TIDMMGNS
RNS Number : 1499Y
Morgan Sindall Group PLC
19 February 2013
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'the Group')
Preliminary results for the year ended 31 December 2012
Morgan Sindall Group plc, the construction and regeneration
group, today announces its preliminary results for the year ended
31 December 2012.
2012 2011 Change
Revenue GBP2,047m GBP2,227m -8%
Profit before tax, amortisation and non-recurring items(1) GBP47.1m GBP45.3m +4%
Profit before tax and amortisation GBP37.1m GBP43.9m -15%
Profit before tax GBP34.2m GBP40.0m -15%
Year end net cash GBP50m GBP109m -54%
Average (net debt)/net funds balance(2) (GBP40m) GBP23m
Adjusted earnings per share(3) 79.3p 86.7p -9%
Basic earnings per share 72.5p 77.5p -6%
Total dividend per share 27.0p 42.0p -36%
(1) Non-recurring items comprise GBP10.0m of reorganisation costs in 2012 (2011: GBP1.4m of
integration costs)
(2) Average (net debt)/net funds is the average of the daily treasury balances for the year
(3) Basic earnings per share before amortisation of intangible assets of GBP2.9m (2011: GBP3.9m)
Financial highlights
-- Solid performance in ongoing difficult markets and economy, in line with our expectations
-- Margin stable due to continued focus on delivering our strategy
-- Disposal of mature investments released GBP26m of capital to
be redeployed into major housing and urban regeneration schemes
-- Result includes GBP7.0m gain on the disposal of medical properties investment
-- Restructuring of construction and affordable housing
activities giving rise to non-recurring costs of GBP10.0m
-- Average net debt balance of GBP40m (2011: net funds of
GBP23m), as expected, reflecting increase in working capital
deployed across the Group and reduction of construction-related
revenue
-- Final proposed dividend of 15.0p (2011: 30.0p) giving a total
dividend of 27.0p per share (2011:42.0p) to bring dividend cover
back into the Group's target range
Strategic highlights
-- Continued to develop market-leading positions in sectors
where we have a strong track record and can utilise our scale and
expertise to deliver complex projects for our clients
-- Bidding selectively for quality projects and streamlined our
business to match the expected medium-term workload
-- Invested cash generated from our construction activities in
regeneration schemes to secure greater returns over the medium
term
-- Utilised strong relationships with clients to secure repeat
business and positions on frameworks
-- Sale of mature investments to recycle capital into new projects
Board Changes
-- In November, Adrian Martin appointed as chairman with John
Morgan returning to position of chief executive
-- David Mulligan stepping down as finance director at end of
February 2013 to be succeeded by Steve Crummett, formerly finance
director at Filtrona plc
Outlook
-- Sound forward order book of GBP3.1bn (2011: GBP3.4bn) with
projects at preferred bidder of GBP0.5bn (2011: GBP0.3bn)
-- Growing regeneration pipeline of GBP2.1bn (2011: GBP1.8bn)
with GBP0.4bn (2011: GBP0.6bn) of opportunities at preferred
developer stage
-- Focus on growing infrastructure sectors in which we have a
strong track record and where there are high barriers to entry
-- Expected public sector land release will drive regeneration in medium term
-- Market will remain challenging in short term due to delay in economic recovery
John Morgan, Chief Executive, commented:
'2012 has seen a solid performance in what has been a very tough
market. The newly structured Board is focused on managing the
business tightly to ensure we emerge from the downturn in a strong
position to take advantage of the opportunities we believe lie
ahead. Our exposure to infrastructure continues to grow, and we see
further opportunity to leverage our strong track record and gain
market share. The momentum in our regeneration pipeline reinforces
our confidence that returns from our investment will start to
increase over the medium term and deliver superior returns.'
Divisional Highlights
* Operating profit is profit from operations before amortisation
of intangible assets and non-recurring items.
Construction and Infrastructure
-- Operating profit* of GBP19.7m (2011: GBP21.1m) on revenue of GBP1,168m (2011: GBP1,268m)
-- Steady margin of 1.7% (2011: 1.7%) due to rebalancing
workload towards growth infrastructure sectors and construction
sectors in which we have a strong track record
-- Continue with efficient management of overheads and careful contract selection
-- Strengthened leading reputation in the rail, highways, energy and water markets
-- Encouraging order book of GBP1.5bn (2011: GBP1.6bn) with
projects at preferred bidder stage valued at GBP0.5bn (2011:
GBP0.3bn)
Fit Out
-- Operating profit* of GBP11.3m (2011: GBP12.4m) on revenue of GBP427m (2011: GBP438m)
-- Slight reduction in margin to 2.6% (2011: 2.8%) due to competitive market
-- Maintained market-leading position
-- Progress in higher education sector and regional markets
-- Order book of GBP170m (2011: GBP216m) with the market
forecast to improve in the medium term driven by an expected surge
in lease events
Affordable Housing
-- Operating profit* decreased to GBP11.5m (2011: GBP18.5m) on
revenue of GBP386m (2011: GBP462m) reflecting difficult market
conditions in which new-build social housing has been particularly
hard hit
-- Business restructured in response to pressure on margins,
which decreased to 3.0% (2011: 4.0%)
-- Continued investment in growing portfolio of active mixed-tenure sites
-- Secured further social housing contracts in a challenging
environment of Government spending cuts and increased initiatives
to support private sales to first time buyers who are constrained
by limited mortgage availability
-- GBP110m response maintenance opportunities secured in the year
-- Order book down slightly at GBP1.3bn (2011: GBP1.5bn)
Urban Regeneration
-- Increased revenue to GBP62m (2011: GBP57m)
-- Operating profit* reduced to GBP2.7m (2011: GBP3.9m) due to
the subdued market conditions as well as the increased share of
costs of ISIS Waterside Regeneration joint venture, which will
drive returns from 2014
-- Continued to identify new opportunities to work in long-term
partnerships with private and public sector partners and secured
GBP45m of Government funding to unlock stalled housing
developments
-- Achieved significant milestones within the division's
portfolio of schemes with planning applications over GBP300m
secured in the year
-- Growing regeneration pipeline of GBP1.9bn (2011: GBP1.6bn),
with a further GBP0.3bn (2011: GBP0.6bn) at preferred developer
stage
Investments
-- Directors' portfolio valuation of GBP32m (2011: GBP49m)
-- Operating profit* of GBP7.4m (2011: loss of GBP3.9m)
principally due to the GBP7.0m profit on disposal of mature medical
properties investment and good performance from joint venture
investments
-- Continued to identify and progress opportunities for other
divisions, utilising the Group's integrated capabilities in design
and construction
-- Looking ahead, significant opportunities to utilise the
division's specialist skills to help its public sector partners
overcome ongoing constraints on the public purse and realise
economic potential from under-utilised assets
ENQUIRIES:
Morgan Sindall Group plc Tel: 020 7307 9200
John Morgan, Chief Executive
David Mulligan, Finance Director
Brunswick Tel: 020 7404 5959
Alison Kay/Nick Cosgrove
Morgan Sindall Group will hold its preliminary results
presentation for analysts and institutional investors at 9.30am on
19 February 2013 at Numis Securities Limited, The London Stock
Exchange Building,10 Paternoster Square, London EC4M 7LT.
A copy of the presentation and an audio webcast will be
available from 12.00pm at
www.corporate.morgansindall.com/investors.
This preliminary announcement and other information about Morgan
Sindall Group plc are available on its website
www.corporate.morgansindall.com/investors via the link to the
corporate site.
CHAIRMAN'S STATEMENT
I am pleased to present my first statement as chairman of Morgan
Sindall Group plc, having previously served on the Board as senior
independent director.
Against the background of economic conditions which, over the
past four years, have led to our UK construction markets declining
by around a quarter, I am encouraged by the solid performance we
have achieved in 2012.
Our clients are facing their own challenges and are placing a
greater emphasis on capital cost, speed of delivery, quality and
safety. Across the Group we are responding by identifying and
achieving cost-effective solutions whilst continually raising the
bar on the service we provide.
Strategy
Our strategy remains the same:
-- Increasing our focus on the UK construction and regeneration
market, choosing those segments where we can achieve a
market-leading position
-- Targeting markets that offer the best potential for growth
and provide medium- to longer-term opportunities with superior
returns
-- Utilising the cash generated across our construction-related
activities to invest in, and grow, our two regeneration-related
divisions, Affordable Housing and Urban Regeneration.
As part of our ongoing objective to manage the impact on the
Group of the industry downturn, we are constantly working to shape
the business to fit the trading environment. We have maintained a
tight control on overheads and costs; we have recently reorganised
our construction and affordable housing capabilities; we have
changed the Board structure to improve efficiency and we are
focussing on greater co-ordination across all divisions.
Dividend
The Board is proposing a final dividend of 15.0p (2011: 30.0p)
giving a total dividend for the year of 27.0p (2011: 42.0p). This
change to the dividend will bring it back into line with our stated
policy of covering the dividend by adjusted earnings by between 2.5
and 3 times. We have been operating below this level of dividend
cover for a number of years and the Board has now decided that it
is appropriate to realign the dividend with this policy.
Board changes
There have been a number of changes to the Board over the past
year.
In November the Board asked John Morgan, founder and former
executive chairman, to return to the position of chief executive
following the resignation of Paul Smith. In this role, John is
already bringing his extensive knowledge of the Group and our
clients to drive increased collaboration across the Group and to
develop new and emerging opportunities for our business.
As announced in January 2013, David Mulligan is stepping down
from his position of finance director at the end of February and
will leave the Group in April. We are delighted to have secured the
services of Steve Crummett as the Group's new finance director.
Formerly finance director at Filtrona plc, Steve's wide-ranging
skills will be of considerable value to the Board and the
Group.
I am pleased that Liz Peace, chief executive of the British
Property Federation, agreed to join the Board as a non-executive
director in November. Her public sector background and
understanding of the UK property industry will further strengthen
the expertise of our Board.
I would like to take this opportunity to thank Paul and David
for their commitment and valuable contribution to the Group over
the past 10 and 15 years respectively. We wish them well with their
future plans.
Our people
I would like to thank our dedicated employees and capable teams
who continue to strive for and achieve a high level of service for
our partners and clients. Their enthusiasm and commitment through
another difficult year for the industry and at a time of
significant change for the Group is very much appreciated.
Looking forward
I am sure we are not alone in expecting 2013 to be another
difficult year for the construction and regeneration market. Whilst
we remain cautious over the outlook in the short term, the medium
term prospects for the Group are improving with the key projects we
have already secured and some early signs of further opportunities
from 2014.
