TIDMMGNS
RNS Number : 2838A
Morgan Sindall Group PLC
18 February 2014
18 February 2014
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
RESULTS FOR THE FULL YEAR (FY) ENDED 31 DECEMBER 2013
FY 2013 FY 2012 % Change
Revenue GBP2,095m GBP2,047m +2%
Operating profit - adjusted(1) GBP33.6m GBP48.1m -30%
Profit before tax - adjusted(1) GBP31.3m GBP47.1m -34%
Earnings per share - adjusted(1) 60.9p 92.0p -34%
Year end net cash GBP70m GBP50m +40%
Average (net debt) (GBP19m) (GBP40m) -53%
Total dividend per share 27.0p 27.0p n/c
Operating profit - reported GBP16.2m GBP35.2m -54%
Profit before tax - reported GBP13.9m GBP34.2m -59%
Basic earnings per share -
reported 35.4p 72.5p -51%
---------------------------------- --------- --------- --------
(1) Adjusted is defined as before intangible amortisation
(GBP2.7m), exceptional operating items (GBP14.7m) and (in the case
of earnings per share) deferred tax credit
GBP2.5m (FY 2012: intangible amortisation (GBP2.9m), exceptional
operating items (GBP10.0m) and deferred tax credit GBP1.5m)
Group highlights:
-- Continued tough market conditions throughout the year:
o Some signs of increased activity and market confidence through
the second half
o Order book up 8%. Regeneration & development pipeline up
23%
-- Margins remain under pressure, mainly in Construction &
Infrastructure and Affordable Housing, due to high
competition and increased input costs
-- Strategic focus on:
o Maximising returns from existing schemes - regeneration
developments and construction frameworks
o Differentiation through complex construction and development
schemes, requiring an integrated Group
approach
-- Strong cash management with average debt levels showing
improvement on 2012. Net cash of GBP70m at year end
-- GBP1.7m increase in exceptional charge to GBP14.7m (in
relation to four old construction contracts announced at the half
year) due to commercial settlement of one contract in the second
half
-- Total dividend of 27.0p per share, level with prior year
Commenting on today's results, Chief Executive, John Morgan
said:
"2013 has seen challenging conditions predominate across most of
our markets, with competitive pressures impacting on margins and
profitability. Notwithstanding this, the positive operating cash
flow generated by the business has allowed us to make further
investment in strategic assets, key skills and resources, which
positions the Group well to benefit from future growth
opportunities.
Looking ahead to 2014, although there are signs of improving
conditions in some of our markets, it is anticipated that upward
pressure on supply chain costs and skills availability will provide
additional management challenges. Against this backdrop, we remain
confident that our robust order book and on-going disciplined
approach to contract selectivity will support the delivery of
growth in this year and beyond."
Enquiries
Morgan Sindall Group Tel: 020 7307 9200
John Morgan
Steve Crummett Tel: 020 7404 5959
Brunswick
Jonathan Glass
Nina Coad
Presentation
1. There will be an analyst and investor presentation at Numis
Securities Ltd's offices, The London Stock Exchange
Building, 10 Paternoster Square, London, EC4M 7LT at 09.30 GMT.
Coffee and registration will be from 09.00
2. A copy of these results is available on www.morgansindall.com
3. A recording of today's presentation of these results to
investors and analysts will be available on
www.morgansindall.com
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK Construction &
Regeneration group with a turnover of GBP2.1 billion, employing
around 5,700 employees and operating in the public and commercial
sectors. It operates through five divisions of Construction &
Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and
Investments.
Basis of Preparation
The term 'adjusted' excludes the impact of intangible
amortisation, exceptional operating items and the deferred tax
credit arising due to the change in the UK corporation tax rate.
Exceptional operating items are items of financial performance
which the Group believes should be separately identified on the
face of the income statement to assist in the understanding of the
financial performance of the Group.
In FY 2013, intangible amortisation was GBP2.7m (FY 2012:
GBP2.9m), exceptional operating items were GBP14.7m (FY 2012:
GBP10.0m) and the deferred tax credit was GBP2.5m (FY 2012:
GBP1.5m).
Group Operating Review
Financial
Revenue for the period was 2% up on the prior year at GBP2,095m.
The Group's committed order book(*) as at 31 December 2013 was
GBP2.4bn, an increase of 8% since the previous year end, whilst the
regeneration & development pipeline(**) stood at GBP3.0bn, up
on the previous year end by 23%.
The adjusted gross margin reduced 90bps to 8.2% (FY 2012: 9.1%),
impacted by competitive market pressures mainly across the
Construction & Infrastructure and Affordable Housing
divisions.
