation and proposal to clients of new methods of project
finance provided by the Group and its partners -- Delegated authorities
in place throughout the Group require approval of tenders at appropriate
levels -- Refusal to compete solely on price: Perfect Delivery quality
programme seeks to differentiate the Group's offering on service and
quality -- Adequacy of cash resources and facilities available --
Bonding lines and insurance programme are kept under constant review --
Sector spread and diversification offer some protection against decline
in individual sectors -- Regular feedback from clients and others used
to tailor the Group's offering -- Regular monitoring and reporting of
financial performance, work won, prospects and pipeline of opportunities
-- Regular review of resource levels against anticipated workload --
Scale gives some protection by enabling us to compete and work in areas
with higher barriers to entry
------------------------------------------------------------------------------
Regulatory environment
The Group operates within a constantly changing regulatory
environment governed by legislation and industry specific
regulation. Non-compliance with legislation or regulations can
damage the Group's reputation, market standing and ability to
secure new business and may lead to financial penalties.
Risks
------------------------------------------------------------------------------
-- Regulatory or legislative breach, failure to understand regulatory
environment
-- Failure of employees and subcontractors to comply with legislation
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Loss of reputation and market share
-- Cost of investigation, fines and prosecution
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- Regular communication of relevant regulation, including changes and
amendments -- Key regulatory risks dealt with in Group policies and
induction processes -- Regular training and updates for those with
responsibility for ensuring compliance -- Regular reporting of
significant measures relevant to regulation -- Systems of management to
identify risks and controls, audits and reviews to ensure that controls
are operating effectively -- Periodic reviews by external professionals
and involvement of external experts in training where necessary --
Policies and procedures in place covering raising concerns and ethical
matters
------------------------------------------------------------------------------
Health, safety and environmental risks
The Group's health and safety and environmental performance
affect employees, subcontractors and the public and, in turn, can
affect its reputation and commercial performance.
Risks
------------------------------------------------------------------------------
-- Environmental or safety incidents caused by the Group's activities
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Harm to individuals and communities
-- Loss of reputation
-- Loss of market share
-- Fines and prosecution
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- Key executives with specific responsibility for HSE are identified in
each division and on the Board -- Health and safety and environmental
policy frameworks are communicated and senior managers appointed in each
division -- Well established safety systems, site visits, monitoring and
reporting (including near miss and potential hazard reporting) in place
-- Investigation and root cause analysis of accidents and near misses --
Regular health and safety and environmental training and updates
including behavioural training -- Certification of workforce under
Construction Skills Certification Scheme
------------------------------------------------------------------------------
Developing talent
The ability of the Group to secure and deliver projects
successfully to clients, grow in profitability and develop strong,
sustained financial performance relies on the quality of its
employees. It is critical that talented individuals are attracted,
developed and retained.
Risks
------------------------------------------------------------------------------
-- Failure to attract talented individuals to the Group
-- Inadequate succession planning
-- Failure to retain talented individuals
-- Talented people see better opportunities for reward and satisfaction
in other industries or with competitors
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Quality of service and of project delivery falls
-- Group fails to develop the people necessary to provide future growth
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- Senior executives focused on creating a dynamic working environment
based on shared characteristics and core values driven by the Board --
Management development programmes in place alongside formal individual
appraisal and development processes -- Regular review of remuneration
levels and competitive bonus structure -- Long-term incentivisation
through Save As You Earn and share option schemes -- Succession and
staff development considered in annual and longer-term business planning
cycles
------------------------------------------------------------------------------
Acquisitions
The Group regularly identifies and evaluates potential
acquisitions and it is important that acquisitions deliver the
planned benefits.
Risks
------------------------------------------------------------------------------
-- Group fails to deliver benefits sought at time of the acquisition,
through issues with due diligence, strategic assessment, alignment of
cultures or other reasons
-- Unknown liabilities are uncovered subsequent to completion
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Loss of profitability and reputation
-- Excessive resources required to be directed towards the acquisition
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- All acquisitions approved at Board level -- Commercial and financial
due diligence led by senior teams, with clear roles and responsibilities
-- Post acquisition integration plans prepared and monitored -- KPIs
established and monitored post acquisition
------------------------------------------------------------------------------
Contractual risks
The Group undertakes several hundred contracts each year and it
is important that contractual terms reflect risks arising from the
nature and complexity of the works and the duration of the
contract.
Risks
------------------------------------------------------------------------------
-- Acceptance of work outside core competences
-- Acceptance of unprofitable work
-- Poor project management leading to delays and cost overruns
-- Inability to agree valuation of additional work and variations
-- Significant levels of volatility in input prices for key materials
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Loss of reputation -- Excessive resources and attention devoted to
poorly performing projects -- Loss of profitability on contracts or
streams of work
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- System of delegated authorities governs tenders and the acceptance of
work -- Work carried out under standard terms wherever possible -- Well
established systems of measuring and reporting project progress and
estimated outturns -- Strategic trading arrangements in place with key
suppliers. -- For very significant purchases on large projects, forward
orders can be placed on a longer timescale. -- Collation and review of
client feedback -- Lessons learned exercises carried out on projects --
Use of accredited subcontractors with established relationships wherever
possible -- Staff incentivised on basis of contract performance -- Cross
regional peer reviews
------------------------------------------------------------------------------
Counterparty and liquidity risks
The terms on which the Group trades with counterparties affect
its liquidity. Without sufficient liquidity, the Group's ability to
meet its liabilities as they fall due would be compromised, which
could ultimately lead to its failure to continue as a going
concern.
Risks
------------------------------------------------------------------------------
-- Insolvency of key client, subcontractor or supplier
-- Inadequate liquidity
------------------------------------------------------------------------------
Impacts
------------------------------------------------------------------------------
-- Significant financial loss due to bad debt
-- Cost of replacing supplier
-- Reputational impact
-- Group cannot continue in business, or cannot grow as desired, due
to lack of funds
------------------------------------------------------------------------------
Mitigation
------------------------------------------------------------------------------
-- Work only carried out for financially sound clients, established
through credit checks -- Specific commercial terms, including payment
terms, with escrow accounts used as appropriate -- Seek and secure
financial security where appropriate -- Work with approved suppliers
wherever possible -- Contracts with clients, subcontractors or suppliers
only entered into after review at appropriate level of delegated
authority -- Work carried out under standard terms of contract as far as
possible -- Regular monitoring of cash levels and forecasting of cash
balances -- Regular stress testing of longer-term cash forecasts --
Regular assessment of the level of banking facilities available to the
Group
------------------------------------------------------------------------------
Responsibility statement
The directors confirm that to the best of their knowledge:
(a) the condensed consolidated financial statements have been
prepared in accordance with IAS 34 'Interim Financial
Reporting';
(b) the half year report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the half year report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein)
By order of the Board
Paul Smith David Mulligan
Chief Executive Finance Director
8 August 2011
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BLGDISBGBGBU
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