We see further medium-term potential driven by the Government's
pledge to improve the UK's infrastructure, an increasing number of
lease renewals, a number of large-scale, housing regeneration
schemes and a stream of response maintenance opportunities, where
demand has been resilient. In addition, any modest improvement in
the economy will also help regeneration more broadly. This
potential along with a sound forward order book of GBP3.1bn means
that we believe the Group is well-positioned to emerge from the
downturn in a stronger place.
I look forward to working with the Board in the next phase of
the Group's development as we seize the exciting opportunities that
lie ahead of us.
CHIEF EXECUTIVE'S REVIEW
I am delighted to return to the position of chief executive. As
a founder of the business I have steered the Group through
prosperous years and through downturns and I intend to draw on this
experience to lead the Group through the current challenging market
conditions and ensure we are positioned to take advantage of the
opportunities that lie ahead. We have made progress in 2012 but
there is always scope for improvement.
I believe our strategy is robust and our aim is to remain
focused on those UK markets where we can develop a leadership
position. My priorities are on improving margins, focusing on our
strengths in delivering complex projects, appropriate capital
allocation, driving increased collaboration across the Group and
developing new and emerging opportunities.
I am fortunate in the broad base of expertise I can call upon
within the Board and senior management. There are undoubtedly some
very exciting opportunities ahead for the Group and I am looking
forward to ensuring we are in the best shape to leverage our
expertise and track record.
Managing market conditions
2012 2011 Change
Revenue GBPm 2,047 2,227 -8%
Profit before tax, amortisation and non-recurring
items GBPm 47.1 45.3 +4%
Profit before tax and amortisation GBPm 37.1 43.9 -15%
Profit before tax GBPm 34.2 40.0 -15%
The Group has made steady progress throughout 2012 despite
market conditions remaining tough. Revenue fell to GBP2.0bn (2011:
GBP2.2bn) and profit before tax and amortisation reduced to
GBP37.1m (2011: GBP43.9m). A GBP10.0m charge for reorganisation
costs has been incurred during the year as we refocused our
construction and affordable housing activities and these are shown
as non-recurring items. Profit before tax, amortisation and
non-recurring items was GBP47.1m (2011: GBP45.3m), which includes a
GBP7.0m gain on the disposal of our medical properties investment
in July 2012.
Adjusted earnings per share before amortisation of intangible
assets were 79.3p (2011: 86.7p). The Group's construction-related
revenue fell in 2012, which led to an increase in working capital.
This, coupled with a modest increase in the level of investment in
our regeneration businesses, meant that average net debt was, as
expected, GBP40m (2011: GBP23m average net cash). The year end cash
balance was GBP50.4m (2011: GBP108.9m).
We continue to face challenges including reductions in public
spending, deferred investment decisions and higher levels of
competition. Rigorous risk management processes are in place to
identify, monitor and, where possible, mitigate potential risks.
Our strategy remains to invest the cash generated from our
construction-related activities in our regeneration-related
activities, namely Affordable Housing and Urban Regeneration. This
strategy is being tested by a drop in construction revenues and
tighter payment terms from clients. We are therefore being more
selective in the regeneration schemes we invest in and are
identifying construction opportunities that best suit our market
knowledge and specialist skills. This includes our exposure to
growth infrastructure markets where we already have a proven track
record.
We are positioning the Group to come out of the downturn
stronger by realigning resources. We have re-shaped the
construction business within the Construction and Infrastructure
division as we have become increasingly selective in our contract
bidding. We are also focused on growing its infrastructure business
where there are market opportunities. In non-infrastructure
sectors, including the education and commercial sectors, we are
increasing our focus on long-term frameworks. Changes have also
been made to the Affordable Housing division to improve its
operational efficiency and to match the level of resources with its
current and medium-term workload.
Growing market share in infrastructure
We have increased our focus on growth sectors of the
infrastructure market, in particular the energy and transport
markets, which offer longer-term opportunities and enhanced returns
due to the complexity and scale of projects. Our reputation within
these markets is improving significantly as we have established the
required track record, scale and expertise. We are increasingly
working on larger infrastructure projects as our integrated
approach enables us to reduce complexity for our clients. We are
also enhancing our ability to deliver more complex projects through
joint ventures as demonstrated by our appointment, in joint
venture, by Sellafield Ltd as its delivery partner for a potential
15-year, GBP1.1bn contract.
Unlocking land values for regeneration partners
Our growing investment in regeneration is closely aligned with
the Government's agenda to release under-utilised land assets to
stimulate local economies and create jobs. This approach allows
local authorities and landowners to unlock land values and create
opportunities at no significant upfront cost to the public sector.
Land is often retained by our partners, allowing us to use our
capital efficiently and avoid the risk of buying land on the open
market. Our growing expertise in complex Local Asset Backed
Vehicles (LABVs), driven by public sector land release, has led to
our Investments division being appointed as the preferred joint
venture partner for Slough Borough Council's LABV. This long-term
joint venture is expected to deliver one of the country's most
ambitious regeneration schemes, completing developments up to a
total value of GBP1.0bn over a 15-year period.
There are high barriers to entry in regeneration as success lies
in experience, expertise, commitment and trust. It is these
credentials, which take years to develop, that have enabled our
regeneration-related divisions to embed themselves deeply within
this market. This year our Urban Regeneration division has
demonstrated its expertise by securing GBP45m of Government funding
that will play a critical role in kick-starting seven projects for
our clients. As tightening fiscal constraints persist, our
collaborative approach will remain in strong demand as local
authorities continue to seek partners with a track record,
financial strength and the ability to provide funding solutions to
regenerate worn-down communities.
In 2012, we increased our interest in a key joint venture, ISIS
Waterside Regeneration, from 25% to 50%, which will underpin
medium-term growth and we are excited about the opportunities that
this brings. We anticipate returns from our investment in
regeneration to drive growth from 2014 as Urban Regeneration
increases the level of construction activity on site in 2013.
Honing our competitive advantage
The UK construction industry output is forecast to show a drop
of 9% in 2012 and is forecast to contract further by around 5% in
2013. With output shrinking, bidding is more aggressive and
pressure on margins has increased. We continue to carefully select
the contracts we bid for, and maintain a tight control of
resources. We also continue to focus on the areas where we can
secure competitive advantage and on improving what we offer to
clients. Our unique and differentiating approach is rooted in our
philosophy of Perfect Delivery, which lies at the heart of our
operations, driving us to achieve ever higher standards of
quality.
The Group aims to develop competitive advantage through its
integrated capabilities. Increasingly, we are maximising our
offering through packaging together our capabilities and providing
clients with the added value of two or more of our specialist
divisions working together. We have strength in our breadth of
capabilities and in our ability to integrate different skills to
provide excellent service as demonstrated within South
Northamptonshire Council's GBP38m Towcester Regeneration and Civic
Accommodation project. The Investments division will deliver the
project in partnership with Affordable Housing, who will deliver
the residential development and Construction and Infrastructure,
who will build the commercial development.
Construction and Infrastructure
2012 2011 Change
Revenue GBPm 1,168 1,268 -8%
Operating profit * GBPm 19.7 21.1 -7%
Margin % 1.7 1.7 -
Forward order book GBPbn 1.5 1.6 -6%
As expected, Construction and Infrastructure's revenue fell by
8% to GBP1,168m (2011: GBP1,268m) with a corresponding fall in
operating profit to GBP19.7m (2011: GBP21.1m). This was a
creditable performance given the market pressures, with margin
steady at 1.7% (2011: 1.7%).
Falling public sector, and weak private sector, demand will
inevitably impact on construction volumes going forward. However,
in line with the Group's strategy, the division has successfully
implemented a shift in the balance of its work as it increases its
focus on the growing infrastructure markets. This is significantly
offsetting the anticipated drop in demand. and has enabled the
division to largely maintain its order book despite the overall
market decline.
Through the division's commitment to Perfect Delivery, it sets
the highest standards of service and consistently delivers against
them. It innovates by bringing a fresh approach to challenging
projects, driving down client costs in many different ways
including identifying cutting edge building techniques or through
its expertise in value engineering. The division's project team
working on the GBP136m joint venture to deliver the M62 managed
motorway contract clearly demonstrated its expertise when it
identified GBP48m of value engineering and efficiency savings for
its client before work commenced.
Shaping the UK's infrastructure
The highly regulated energy market offers significant potential
to the Group as the division has extensive experience and expertise
in transmission and distribution and is broadening its capability
in power generation. The division's reach into the nuclear sector
has been extended with the award of the contract at Sellafield to
provide a range of essential infrastructure asset services. Our
relationship with National Grid has deepened further with two
awards in joint venture including a five-year contract extension to
deliver major enhancements to the UK's electrical transmission
infrastructure.
Within the rail market, significant ongoing work has been
undertaken for Network Rail throughout the year as part of the
Multi Asset Framework Agreement, which runs until 2014 and is
expected to deliver GBP200m of work in joint venture. In addition,
the division has been awarded the GBP20m North Doncaster Chord
project on the East Coast Main Line. The aviation market has
considerable barriers to entry as it demands the highest standards
in technical expertise, consistent delivery, security and safety.
Nine of the UK's top 15 airports have benefited from the division's
specialist skills this year and the market especially values its
integrated design and construction approach to complex projects.
Major projects have been secured under existing frameworks at
Gatwick and Heathrow airports including a GBP31m runway
rehabilitation contract at Heathrow airport.
The division is well positioned within the highways market to
benefit from the Government's continuing commitment to
infrastructure investment. Allocated work from the Highways Agency
frameworks is expected to start in 2013 and approval has been
provided to commence work, in joint venture, on upgrading the A1 to
motorway standard between Leeming and Barton.
Within the water market, the AMP5 framework agreement with
Yorkshire Water Services has provided GBP76m of joint venture
contracts to improve bathing water quality at both Scarborough and
Bridlington, drawing on the division's tunnelling expertise, and to
design and build a pioneering new energy scheme at the Esholt Waste
Water treatment works.
Construction and Infrastructure is working for UK Power Networks
on a GBP14m cable tunnel project between Whitechapel and Finsbury
Market in order to strengthen London's electricity supplies. Work
also continues in joint venture for Thames Water on east London's
Lee Tunnel, the capital's deepest ever tunnel, and for Crossrail on
projects including C510 Whitechapel and Liverpool Street Station
Tunnels where the joint venture is now two years into the
five-year, GBP235m contract.
Performing across a breadth of sectors
The division's construction profile remains high as it focuses
on sectors where it can benefit from its respected track record. In
particular education remains an important market. 2012 saw the
launch of the division's innovative standard designs for primary
and secondary schools that are fully supported by funding options
to ensure projects are financially viable. It has also been
allocated a further GBP45m project to construct nine new primary
schools over the next three years in the latest phase of South
Lanarkshire Council's GBP150m Primary School Modernisation
Programme.