Adjusted operating profit of GBP33.6m was 30% down on the prior
year, with adjusted operating margin of 1.6% (FY 2012: 2.3%). This
included profit from the sale of investments totalling GBP9.9m (FY
2012: GBP8.8m).
The net finance expense increased to GBP2.3m (FY 2012: GBP1.0m),
impacted by lower interest received from joint ventures, higher
bank fees and an unwinding of the discount on deferred
consideration, which together more than offset the benefit of a
lower net interest charge on lower average net debt.
The tax rate, excluding the deferred tax credit, reduced to 11%
(FY 2012: 18%), primarily as the profit on the sale of investments
is treated as non-taxable.
The adjusted earnings per share of 60.9p and fully diluted
adjusted earnings per share of 60.0p were both down 34% on the
prior year.
Exceptional operating items of GBP14.7m have been charged in the
year representing an impairment to trade and other receivables in
relation to four old construction contracts held on the balance
sheet.
At the half year, an impairment of GBP13.0m was made in respect
of these items, which was based on an assessment of progress made
at that time towards recovering these amounts and the expected
time, cost and associated risk of pursuing legal remedies to
achieve recovery. During the second half, there has been commercial
resolution achieved on one of these contracts, whilst another has
been impaired to reduce the carrying value to nil. In relation to
the remaining two contracts, the Board believes it is appropriate
to provide against these balances to an amount it considers is a
balanced estimate of overall likely resolution based upon its
current assessment of progress made towards recovering these
amounts and the expected time, cost and associated risk of pursuing
legal remedies to achieve recovery.
The result is that after charging exceptional operating items,
the reported profit before tax for the year was GBP13.9m (FY 2012:
GBP34.2m). Basic earnings per share was 35.4p (FY 2012: 72.5p).
The on-going focus on cash and working capital management has
continued to deliver positive progress. Operating cash flow of
GBP14.9m was generated, compared to an operating cash outflow of
GBP42.7m in the prior year. A key component of this is working
capital, where a working capital outflow of GBP8.4m in the year
compared to an outflow of GBP76.9m in 2012.
The average daily net debt for the year was GBP19m, an
improvement on last year (FY 2012: net debt GBP40m). The average
daily net debt for the second half of 2013 was GBP6m (H2 2012: net
debt GBP45m). The Group had net cash of GBP70m as at 31 December
2013 (FY 2012: GBP50m).
During the period, the Group has increased its committed banking
facilities to provide additional headroom as well as providing
available facilities to take advantage of investment opportunities
as they arise. Total committed facilities are now GBP140m, of which
GBP110m expire in September 2015, GBP15m in May 2016 and GBP15m in
September 2016.
The final dividend of 15.0p per share has been held level with
the prior year (FY 2012: 15.0p), resulting in a total dividend for
the year of 27.0p (FY 2012: 27.0p).
Strategy
Morgan Sindall Group's strategy is focused on two distinct
business activities: Construction and Regeneration.
Construction activities currently represent 92% of Group
revenue, generated from the following divisions:
-- Construction & Infrastructure (59% of revenue): Focused
on the commercial, defence, education, energy,
healthcare, industrial, leisure, retail, transport and water
markets
-- Fit Out (20% of revenue): Focused on London and Commercial
office space with opportunities in commercial,
central and local government offices, higher education and
retail banking
-- Construction and services work within Affordable Housing (13%
of revenue): Focused on new build contracting and
planned and response maintenance
Regeneration activities include the Urban Regeneration and
Investments divisions and mixed tenure development within
Affordable Housing. Regeneration is currently 8% of Group revenue
with an order book of GBP3.0bn, up 23% on the previous year.
The positive operating cash generation from Construction allows
investment in longer term Regeneration projects to deliver long
term sustainable returns.
The Group continues to adapt to challenging market conditions by
increasing collaboration and integration between the divisions
enhancing its differentiation. Skills and experience from across
the Group are being brought together to deliver complex projects
with more attractive returns.
Outlook
Looking ahead to 2014, although there are signs of improving
conditions in some of our markets, it is anticipated that upward
pressure on supply chain costs and skills availability will provide
additional management challenges. Against this backdrop, we remain
confident that our robust order book and on-going disciplined
approach to contract selectivity will support the delivery of
growth in this year and beyond.
Business Review
The following Business Review is given on an adjusted basis,
unless otherwise stated.
Order book and regeneration & development pipeline
The Group's committed order book(*) at 31 December 2013 was
GBP2.4bn, an increase of 8% from the previous year end. The
divisional split is shown below.