Despite the commercial market remaining subdued, the division
has enjoyed success. It has been appointed to deliver the GBP70m
Longbridge town centre development in Birmingham and has also
successfully established a foothold in London including winning
GBP55m of building and refurbishment contracts and completing a
GBP65m commercial development for Legal and General Property.
Encouraging forward order book
With little improvement anticipated in economic and market
conditions in the short term we do expect the division's revenue,
operating profit and margin to reduce further in 2013. However, we
are encouraged by the division's forward order book standing at
GBP1.5bn (2011: GBP1.6bn) with projects at preferred bidder stage
valued at GBP0.5bn (2011: GBP0.3bn). We are confident that the
division's track record in infrastructure, its expertise in
operating frameworks and its wide range of skills will continue to
provide it with a level of resilience, as it continues to adapt to
changing market conditions.
Fit Out
2012 2011 Change
Revenue GBPm 427 438 -3%
Operating profit * GBPm 11.3 12.4 -9%
Margin % 2.6 2.8 -7%
Forward order book GBPm 170 216 -21%
Fit Out's revenue was marginally down on 2011 at GBP427m (2011:
GBP438m) with operating profit at GBP11.3m (2011: GBP12.4m) and
margin softening slightly to 2.6% (2011: 2.8%). The division has
performed steadily given it is operating within a highly
competitive and price sensitive market. The division's consistent
delivery and quality is valued and has led to 40% of the division's
workload comprising repeat business from valued clients.
Maintaining its leadership position
The division has made a major contribution to the Group's
strategy of creating leading positions in its chosen markets. It
has maintained its leadership position in the commercial office
market, increasing market share to 30% and has delivered the year's
largest project in the fit out market for a global professional
services firm. The division has maintained its focus on the more
resilient sub-GBP1m project market where it expects continued
growth in 2013 whilst the market continues to be impacted by a
significant shortage of major projects. The strong trend towards
refurbishment plays to the division's strengths as specialists in
the refurbishment of occupied buildings as demonstrated this year
by the refurbishment of Freshfields Bruckhaus Deringer LLP's London
office whilst under occupation.
Broadening capabilities
In line with our strategy to broaden our capabilities in
existing markets, our design and build fit out business, Morgan
Lovell, has significantly strengthened its offering this year by
establishing a new workplace consultancy team. Demand for this
extended offering has been proven with work already secured with
leading organisations including LinkedIn and SAS.
Progress in core markets
The division has made progress in its core growth markets of
retail banking, higher education and leisure. Securing a further
retail banking framework appointment means that the division is now
working in partnership with three of the four largest UK banks. In
the leisure market, a major completion includes the fit out of the
largest premium gym in London, owned by American operators,
Equinox. Current major clients in higher education include Imperial
College London where the division is drawing on the Group's
integrated capability, leading a joint venture with Construction
and Infrastructure.
Growing regional presence
The division has increased its balance of work outside of London
and reported a solid regional performance, underpinned by a new
office opening in Leeds. Projects include a 60,000 sq ft fit out of
ITV's new office at MediaCity UK in Salford and the delivery of the
UK's only Leadership Energy and Environmental Design ('LEED') Gold
and Ska Silver (assessment for sustainable office fit out)
accredited office building for AutoDesk in Farnham. Major projects
are also underway in Scotland for Hewlett Packard and Scottish
Power.
Improving medium-term outlook
Moving into 2013, the division remains committed to realising
its ambition to be the trusted property partner of choice and to
reaching its target of securing 100% of its workload through
recommendation. Its objectives include securing more work directly
from existing clients and frameworks and winning work from
international clients. Its order book currently stands at GBP170m
(2011: GBP216m) and we expect similar market conditions in 2013 to
those experienced in 2012. The market is expected to improve in the
medium term, driven by an expected surge in lease expiries and new
office development.
Affordable Housing
2012 2011 Change
Revenue GBPm 386 462 -17%
Operating profit * GBPm 11.5 18.5 -38%
Margin % 3.0 4.0 -25%
Forward order book GBPbn 1.3 1.5 -13%
It has been a challenging year for Affordable Housing with
revenue falling by 17% to GBP386m (2011: GBP462m) with operating
profit down to GBP11.5m (2011: GBP18.5m) and margin at 3.0% (2011:
4.0%). This reflects difficult market conditions with new-build
social housing being particularly hard hit, as well as lower than
normal returns from a small number of older mixed-tenure
regeneration projects.
Consequently, we have re-structured the business in response to
tough competition and continuing pressure on margins. Open market
house sales have improved and the division has continued to develop
its market-leading response maintenance offering, providing local
authorities and housing associations with a nationwide service.
This investment has led to over GBP110m of contract awards this
year and a far greater contribution to the division's overall
performance.
Affordable Housing is responding to the demanding environment by
focusing on securing major, long-term regeneration schemes and more
work via framework agreements across all its operations. As the
UK's complete affordable housing solutions specialist, its track
record and its ability to forge strong long-term relationships has
enabled the division to capitalise on major opportunities.
Complex regeneration projects
The division is playing a key role in our strategy to focus on
major regeneration opportunities. Its expertise allows it to take
on highly complex, housing-led regeneration projects, either solely
or working in collaboration with other Group divisions. In 2013 it
starts construction of the GBP100m Castleward Urban Village
regeneration development, through Compendium, its joint venture
with Riverside Housing Association, eventually delivering 850 new
homes. It is working on major long-term projects with other Group
divisions including the potential delivery of the first GBP105m
tranche of housing within the GBP1bn Slough Borough Council LABV.
Other Group regeneration collaborations include the GBP38m
Towcester Regeneration and Civic Accommodation Project with the
Investments division and the second phase of residential
development at Northshore, Stockton-on-Tees with our Urban
Regeneration division.
A slowdown in affordable housing starts has had a significant
impact on the division's new-build social housing programme. The
new affordable housing regime introduced gave Registered Providers
until the end of March 2015 to complete their programmes. A number
of clients are yet to commence their building programmes, which has
resulted in a significant slowdown in the market. However, those
with grant funding are expected to deliver the targeted homes in
time, so the division is anticipating an increase in activity over
the next 18 months as projects commence on-site to meet this
deadline.
Open market sales volumes improving
Despite the limited mortgage availability subduing the market,
house sale volumes have improved throughout the year with completed
sales totalling 383 in 2012 (2011: 332). The division's reputation
for consistent delivery of high-quality sustainable homes is
enabling it to win significant contracts despite the increasingly
competitive environment. The division is working on one of
Scotland's largest, new-build council housing sites, delivering 150
council homes in a GBP12m scheme for West Lothian Council. Further
improvement in its pipeline of opportunities is expected next year
as the division works with partners to commit funding allocations
to meet the Homes and Communities Agency's deadline of March
2015.
Response and refurbishment markets
The response maintenance market remains steady, albeit
competitive. A highlight has been the GBP50m repairs contract
awarded by Accord Group, reinforcing the division's market-leading
position. There is a growing number of opportunities in the South
of England with the division currently bidding for over GBP200m of
contracts to be awarded in early 2013.
In the planned refurbishment market, the division continues to
support social landlords upgrading their ageing housing stock. It
has been appointed as one of two contractors to share equally the
delivery of a GBP35m Decent Homes improvement programme in
Leicestershire and has also begun work on the Vale of Glamorgan
framework, providing a platform to progress further work in
Wales.
National need for affordable housing
With a forward order book of GBP1.3bn (2011: GBP1.5bn), the
division is well placed to continue helping partners and clients
meet the UK's crucial need for high-quality affordable housing. It
is also targeting major housing regeneration schemes, which will
drive economic and social renewal and enable growth in the medium
term.
Urban Regeneration
2012 2011 Change
Revenue GBPm 62 57 +9%
Operating profit * GBPm 2.7 3.9 -31%
Regeneration pipeline GBPbn 1.9 1.6 +19%
Urban Regeneration saw a rise in the level of activity in 2012
with revenue increasing to GBP62m (2011: GBP57m). Operating profit
was down to GBP2.7m (2011: GBP3.9m). The operating profit was
impacted by the subdued market conditions as well as an increased
share of the costs of the ISIS Waterside Regeneration joint
venture. During the year the division increased its interest in
ISIS from 25% to 50%. In the short term the division will recognise
a greater share of the operating costs but will enjoy 50% of the
future profit as opportunities are developed in the medium
term.
Overcoming barriers to success
Overall the division has made solid progress this year. The
momentum it has built up across its portfolio of 35 schemes and the
award of new development agreements are all significant factors in
our confidence that returns from our investment in regeneration
will start to increase in 2014.
Our confidence is further strengthened by the fact that the
division has capitalised on its reputation and secured GBP45m of
Government funding to unlock stalled housing development. These
funds will help kick-start seven projects within the division's
portfolio and funding conditions include an accelerated timetable
of delivery. This will result in a number of residential elements
within the division's mixed-use schemes being brought forward and
delivered over the next two years.
Sentiment remains subdued
Investor and tenant sentiment remains stable but subdued as
economic recovery continues to stall. The lack of speculative
development in the commercial office market together with tenants
exercising lease breaks is expected to lead to an uplift in demand
for new 'Grade A' accommodation. The division believes it is in a
good position to respond to this uplift due to its landholdings
secured through development agreements.
New development agreements
In 2012, GBP340m of schemes were converted from preferred
developer status into contracted agreements. The division has
entered into two development agreements with Basingstoke and Deane
Borough Council to deliver its GBP200m regeneration project,
developing in excess of 700,000 sq ft on council-owned land
parcels. The first planning application is targeted for mid-2013
with work on-site expected to commence later in the year. Stockport
Council has also selected the division to deliver its GBP140m
office quarter and the first phase of development is due to start
on-site early 2013. Progress has also been made in finalising
development agreements to deliver major mixed-use schemes in
Warrington and Hucknall.
Planning secured
Planning consents for new development valued at over GBP300m
have been secured in 2012. These include consent for the second
phase of residential development at its Northshore development to
deliver 76 residential units in partnership with our Affordable
Housing division. Planning has been secured for a 60,000 sq ft
'Grade A' office building, pre-let to KPMG. This development is the
first new-build office in Leeds city centre since 2006.
Approximately GBP95m of construction contracts have been awarded on
sites this year. Construction has started on the 1.1m sq ft,
GBP220m mixed-use Talbot Gateway Central Business District scheme
in partnership with Blackpool Council. Work is also underway on the
large-scale GBP350m regeneration of Swindon town centre.
Tentative lettings market
Fragile occupier confidence has meant that the lettings market
remains subdued. In addition to KPMG in Leeds, significant deals
have been completed including leasing 140,000 sq ft in two major
distribution centres at Eurocentral in Scotland and over 14,000 sq
ft of 'Grade A' office space to Santander at No 4 St Paul's Square,
Liverpool.
Completions include the new GBP20m civic offices in Doncaster,
an element of the city's GBP300m Civic and Cultural Quarter. The
division has also delivered 271 new homes as part of the GBP180m,
680,000 sq ft Rathbone Market regeneration scheme in Canning Town,
East London, working within the English Cities Fund partnership.
With the critical need for housing in the capital, the first phase
of this new development has proved successful with only 21 units
currently unreserved.
Maintaining momentum
Whilst market constraints will continue in the short term, an
increased emphasis on residential, especially in the South, has
served to further balance the division's mixed-use activity.
Through maintaining momentum across its portfolio, commencing 15
further development projects with an end value of GBP190m, the
division has good visibility of how it will contribute to the
Group's profitability in 2014 and beyond. Its forward development
pipeline stands at GBP1.9bn (2011: GBP1.6bn) with a further
GBP0.3bn (2011: GBP0.6bn) at preferred developer status. The
Group's strong balance sheet and the division's track record will
enable it to identify and create new long-term partnership
opportunities with the public and private sectors, enabling the
division to continue unlocking land values and playing a leading
role in regeneration.
Investments
2012 2011 Change
Directors' portfolio valuation GBPm 32 49 -35%
Investments carrying value GBPm 18.2 23.2 -22%
Operating profit/(loss) * GBPm 7.4 (3.9) n/a
Investments' mandate is to create valuable investments for the
Group and to unlock prime long-term construction opportunities for
other divisions. The division delivered a profit in 2012 of GBP7.4m
(2011: operating loss of GBP3.9m). This was driven, in particular,
by the GBP7.0m profit from the GBP24m sale of the division's
medical property investments and from a healthy performance from
our investments portfolio during the year of GBP5.7m (2011:
GBP1.6m). The sale was in line with our strategy to realise
investments as they mature to redeploy capital into new
projects.
Creating opportunities for the Group
Investments has capitalised on its reputation and experience
gained from the complex Bournemouth Town Centre LABV and has been
appointed preferred partner by Slough Borough Council for its LABV
joint venture. The LABV will benefit from the strength of our
integrated capability and will procure work from our Affordable
Housing and Construction and Infrastructure divisions over the
lifetime of the partnership.
The division has also been appointed preferred developer for
South Northamptonshire Council's GBP38m Towcester Regeneration and
Civic Accommodation Project and has secured planning consents for a
residential development, student accommodation and a multi-storey
car park in the 20-year GBP500m+ Bournemouth Council LABV
scheme.
Scotland has an extensive public-private partnership-based
investment programme and is therefore an area of strategic
importance for the division. The Western Territory Hub Programme
Board has recently selected an Investments-led joint venture, the
WellSpring Partnership, to deliver a pipeline of GBP160m public
sector health and education projects over the next ten years. The
WellSpring Partnership will deliver new facilities for a number of
public sector bodies in the Glasgow area. In East Scotland, the
GBP95m Tayside Acute Adult Mental Health Development scheme has
been completed through the Group's integrated capability with
design and construction services provided by our Construction and
Infrastructure division.
Positive pipeline of opportunities
The division has carried out a review of the changes to PFI
announced in the Government's launch of its successor, PF2, in the
Autumn Statement. Whilst clarification is being sought around how
particular aspects of the announcement will work in practice, it is
considered to be a positive development. PF2 will be applied to the
GBP2bn Priority Schools Building Programme expected to come to the
market in spring 2013 and this is a major target for Investments as
it hopes to leverage its track record within the education market
and identify further opportunities for our Construction and
Infrastructure division. It is anticipated that other Government
departments will start to release a pipeline of schemes procured
under this initiative later in the year, providing further
opportunities for Investments and other Group divisions.
Whilst current economic conditions persist, local authorities
will need support from the private sector. The division will
continue to identify innovative ways to structure and finance deals
to allow its partners to realise the potential of under-utilised
property assets, secure efficiencies and promote economic growth
and social well-being. The division expects to realise further
investments in 2013 in order to recycle capital to create revenue
for the Group and provide a sustainable return on investment.
Sustainability
During 2012, we continued to embed our Roadmap for
Sustainability and work towards merging the Group's procurement and
sustainability functions to create a new team headed by the
director of group sustainability and procurement. This will take
effect from February 2013. The Group spends a significant amount
through its supply chain each year and a closer alignment of the
two functions will drive improvements in the Group's sustainability
performance. The Group achieved a significant reduction in its
carbon emissions and increase in the tonnage of waste diverted from
landfill during the year. The Group's total commitment to ensuring
that we offer a safe working environment for all employees is
demonstrated by our health and safety performance. This is the
third consecutive year in which the Group achieved its aim of less
than 100 reportable incidents.
Outlook
The market will remain challenging in the short term with little
sign of improvement expected as economic recovery continues to be
slow. We will maintain our focus on careful contract selection,
Perfect Delivery and tight management of overheads.
We have positioned the Group to capitalise on growth markets
with barriers to entry and, in the longer term, the opportunity for
superior returns. We will continue to pursue opportunities in these
markets, promoting the synergies created by our integrated
capabilities.
Whilst cautious over the short term outlook, we are encouraged
by the opportunities that exist in our chosen markets. With a sound
forward order book of GBP3.1bn (2011: GBP3.4bn), with a further
GBP0.5bn (2011: GBP0.3bn) at preferred bidder stage, and a
regeneration pipeline of GBP2.1bn (2011: GBP1.8bn), we believe the
Group is well positioned to maximise opportunities throughout the
next year and beyond.
FINANCE REVIEW
Steady 2012 performance
2012 2011
Revenue GBP2,047m GBP2,227m
Operating profit* GBP48.1m GBP46.1m
Profit before tax, amortisation and non-recurring
items** GBP47.1m GBP45.3m
Profit before tax and amortisation GBP37.1m GBP45.3m
Profit before tax GBP34.2m GBP40.0m
Year end cash balance GBP50m GBP109m
Basic earnings per share adjusted for amortisation 79.3p 86.7p
Basic earnings per share 72.5p 77.5p
Dividend per share 27.0p 42.0p
*Operating profit has been calculated as profit from operations before
amortisation and non-recurring items
**Non-recurring items comprise GBP10.0m of reorganisation costs in 2012
(2011: GBP1.4m of integration costs)
Overview
The challenging macro-economic conditions continued in 2012.
This resulted in lower workload and margins in some of the markets
in which the Group operates, such as construction and affordable
housing. The Group has sought to mitigate this as far as possible
by bidding selectively for high-quality schemes where there is
opportunity for integrated working, focussing on growth sectors of
the infrastructure market and maintaining tight control on the cost
base. This has enabled the Group to deliver a solid set of
results.
Revenue of GBP2,047m and operating profit* of GBP48.1m
Revenue declined by 8% to GBP2,047m (2011: GBP2,227m), primarily
in the Construction and Infrastructure and Affordable Housing
divisions.
Operating margins before amortisation and non-recurring items
held firm in Construction and Infrastructure at 1.7% (2011: 1.7%)
and declined slightly in Fit Out to 2.6% (2011: 2.8%). The
reduction in margin in Affordable Housing to 3.0% (2011: 4.0%) was
due to challenging market conditions and lower levels of
profitability from some older regeneration schemes.
The Investment division completed two disposals during the year
generating operating gains of GBP8.8m. These gains are considered
to be recurring items as they are in accordance with the Group's
strategy of disposing of its investments as they mature to enable
capital to be recycled into new schemes.
The Group continues to manage its cost base resulting in a
reduction in administrative expenses (excluding non-recurring
items) of 10% to GBP153.7m (2011: GBP170.3m).
Overall, operating profit* increased to GBP48.1m (2011:
GBP46.1m).
Non-recurring items
The Group streamlined the management structures in a number of
divisions and has recognised a non-recurring restructuring cost of
GBP10.0m. This comprises redundancy and property related costs and
relates principally to the Construction and Infrastructure and
Affordable Housing divisions. In 2011 non-recurring costs of
GBP1.4m were incurred in relation to merging the Construction and
Infrastructure divisions.
Tax
The Group's tax charge of GBP3.5m (2011: GBP7.2m) represents an
effective tax rate of 12.3% (2011: 18.1%), significantly lower than
the standard rate of corporation tax. The low effective tax rate
arises primarily as a result of there being no expected tax
liabilities upon the gains on disposals of investments during the
year, together with the effect of revaluing the deferred tax
liabilities to reflect the change in the statutory rate of
corporation tax from 25% to 23%. After adjusting for these two
items, the tax charge is approximately equal to tax at the UK
corporation tax rate on profit before tax excluding joint venture
profit, which is reported after tax.
Earnings per share
Adjusted basic earnings per share before amortisation has
decreased by 9% from 86.7p to 79.3p, due to the decrease in
profitability offset by the decrease in the effective tax rate.
Basic earnings per share has fallen by 6% to 72.5p from 77.5p.
Cash and interest
The drop in construction revenues combined with clients
requiring longer payment terms resulted in a lower cash balance at
the year end of GBP50m (2011: GBP109m). The Group had average net
debt during the year of GBP40m (2011: net cash GBP23m) principally
due to an increase in working capital deployed across the Group.
The net finance expense increased to GBP1.0m (2011: GBP0.8m).
Acquisitions and disposals
The Group disposed of its mature investments in its NHS LIFT and
medical properties portfolio and the Dorset Fire & Rescue PFI
for total consideration of GBP27.7m.
The Group increased its investment in the ISIS Waterside
Regeneration strategic partnership from 25% to 50% for deferred
consideration with a fair value of GBP18.5m payable between 2013
and 2017. In addition the Group purchased the remaining 50% share
of Lewisham Gateway Developments from its joint venture partner for
consideration of GBP0.4m. These schemes are expected to begin
generating profits in 2014.
Capital management
The Board maintains a strong capital base so as to maintain
investor, creditor and market confidence and to sustain the future
development of the Group. There were no changes in the Group's
approach to capital management during the year and the Group is not
subject to any capital requirements imposed by regulatory
authorities.
The Group is financed by equity, with committed banking
facilities available to draw on to fund shorter-term movements in
working capital. The Group is not particularly capital intensive,
hence investment in fixed assets is relatively low. The Group
invests cash generated by its construction activities in long-term
regeneration projects which themselves can lead to construction
opportunities for the Group. Some of these regeneration projects
will be carried out in joint venture and will be funded in part by
Group resources but will largely draw on non-recourse debt finance.
The Group has a small defined benefit pension plan (GBP1.5m deficit
on GBP10.4m of gross liabilities) that is closed to new members and
further accruals.
Banking facilities committed until 2015
The Group has GBP110m of committed banking facilities through to
September 2015. The banking facilities are subject to financial
covenants, all of which have been met throughout the year. These
committed facilities supplement cash balances in providing
financial security to the Group.
Dividend
The Board recommends a final dividend of 15.0p payable on 24 May
2013 to shareholders on the register at the close of business on 3
May 2013. This will give a total dividend for the year of 27.0p
(2011: 42.0p).
The Group has a long-term progressive dividend policy and aims
to achieve dividend cover based on adjusted earnings of between 2.5
and 3.0 times. In recent years the Group has maintained the
dividend despite a reduction in earnings such that dividend cover
has been below its target range for several years. The Board has
now determined that it is appropriate to reduce the dividend in
2012 such that dividend cover increases to 2.9 times (2011: 2.0
times), which is within its target range.
Consistent approach to treasury risk management
The Group has clear treasury policies which set out approved
counterparties and determine the maximum period of borrowings and
deposits. Deposits are restricted to periods of no longer than
three months. The Group has very limited exposure to foreign
exchange risk because its operations are based almost entirely in
the UK, but committed foreign exchange exposures are hedged as and
when they arise.
Some of the Group's joint ventures use interest rate swaps to
hedge floating interest rate exposures and Retail Prices Index
swaps to hedge inflation exposure. The Group considers that its
exposure to interest rate, foreign exchange and inflation movements
is appropriately managed.
In the normal course of its business, the Group arranges for
financial institutions to provide client guarantees ('bonds') to
provide some financial protection in the event that a contractor
fails to meet its commitments under the terms of a contract. The
Group pays a fee and provides a counter-indemnity to the financial
institutions for issuing the bonds. As at 31 December 2012,
contract bonds in issue under uncommitted facilities covered
GBP186.5m (2011: GBP204.1m) of contract commitments of the
Group.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in this business review. The financial position of the
Group, its capital management policy, its cash flows, liquidity
position and borrowing facilities are also described above.
As at 31 December 2012, the Group had cash of GBP50.4m and
committed banking facilities of GBP110m extending to September
2015.
The directors have reviewed the Group's forecasts and
projections, which show that the Group will have a sufficient level
of headroom within facility limits and covenants for the
foreseeable future.
After making enquiries the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis in preparing
the annual financial statements.
RISK REVIEW
The Group's strategy is to achieve leading positions in its
chosen markets and to use the cash generated from those
construction activities to invest in housing-led and mixed-use
regeneration to generate higher levels of return.
A risk management framework has been put in place to identify
risks to the Group achieving its goals and to document controls to
manage and mitigate these risks. Risk registers document these
risks and controls at different levels within the organisation;
Group, division and project. The Group and divisional risk
registers are reviewed and updated at least every six months to
ensure that risks are properly evaluated and that controls remain
appropriate. Project risks are reviewed and updated on an ongoing
basis. The internal audit function reviews the control environment
to ensure that each of the risks and controls identified are tested
at least every two years, which cover both project and corporate
level risks.
It is the role of the Group's audit committee to monitor and
approve the work undertaken by the internal audit function and to
ensure that the internal audit process remains efficient and
effective. This monitoring process has been strengthened by
divisional audit committees established separately for Construction
and Infrastructure and Affordable Housing, which have larger and
more complex operations than other divisions.
The control environment is underpinned by a clear set of
delegated authorities that define processes and procedures for
approving key decisions, particularly with regard to project
pre-qualifications, tender pricing and bid submissions. This
ensures that projects are approved at the appropriate level of
management, with the largest and most complex projects being
approved at Board level.
The Board has identified the following key risks to the Group
achieving its strategic goals, aligned to the different elements of
the Group's business model.
Risk category Description and impacts Mitigation
------------------------ ----------------------------- -------------------------------------------------------------
Markets New opportunities
The markets Shortage of new * Market spread and diversification offer a degree of
in which the opportunities protection against decline in individual markets
Group operates caused by a challenging
are affected economic
to varying environment, austerity * Scale also gives some protection by enabling the
degrees by measures Group to compete and work in areas with higher
general macro-economic reducing public spending and barriers to entry
conditions. reduced or delayed
The Group Government
is particularly funding schemes. * Regular monitoring and reporting of financial
focused at Fall in construction performance, work won, prospects and pipeline of
present on activity opportunities
managing the may result in less cash
impact of being
the challenging generated which will reduce
economic conditions, the capital available to
changes in invest
Government in regeneration and growth
spending priorities markets.
and the increasing
emphasis on
infrastructure
investment.
------------------------ ----------------------------- -------------------------------------------------------------
Overcapacity in market
This leads to price * Delegated authorities in place require approval of
competition tenders by appropriate levels of management, covering
and more onerous terms and both price and terms and conditions
conditions being sought by
clients. This can also
affect * Delegated authorities stop the business knowingly
the bidding process where an taking on loss making contracts.
increased number of
pre-conditions
may be put in place by * Through the development of effective client
clients relationships, the Group seeks to differentiate
through the bidding phase. itself through the quality of its service and
Increased price competition consistency of delivery
leads to downward pressure
on margins and an increased
risk profile if onerous * Greater value can be offered to clients when, where
terms appropriate, different divisions work together
and conditions are accepted.
Ultimately overheads may not
be covered by declining * Regular review of resource levels against anticipated
gross workload
margins.
------------------------ ----------------------------- -------------------------------------------------------------
Strategy Conflicted decision making
The Group's The Group's strategy is not * Strategic aims of the Group, individual divisions and
strategy needs clearly communicated to and business units are communicated, as appropriate, in
to be clearly understood by employees. business cascades or in annual employee reviews that
articulated Employees may seek to align personal and corporate objectives
and understood unintentionally
to ensure make decisions that are not
successful wholly aligned with the * Delegated authorities ensure that material decisions
outcomes are Group's are signed off at an appropriate level, ensuring that
achieved. strategic aims. the decisions made are in accordance with the Group's
strategy
* Monthly divisional review meetings allow the Board to
assess progress against the agreed strategy
------------------------ ----------------------------- -------------------------------------------------------------
Risk category Description and impacts Mitigation
------------------- ---------------------------------- -------------------------------------------------------------
Capable teams Environmental or safety incident
The Group's An accident or incident causes * Key executives with specific responsibility for HSE
health, safety harm to a community or to an are identified in each division and on the Board
and environmental individual, leading to the
(HSE) performance potential for legal proceedings,
and business financial penalties, reputational * HSE policy frameworks are communicated and senior
conduct affects damage and delays to a client's managers appointed to manage them in each division
employees, project. and at project level where appropriate
sub-contractors Consequently the Group fails
and the public to pre-qualify for contracts
and, in turn, due to a poor health, safety * Established safety systems, site visits, monitoring
can affect and environmental track record. and reporting, including near miss and potential
its reputation hazard reporting, are in place across the Group
and commercial
performance.
In a challenging * Investigation and root cause analysis of accidents or
economic climate, incidents and near misses
it can become
increasingly
difficult * Regular HSE training and updates including
to retain behavioural training
key employees,
especially
those targeted * Major incident management plans and business
by competitors. continuity plans in place that are periodically
reviewed and tested
------------------- ---------------------------------- -------------------------------------------------------------
Failing to attract talented
people * Progression planning in place in each division to
Risk that the Group fails to ensure immediate and future replacements are
adapt by not ensuring that identified and developed accordingly
the best people are employed
to create the most capable
teams possible. * Investment made in graduate, trainee and
The Group does not benefit apprenticeship schemes to secure an annual inflow of
from new ideas and experience new talent
and could become too internally
focused without sufficient
external stimulus to challenge * Monitoring of future skills and capability
current thinking and promote requirements
positive change.
* Identification of future talent
------------------- ---------------------------------- -------------------------------------------------------------
Not developing or retaining
capable teams * Annual employee appraisal process in place, providing
The business is not able to two way feedback on performance
keep hold of employees or improve
the performance of the teams
that they work within. * Training and development plans seek to maximise
Without capable teams, it becomes relevant skills and experience
very difficult to maintain
the high levels of customer
service that the Group strives Remuneration packages are benchmarked
for. When employee turnover where possible
increases it can adversely
affect morale within the rest
of the team.
------------------------------------- --------------------------------------------------------------
Poor project delivery
The quality of workmanship * Strategic trading arrangements in place with key
or poor commercial and operational suppliers and subcontractors to help ensure
delivery of a contract, whether consistent quality
by the Group or a joint venture
partner, does not meet expectations
of clients. * Collation and review of client feedback
Interim cash payments may be
withheld impacting working
capital and issues may also * Lessons learned exercises carried out on projects
impact contract profitability
and corporate reputation.
* Employees incentivised on basis of contract
performance
* Internal peer reviews
------------------------------------- --------------------------------------------------------------
Risk category Description and impacts Mitigation
------------------ ----------------------------------- -------------------------------------------------------------
Select right Misprice contract
opportunities When pricing a contract the * System of delegated authorities governs tenders and
The Group planned works are not costed the acceptance of work
undertakes correctly, increased commodity
several hundred prices are not factored in
contracts or risk is not properly evaluated, * A contract tender is reviewed at three key stages:
each year leading to a contract being pre-qualification, pre-tender and final tender
and it is mispriced. submission
important Leads to loss of profitability
that contractual on a contract and reduces overall
terms reflect gross margin. * Contract tender approved by the appropriate level of
risks arising management
from the nature
and complexity
of the works
and the duration
of the contract.
------------------ ----------------------------------- -------------------------------------------------------------
Managing changes to contracts
and contract disputes * Work carried out under standard terms wherever
As contracts progress there possible
are inevitably changes to the
works being delivered and a
risk exists that the Group * Well established systems of measuring and reporting
does not get properly reimbursed project progress and estimated outturns, including
for the cost of the changes any contract variations
as a result of disagreement,
poor commercial controls or
disputes. * Contract terms reviewed at tender stage and any
Leads to costs being incurred variations approved by the appropriate level of
that are not recovered and management
loss of profitability on a
contract. Ultimately the Group
may need to resort to legal * Reviews in place to ensure rigour is applied in core
action to resolve disputes processes
which can prove costly, and
the outcomes can be uncertain.
* Decision to take legal action based on appropriate
legal advice
* Suitable provision made for legal costs
------------------ ----------------------------------- -------------------------------------------------------------
Poor contract selection
Risk that the Group accepts * Business planning identifies markets and clients that
a contract outside of its core the Group will target
competencies or for which it
has insufficient resources.
This can become a greater risk * System of delegated authorities governs tenders and
when there is a shortage of the acceptance of work
opportunities in the market.
This may lead to poor
understanding * Plans for specific types of work and contract size
of project risks, poor project agreed by individual business unit
delivery and ultimately result
in contract losses and
reputational
damage.
------------------ ----------------------------------- -------------------------------------------------------------
Risk category Description and impacts Mitigation
--------------------- ------------------------------ ---------------------------------------------------------------
Distinctive Perfect Delivery
approach The Group does not fully * Continuing engagement with employees, clients and
The Group adopt supply chain
has a unique the philosophy of Perfect
and differentiating Delivery.
approach. Likely to incur additional * Internal resources dedicated to the further
If employees costs that erode profit development of Perfect Delivery, ensuring maximum
are not properly margins. engagement
engaged with It is also likely that client
the culture experiences will fall short
of the business, of the standards set by the
clients are Group, potentially leading
less likely to a reduction in repeat
to receive business
exceptional or in referrals from client
levels of recommendations.
service.
----------------------- ------------------------------ -------------------------------------------------------------
Business conduct
Failure by employees to * Independent 'Raising Concerns' phone line available
observe for all employees
the appropriate standards
of integrity and conduct in
dealing with clients, * Audit committee reviews incidents log from the
suppliers Raising Concerns phone line which includes the
and other stakeholders. This outcome of investigations into such incidents and any
is an increased risk in times follow up actions
of economic uncertainty and
hardship.
Could expose the Group to * Ethics policy communicated to all employees
significant potential
liability
and reputational damage that * Training in place to ensure awareness of and
results in it failing to compliance with both competition law and the Bribery
pre-qualify Act
for contracts.
* Reviews and risk assessments undertaken to ensure
adequate procedures are in place and followed
--------------------- ------------------------------ -------------------------------------------------------------
Innovation
Failure to adopt appropriate * Reviews undertaken to promote elimination of waste of
innovations in new products both resources and process, adopting lean methodology
or techniques. where appropriate
The Group becomes less
effective
than its competitors and not * Building Information Modelling strategy developed to
able to secure best value provide more efficient asset management across the
for, or offer the best whole life cycle
solutions
to, its clients.
* Maintaining knowledge base of new products and
thinking
--------------------- ------------------------------ -------------------------------------------------------------
Risk category Description and impacts Mitigation
--------------------- ------------------------------ ---------------------------------------------------------------
Successful Insolvency of key client,
outcomes sub-contractor or supplier * Work only carried out for financially sound clients,
The terms Risk that insufficient credit established through credit checks
on which the checks and due diligence is
Group trades not undertaken and that a
with counterparties key client, sub-contractor * Specific commercial terms, including payment terms,
affect its or supplier becomes with escrow accounts used as appropriate
liquidity. insolvent.
Without sufficient There is also a risk that,
liquidity, given the wider * Seek and obtain financial security where required
the Group's macro-economic
ability to climate, historical credit
meet its liabilities checks are relied upon that * Work with approved suppliers wherever possible
as they fall have subsequently been
due would overtaken
be compromised, by events. * Contracts with clients, sub-contractors or suppliers
which could Insolvency of a client may only entered into after review at the appropriate
ultimately result in significant level of delegated authority
lead to its financial
failure to loss due to a bad debt.
continue as Insolvency * Regular meetings with key supply chain members to
a going concern. of a sub-contractor or give and receive feedback and maintain the quality of
supplier the relationship
may disrupt a contract's
programme
of work and lead to increased
costs in finding replacements
for their services.
----------------------- ------------------------------ -------------------------------------------------------------
Management of working capital
Risk that poor management * Daily monitoring of cash levels and regular
of working capital leads to forecasting of future cash balances
inadequate liquidity and
funding
problems. * Regular stress testing of long-term cash forecasts
The lack of liquidity impacts
the Group's ability to
continue * Regular assessment of the level of banking facilities
to trade or restricts its available to the Group
ability to invest in
regeneration
schemes or growth markets. * Working capital monitored and managed as appropriate,
with acute focus on any overdue work in progress,
debtors or retentions
* For very significant purchases on large projects,
forward orders can be placed on a longer timescale
--------------------- ------------------------------ -------------------------------------------------------------
Management of overheads
The Group fails to * Overheads are reviewed on a monthly basis
responsibly
shape the business and
becomes * Business planning identifies future overhead
uncompetitive. requirements
If the cost base is too high,
the Group may be hindered
in winning new work and Internal and external benchmarking
profit is carried out to ensure
margins will be eroded. overhead levels are appropriate
--------------------- ------------------------------ -------------------------------------------------------------
Consolidated income statement
For the year ended 31 December 2012
2012 2011
Notes GBPm GBPm
---------------------------------------- ----- --------- ---------
Continuing operations
Revenue 5 2,047.1 2,226.6
Cost of sales (1,860.4) (2,010.9)
---------------------------------------- ----- --------- ---------
Gross profit 186.7 215.7
---------------------------------------- ----- --------- ---------
Amortisation of intangible assets 5 (2.9) (3.9)
Non-recurring items 5 (10.0) (1.4)
Other administrative expenses (153.7) (170.3)
---------------------------------------- ----- --------- ---------
Total administrative expenses (166.6) (175.6)
---------------------------------------- ----- --------- ---------
Share of net profit of equity accounted
joint ventures 5 5.7 0.3
Other gains and losses 9.4 0.4
---------------------------------------- ----- --------- ---------
Profit from operations 5 35.2 40.8
---------------------------------------- ----- --------- ---------
Finance income 2.3 1.6
Finance costs (3.3) (2.4)
---------------------------------------- ----- --------- ---------
Net finance expense (1.0) (0.8)
---------------------------------------- ----- --------- ---------
Profit before income tax expense 5 34.2 40.0
---------------------------------------- ----- --------- ---------
Income tax expense 6 (3.5) (7.2)
---------------------------------------- ----- --------- ---------
Profit for the year 30.7 32.8
---------------------------------------- ----- --------- ---------
Attributable to:
Owners of the Company 30.8 32.9
Non-controlling interests (0.1) (0.1)
---------------------------------------- ----- --------- ---------
30.7 32.8
---------------------------------------- ----- --------- ---------
Earnings per share
From continuing operations
Basic 8 72.5p 77.5p
Diluted 8 72.0p 76.5p
---------------------------------------- ----- --------- ---------
There were no discontinued operations in either the current or
comparative years.
Consolidated statement of comprehensive income
For the year ended 31 December 2012
2012 2011
GBPm GBPm
------------------------------------------------------- ----- -----
Profit for the year 30.7 32.8
------------------------------------------------------- ----- -----
Other comprehensive income/(expense):
Actuarial loss arising on defined benefit obligation (0.8) -
Deferred tax on defined benefit obligation 0.1 (0.1)
Movement on cash flow hedges in equity accounted joint
ventures (0.4) (0.7)
Reclassification adjustments for loss on cash flow
hedges included in profit 2.1 -
Other movement on cash flow hedges - (0.2)
------------------------------------------------------- ----- -----
Other comprehensive income/(expense) for the year,
net of income tax 1.0 (1.0)
------------------------------------------------------- ----- -----
Total comprehensive income for the year 31.7 31.8
------------------------------------------------------- ----- -----
Attributable to:
Owners of the Company 31.8 31.9
Non-controlling interests (0.1) (0.1)
------------------------------------------------------- ----- -----
31.7 31.8
------------------------------------------------------- ----- -----
Consolidated balance sheet
At 31 December 2012
2012 2011
Notes GBPm GBPm
------------------------------------------------- ----- ------- -------
Non-current assets
Goodwill 213.9 214.1
Other intangible assets 9.3 12.5
Property, plant and equipment 20.1 21.6
Investment property 11.3 11.1
Investments in equity accounted joint ventures 11 62.2 49.8
Investments 0.4 0.4
Shared equity loan receivables 19.2 17.6
336.4 327.1
------------------------------------------------- ----- ------- -------
Current assets
Inventories 159.4 146.0
Amounts due from construction contract customers 217.3 228.6
Trade and other receivables 187.6 186.5
Cash and cash equivalents 50.4 108.9
------------------------------------------------- ----- ------- -------
614.7 670.0
------------------------------------------------- ----- ------- -------
Total assets 951.1 997.1
------------------------------------------------- ----- ------- -------
Current liabilities
Trade and other payables (572.1) (620.9)
Amounts due to construction contract customers (47.4) (78.8)
Current tax liabilities (5.2) (8.7)
Finance lease liabilities (1.2) (0.8)
Provisions (3.0) (4.6)
(628.9) (713.8)
------------------------------------------------- ----- ------- -------
Net current liabilities (14.2) (43.8)
------------------------------------------------- ----- ------- -------
Non-current liabilities
Trade and other payables (22.9) (0.3)
Finance lease liabilities (5.0) (4.3)
Retirement benefit obligation (1.5) (1.3)
Deferred tax liabilities (19.0) (19.8)
Provisions (24.5) (22.0)
------------------------------------------------- ----- ------- -------
(72.9) (47.7)
------------------------------------------------- ----- ------- -------
Total liabilities (701.8) (761.5)
------------------------------------------------- ----- ------- -------
Net assets 249.3 235.6
------------------------------------------------- ----- ------- -------
Equity
Share capital 2.2 2.2
Share premium account 26.7 26.7
Capital redemption reserve 0.6 0.6
Own shares (5.6) (5.8)
Hedging reserve (2.3) (4.0)
Retained earnings 228.1 216.2
------------------------------------------------- ----- ------- -------
Equity attributable to owners of the Company 249.7 235.9
Non-controlling interests (0.4) (0.3)
------------------------------------------------- ----- ------- -------
Total equity 249.3 235.6
------------------------------------------------- ----- ------- -------
Consolidated cash flow statement
For the year ended 31 December 2012
2012 2011
GBPm GBPm
--------------------------------------------------- ------ ------
Profit from operations for the year 35.2 40.8
Adjusted for:
Amortisation of fixed life intangible assets 2.9 3.9
Share of net profit of equity accounted joint
ventures (5.7) (0.3)
Depreciation of property, plant and equipment 6.5 9.5
Expense in respect of share options 0.2 0.5
Defined benefit obligation payment (0.7) (0.7)
Defined benefit obligation charge 0.1 0.1
Gain on disposal of interests in joint ventures (8.8) -
Gain on disposal of property, plant and equipment (0.6) (1.0)
Revaluation of investment properties 0.5 0.2
Movement in fair value of shared equity loan
receivables (0.2) 0.9
Operating cash flows before movements in working
capital 29.4 53.9
--------------------------------------------------- ------ ------
Net increase in investment properties (0.7) (7.0)
Increase in shared equity loan receivables (1.5) (4.9)
Redemptions of shared equity 0.1 0.3
Increase in inventories (10.9) (3.2)
Decrease/(increase) in receivables 10.8 (7.5)
Increase in non-current provisions 2.5 6.6
Decrease in payables and short-term provisions (78.4) (41.2)
--------------------------------------------------- ------ ------
Movements in working capital (78.1) (56.9)
--------------------------------------------------- ------ ------
Cash utilised in operations (48.7) (3.0)
--------------------------------------------------- ------ ------
Income taxes paid (8.1) (6.8)
Interest paid (3.0) (2.0)
--------------------------------------------------- ------ ------
Net cash outflow from operating activities (59.8) (11.8)
--------------------------------------------------- ------ ------
Cash flows from investing activities
Interest received 2.2 1.4
Dividend from joint ventures 1.3 0.3
Proceeds on disposal of property, plant and
equipment 1.6 4.6
Purchases of property, plant and equipment (4.0) (5.4)
Net payments to acquire or increase interests
in joint ventures (7.0) (6.3)
Proceeds on disposal of interests in joint ventures 26.2 -
Payments for the acquisition of subsidiaries
and other businesses (0.1) (0.4)
---------------------------------------------------- ------ ------
Net cash inflow/(outflow) from investing activities 20.2 (5.8)
---------------------------------------------------- ------ ------
Cash flows from financing activities
Dividends paid (17.8) (17.8)
Repayments of obligations under finance leases (1.1) (4.3)
Net cash outflow from financing activities (18.9) (22.1)
---------------------------------------------------- ------ ------
Net decrease in cash and cash equivalents (58.5) (39.7)
Cash and cash equivalents at the beginning of
the year 108.9 148.6
---------------------------------------------------- ------ ------
Cash and cash equivalents at the end of the
year
Bank balances and cash 50.4 108.9
---------------------------------------------------- ------ ------
Consolidated statement of changes in equity
For the year ended 31 December 2012
Attributable to owners of the Company
-------------------------------------------------------------- ------
Reserve
Share Capital for own
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
2012 2.2 26.7 0.6 (5.8) (4.0) 216.2 235.9 (0.3) 235.6
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Total comprehensive
income for the year:
Net profit - - - - - 30.8 30.8 (0.1) 30.7
Actuarial loss
arising
on defined
benefit
obligation - - - - - (0.8) (0.8) - (0.8)
Deferred tax on
defined
benefit
obligation - - - - - 0.1 0.1 - 0.1
Movement on cash
flow
hedges in equity
accounted
joint ventures - - - - (0.4) - (0.4) - (0.4)
Reclassification
adjustments
for gains
included
in profit - - - - 2.1 - 2.1 - 2.1
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Total comprehensive
income for the
year,
net of income tax - - - - 1.7 30.1 31.8 (0.1) 31.7
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Share-based payments - - - - - 0.2 0.2 - 0.2
Exercise of share
options - - - 0.2 - (0.2) - - -
Movement on deferred
tax asset on
share-based
payments - - - - - (0.4) (0.4) - (0.4)
Dividends paid:
Final dividend for
2011 - - - - - (12.7) (12.7) - (12.7)
Interim dividend
for
2012 - - - - - (5.1) (5.1) - (5.1)
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Balance at 31
December
2012 2.2 26.7 0.6 (5.6) (2.3) 228.1 249.7 (0.4) 249.3
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Consolidated statement of changes in equity
For the year ended 31 December 2011
Attributable to owners of the Company
-------------------------------------------------------------- ------
Reserve
Share Capital for own
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 year:
Net profit - - - - - 32.9 32.9 (0.1) 32.8
Other comprehensive
income:
Deferred tax on
defined
benefit
obligation - - - - - (0.1) (0.1) - (0.1)
Movement on cash
flow
hedges in equity
accounted
joint ventures - - - - (0.7) - (0.7) - (0.7)
Other movement on
cash
flow hedges - - - - (0.2) - (0.2) - (0.2)
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Total comprehensive
income for the
year,
net of income tax - - - - (0.9) 32.8 31.9 (0.1) 31.8
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Share-based payments - - - - - 0.5 0.5 - 0.5
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 2010 - - - - - (12.7) (12.7) - (12.7)
Interim dividend
for
2011 - - - - - (5.1) (5.1) - (5.1)
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
Balance at 31
December
2011 2.2 26.7 0.6 (5.8) (4.0) 216.2 235.9 (0.3) 235.6
-------------------- -------- -------- ----------- -------- -------- --------- ------ --------------- -------
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 31 December 2012 was
723,970 (2011: 776,714).
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.
Cumulative movements recognised through the hedging reserve are
recycled through the income statement on disposal of the associated
joint ventures.
Notes to the condensed consolidated financial statements
For the year ended 31 December 2012
1 General information
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2012 or
2011 but is derived from those accounts. A copy of the statutory
accounts for 2011 was delivered to the Registrar of Companies and
those for 2012 will be delivered following the Company's annual
general meeting. The auditor 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 preliminary announcement 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 based on the
information available to them up to the time of their approval of
this preliminary announcement. 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 preliminary
announcement was prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
('IFRS'), this announcement does not itself contain sufficient
information to comply with IFRS.
In accordance with the Companies Act 2006, the Company will make
the annual report and accounts for the year ended 31 December 2012
that comply with IFRS available on the Company's website on or
about 25 March 2013. If a shareholder has requested to continue to
receive a hard copy of the annual report and accounts it will be
posted on or about 25 March 2013. A copy will be delivered to the
Registrar of Companies following the Company's annual general
meeting.
2 Basis of preparation
The Group's activities and the key risks facing its future
development, performance and position are set out in this
preliminary announcement and in its annual report and accounts for
the year ended 31 December 2012.
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
There have been no significant changes to accounting policies,
presentation or methods of preparation since the financial
statements for the year ended 31 December 2011 and the period to 30
June 2012.
5 Business segments
For management purposes, the Group is organised into five
operating divisions: Construction and Infrastructure, Fit Out,
Affordable Housing, Urban Regeneration and Investments. The
divisions' activities are as follows:
-- Construction and Infrastructure: offers national design,
construction and infrastructure services to private and public
sector clients. The division works on projects and frameworks of
all sizes across a broad range of sectors including commercial,
defence, education, energy, healthcare, industrial, leisure,
retail, transport and water.
-- Fit Out: specialises in fit out and refurbishment projects in
the commercial and government office, education, retail, technology
and leisure markets. Overbury operates as a national fit out
company through multiple procurement routes and Morgan Lovell
specialises in the design and build of offices.
-- Affordable Housing: specialises in the design and build,
refurbishment and maintenance of homes and the regeneration of
communities across the UK. The division operates a full
mixed-tenure model creating homes for rent, shared ownership and
open market sale.
-- Urban Regeneration: works with landowners and public sector
partners to unlock value from under-developed assets to bring about
sustainable regeneration and urban renewal through the delivery of
mixed-use projects. Typically projects create commercial, retail,
residential, leisure and public realm facilities.
-- Investments: facilitates project development, primarily in
the public sector, by providing flexible financing solutions and
development expertise. The division covers a wide range of markets
including urban regeneration, education, healthcare, housing,
emergency services, defence and infrastructure.
Group Activities represents costs and income arising from
corporate activities which cannot be allocated to the operating
segments. These include costs such as treasury management,
corporate tax coordination, insurance management, pension
administration and company secretarial services. The divisions are
the basis on which the Group reports its segmental information as
presented below:
2012
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Construction
and Affordable Urban Group
Infrastructure Fit Out Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Revenue:
external 1,168.1 426.8 385.8 62.3 4.1 - - 2,047.1
Revenue:
inter-segment 0.1 10.0 - - - - (10.1) -
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Included in profit/(loss)
below:
Share of
results
of associates
and joint
ventures
after tax - - (0.3) 0.3 5.7 - - 5.7
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Profit/(loss)
from
operations
before
amortisation
and
non-recurring
items 19.7 11.3 11.5 2.7 7.4 (4.5) - 48.1
Amortisation
of intangible
assets - - (0.8) (2.1) - - - (2.9)
Non-recurring
items (6.8) - (2.5) - (0.2) (0.5) - (10.0)
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Profit/(loss)
from
operations 12.9 11.3 8.2 0.6 7.2 (5.0) - 35.2
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------
Net finance
expense (1.0)
-------
Profit before income
tax expense 34.2
-------
During the year ended 31 December 2012 and the year ended 31
December 2011, inter-segment sales were charged at prevailing
market prices and significantly all of the Group's operations were
carried out in the UK.
2011
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Construction
and Affordable Urban Group
Infrastructure Fit Out Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Revenue:
external 1,267.8 438.0 462.3 56.6 1.9 - - 2,226.6
Revenue:
inter-segment 0.2 7.0 3.2 - - - (10.4) -
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Included in profit/(loss)
below:
Share of
results
of associates
and joint
ventures
after tax - - (0.1) (1.2) 1.6 - - 0.3
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Profit/(loss)
from
operations
before
amortisation
and
non-recurring
items 21.1 12.4 18.5 3.9 (3.9) (5.9) - 46.1
Amortisation
of intangible
assets - - (0.9) (3.0) - - - (3.9)
Non-recurring
items (1.4) - - - - - - (1.4)
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------ -------
Profit/(loss)
from
operations 19.7 12.4 17.6 0.9 (3.9) (5.9) - 40.8
--------------- -------------- ------- ---------- --------------- ----------- ----------- ------------
Net finance
expense (0.8)
-------
Profit before income
tax expense 40.0
-------
6 Income tax expense
2012 2011
GBPm GBPm
------------------------------------------------ ----- ------
Current tax expense/(credit):
UK corporation tax 5.4 10.0
Adjustment in respect of prior years as set out
below (0.8) (25.1)
------------------------------------------------ ----- ------
4.6 (15.1)
------------------------------------------------ ----- ------
Deferred tax (credit)/expense:
Current year (1.3) (1.0)
Adjustment in respect of prior years as set out
below 0.2 23.3
------------------------------------------------ ----- ------
(1.1) 22.3
------------------------------------------------ ----- ------
Income tax expense for the year 3.5 7.2
------------------------------------------------ ----- ------
2012 2011
Current tax expense: GBPm GBPm
---------------------------------------------------- ----- -----
Profit before tax 34.2 40.0
Less: post tax share of profits from joint ventures (5.7) (0.3)
---------------------------------------------------- ----- -----
28.5 39.7
UK corporation tax rate 24.5% 26.5%
Income tax expense at UK corporation tax rate 7.0 10.6
Tax effect of:
Gain on disposal of equity accounted joint ventures
not giving rise to a tax liability (2.2) -
Expenses that are not deductible in determining
taxable profits 0.9 0.3
Agreement with HMRC (see below) - (2.8)
Other adjustments in respect of prior years (0.6) (0.5)
Other effect of expected forthcoming change
in tax rates upon closing deferred tax balance (1.5) (0.1)
Other (0.1) (0.3)
---------------------------------------------------- ----- -----
Income tax expense for the year 3.5 7.2
---------------------------------------------------- ----- -----
Effective tax rate for the year 12.3% 18.1%
---------------------------------------------------- ----- -----
The low effective tax rate for 2012 arises primarily as a result
of there being no expected tax liabilities upon the gains on
disposals of investments during the year, together with the effect
of revaluing the deferred tax liabilities to reflect changes in the
statutory rate of corporation tax from 25% to 23%. After adjusting
for these two items the tax charge is approximately equal to tax at
the UK corporation tax rate on profit before tax excluding joint
venture profit, which is reported after tax.
During 2011 the Group resolved its discussions with HMRC
concerning corporation tax matters arising following the
acquisition of certain businesses and assets from Amec in 2007.
This gave rise to a net GBP2.8m reduction in the 2011 tax
charge.
7 Dividends
Amounts recognised as distributions to equity holders
in the year:
------------------------------------------------------- ---- ----
2012 2011
GBPm GBPm
------------------------------------------------------- ---- ----
Final dividend for the year ended 31 December 2011
of 30.0p (2010: second interim dividend of 30.0p)
per share 12.7 12.7
Interim dividend for the year ended 31 December 2012
of 12.0p (2011: 12.0p) per share 5.1 5.1
------------------------------------------------------- ---- ----
17.8 17.8
------------------------------------------------------- ---- ----
Proposed dividend:
2012 2011
GBPm GBPm
------------------------------------------------------- ---- ----
Proposed final dividend for the year ended 31 December
2012 of 15.0p (2011: final dividend of 30.0p) per
share 6.4 12.8
------------------------------------------------------- ---- ----
The proposed final dividend of 15.0p is subject to approval by
shareholders at the annual general meeting and has not been
included as a liability in these financial statements.
The proposed final dividend will be paid on 24 May 2013 to
shareholders on the register at 3 May 2013.
The ex-dividend date will be 1 May 2013.
8 Earnings per share
There are no discontinued operations in either the current or
comparative years.
The calculation of the basic and diluted earnings per share is
based on the following data:
2012 2011
Earnings Notes GBPm GBPm
----------------------------------------------------------- ----- --------- ---------
Earnings before tax 34.2 40.0
Deduct tax expense per the income statement 6 (3.5) (7.2)
Non-controlling interests 0.1 0.1
----------------------------------------------------------- ----- --------- ---------
Earnings for the purposes of basic and dilutive
earnings per share being net profit attributable
to owners of the Company 30.8 32.9
Add back:
Amortisation expense 2.9 3.9
----------------------------------------------------------- ----- --------- ---------
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 33.7 36.8
----------------------------------------------------------- ----- --------- ---------
2012 2011
Number of shares No. '000s No. '000s
----------------------------------------------------------- ----- --------- ---------
Weighted average number of ordinary shares for
the purposes of basic earnings per share 42,497 42,442
Effect of dilutive potential ordinary shares:
Share options 238 204
Conditional shares not vested 45 357
----------------------------------------------------------- ----- --------- ---------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 42,780 43,003
----------------------------------------------------------- ----- --------- ---------
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
year that the options were outstanding. The weighted average share
price for the year was GBP6.41 (2011: GBP6.30).
Earnings per share as calculated in accordance with IAS 33,
'Earnings per Share' are disclosed below:
2012 2011
----------------------------------------------------- ----- -----
Basic earnings per share 72.5p 77.5p
Diluted earnings per share 72.0p 76.5p
----------------------------------------------------- ----- -----
Earnings per share adjusted for amortisation expense:
2012 2011
----------------------------------------------------- ----- -----
Basic earnings per share adjusted for amortisation
expense 79.3p 86.7p
Diluted earnings per share adjusted for amortisation
expense 78.8p 85.6p
----------------------------------------------------- ----- -----
A total of 1,030,688 share options that could potentially dilute
earnings per share in the future were excluded from the above
calculations because they were anti-dilutive at 31 December 2012
(2011: 2,311,976).
9 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 year, 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 year end in relation to
joint ventures are as follows:
Provision of goods Amounts owed by/(to)
and services related parties
-------------------- ----------------------
Joint venture 2012 2011 2012 2011
GBPm GBPm GBPm GBPm
---------------------------------------------------- ----- ---------- -------- ---------- ----------
Claymore Roads (Holdings) Limited - - - 0.4
Community Solutions Investment Partners
Limited (a) 1.7 2.1 - 0.3
Renaissance Miles Platting Limited 0.1 0.1 - -
Blue Light Holdings Limited (a) - 0.3 - -
Ashton Moss Developments Limited - - (0.1) (0.2)
Bromley Park Limited - - (0.6) (0.6)
ECf (General Partner) Limited 1.4 2.0 - -
Lewisham Gateway Developments Limited (b) - - - 0.2
The Compendium Group Limited 4.5 3.7 2.0 0.6
Access for Wigan (Holdings) Limited - 19.5 0.1 0.3
Hull Esteem Consortium PSP Limited 44.1 46.7 1.9 1.2
St Andrews Brae Developments Limited - 2.8 0.1 0.1
Taycare Health (Holdings) Limited 0.2 - 0.1 -
The Bournemouth Development Company
LLP 0.1 0.1 1.3 0.5
----------------------------------------------------------- ---------- -------- ---------- ----------
52.1 77.3 4.8 2.8
---------------------------------------------------------- ---------- -------- ---------- ----------
(a) During the year the Group disposed of its interests in Community Solutions
Investment Partners Limited and Bluelight Holdings Limited
(b) In 2012 Lewisham Gateway Developments Limited became a wholly owned
subsidiary of the Group
Amounts owed by/(to)
related parties
----------------------
2012 2011
GBPm GBPm
-------------------------------- ---------- ----------
Amounts owed by related parties 5.5 3.6
Amounts owed to related parties (0.7) (0.8)
-------------------------------- ---------- ----------
4.8 2.8
-------------------------------- ---------- ----------
In addition, during the year, consultancy services were provided
to the Company by a wholly owned subsidiary of Chime Communications
plc, of which Simon Gulliford is a director, for an amount of
GBP0.1m. There were no amounts outstanding at the balance sheet
date.
All transactions with related parties were made on an arm's
length basis.
The amounts outstanding are unsecured and will be settled in
cash. Other than construction related performance guarantees given
in the ordinary course of business, no guarantees have been given
to or received from related parties. No provisions have been made
for doubtful debts in respect of amounts owed by related parties.
All amounts owed to or owing by related parties are non-interest
bearing.
Remuneration of key management personnel
The remuneration of the directors, who are key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 'Related Party Disclosures'.
2012 2011
GBPm GBPm
------------------------------ ---- ----
Emoluments 2.3 3.2
Social security contributions 0.4 0.4
Termination benefits 0.5 -
Post-employment benefits 0.2 0.2
------------------------------ ---- ----
3.4 3.8
------------------------------ ---- ----
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 year or in the subsequent
period to 19 February 2013.
10 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.
As at 31 December 2012, contract bonds in issue under
uncommitted facilities covered GBP186.5m (2011: GBP204.1m) of
contract commitments of the Group.
11 Joint ventures
Additions
The increase in investments in joint ventures during the year
was mainly due to an additional equity investment in ISIS Waterside
Regeneration Partnership of GBP18.5m on 22 November 2012, which
increased the Group's interest in the joint venture from 25% to 50%
and additional debt investment of GBP4.7m in Taycare Health
(Holdings) Limited, GBP2.7m in Renaissance Miles Platting Limited
and GBP2.4m in HB Community Solutions Holdco Limited.
Disposals
The disposals of investments in joint ventures principally
relate to the following transactions:
i) On 16 February 2012 the Group sold its 33.5% holding in the
Dorset Fire and Rescue PFI Project for cash consideration of
GBP3.8m. The gain on disposal was GBP1.8m.
ii) On 20 July 2012 the Group sold its NHS LIFT and medical
properties interests in Community Solutions Investment Partners
Limited and CSPC (3PD) Limited, both equity accounted joint
ventures in which the Group held a 50% share, for cash
consideration of GBP23.9m. The gain on disposal was GBP7.0m,
comprising a gain of GBP9.1m in respect of the investments and a
loss of GBP2.1m in respect of the hedging reserve which was
recycled to the income statement. The transaction costs were
GBP1.5m.
The disposals are in line with the Group's strategy of realising
investments as they mature, in order to redeploy capital into new
projects.
iii) On 20 December 2012 the Group, through its subsidiary Muse
Developments Limited, acquired from Taylor Wimpey UK Limited its
50% interest in the jointly owned Lewisham Gateway Developments
Limited for GBP0.4m. As a result of the transaction, Muse
Developments Limited now owns the entire issued share capital of
Lewisham Gateway Developments Limited. This transaction has been
accounted for as a step acquisition under IFRS 3 'Business
Combinations' and accordingly is shown as a disposal of an
investment in a joint venture.
The fair value of the consideration payable to Taylor Wimpey UK
Limited for the purchase was GBP0.4m. Of this, GBP0.1m was paid in
cash during the year and the remaining consideration will be paid
upon reaching specified project milestones. There were no
acquisition-related costs.
Due to the proximity of the acquisition date to the balance
sheet date, the fair values assigned to the identifiable assets and
liabilities acquired are provisional. The provisional fair value of
the Group's existing 50% interest in Lewisham Gateway Development
Limited was GBP1.4m, comprising equity of GBP1.2m and goodwill of
GBP0.2m. The directors determined that the provisional fair value
of the pre-existing interest in the joint venture was different
from its previous carrying value of GBP1.7m, which resulted in a
loss on re-measurement of GBP0.3m.
The total fair value of the Group's original interest and the
consideration payable for the additional 50% interest total
GBP1.8m. The fair value acquired totalled GBP2.1m, thereby giving
rise to a gain on a bargain purchase of GBP0.3m.
12 Subsequent events
There were no significant subsequent events that affected the
financial statements of the Group.
Responsibility statement
The responsibility statement below has been prepared in
connection with the Company's annual report and accounts for the
year ended 31 December 2012. Certain parts thereof are not included
within this announcement.
We confirm to the best of our knowledge:
(a) The financial statements, prepared in accordance with IFRS
as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
(b) The business review, which is incorporated in the directors'
report, includes a fair review of the development and performance
of the business and the position of the Company and the
undertakings in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board on 19
February 2013 and is signed on its behalf by:
John Morgan David Mulligan
Chief Executive Finance Director
19 February 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
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