Order book FY 2013 FY 2012 % change
GBPm GBPm
------------------------------- ------- ------- --------
Construction & Infrastructure 1,499 1,519 -1%
Fit Out 142 170 -16%
Affordable Housing 581 466 +25%
Urban Regeneration 143 65 +120%
Investments 38 - n/a
------------------------------- ------- ------- --------
Group committed order book 2,403 2,220 +8%
------------------------------- ------- ------- --------
(*) "Committed order book" comprises the secured order book and
framework order book. The secured order book represents the Group's
share of future revenue that will be derived from signed contracts
or letters of intent. The framework order book represents the
Group's expected share of revenue from the frameworks on which the
Group has been appointed. This excludes prospects where
confirmation has been received as preferred bidder only, with no
formal contract or letter of intent in place.
The Group's regeneration & development pipeline(**) was
GBP3.0bn, an increase of 23% from the previous year end.
Regeneration & development FY 2013 FY 2012
pipeline GBPm GBPm % change
---------------------------------- ------- ------- --------
Affordable Housing 715 354 +102%
Urban Regeneration 1,953 1,941 +1%
Investments 368 179 106%
---------------------------------- ------- ------- --------
Group regeneration & development
pipeline 3,036 2,474 +23%
---------------------------------- ------- ------- --------
(**) "Regeneration & development pipeline" represents the
Group's share of the gross development value of secured schemes
including the development value of open market housing schemes.
Construction & Infrastructure
FY 2013 FY 2012 % change
GBPm GBPm
------------------------------ ------- ------- --------
Revenue 1,234 1,168 +6%
Operating profit - adjusted 12.7 19.7 -36%
Operating margin - adjusted 1.0% 1.7% -70bps
------------------------------ ------- ------- --------
The Construction & Infrastructure division has experienced
challenging market conditions through the year, which has
significantly impacted on overall profitability. Although
divisional revenue of GBP1,234m was up 6% on the prior year (FY
2012: GBP1,168m), operating margin reduced to 1.0% impacted by
competitive pressures and more latterly by cost inflation,
whichresulted in operating profit of GBP12.7m (FY 2012: GBP19.7m).
The committed order book of GBP1,499m has decreased by 1% since the
end of 2012 and of this total, 54% is committed in 2014.
In terms of markets served, the largest market sector for the
division is Transport (Highways, Aviation, Rail), which accounted
for 28% of divisional revenue. Other significant markets served are
Education (26%) and Water (14%). By type of activity, Construction
accounted for 56% of divisional revenue (FY 2012: 57%) and
Infrastructure accounted for 44% (FY 2012: 43%).
Within Infrastructure, the division has made strong progress in
Transport, where continuing Government investment has helped the
division increase its profile in the highways sector. This has
included significant activity on Highways Agency smart motorway
schemes, such as the award, in joint venture, of the M1 upgrade
between junctions 39 and 42. The Aviation sector particularly
values the benefits of the division's integrated design and build
offering, with work being undertaken on a range of projects
covering terminals, air traffic control centres, runways, hangars
and airport infrastructure. The division has furthered its
expertise in safe and consistent delivery in these challenging
environments with the completion of the rehabilitation of Heathrow
Airport's southern runway - activity on the northern runway is
scheduled for 2014. At Stansted Airport, the division has secured a
new framework agreement for the provision of design, engineering,
planning and architectural services. The division has positioned
itself for further growth in Rail by combining its rail
electrification capabilities with its main rail offering and is now
addressing the market with a more comprehensive range of services
through a simplified structure. In January 2014, the division was
awarded an alliancing contract by Network Rail in relation to the
GBP650m Edinburgh-Glasgow Improvement Programme (EGIP). The
division has already successfully delivered the new GBP25m station
at Haymarket in Edinburgh through EGIP.
The Energy sector remains attractive as the division delivers
efficient energy solutions in generation, transmission and
distribution through strategic alliances and frameworks. The
division continues to deliver projects on National Grid's
Electricity Alliance Central (EAC) framework which provides major
enhancements to the UK's electrical transmission infrastructure as
part of a five year agreement which runs until March 2017. The
Alliance has recently been awarded a GBP10m scheme at Middleton
Substation, near Heysham, Lancashire and work will start on site in
March 2014. The Alliance also continues to deliver the GBP110m
project at Connah's Quay which involves the construction of a new
400kV Gas Insulated Switchgear (GIS) substation. Both of these
projects play a vital role in the reinforcement of the high voltage
transmission infrastructure in north-west England. In the nuclear
sector, work has commenced at Sellafield following last year's
appointment as delivery partner in joint venture on the potential
15-year GBP1.1bn contract, and further levels of activity will be
undertaken in 2014.
During 2013, the division continued to help maintain and improve
the UK's Water networks through positions on three frameworks. It
remains committed to growing its presence further in this market;
as the water industry starts procurement for its next asset
management period (AMP), Severn Trent Water and Yorkshire Water
have already confirmed the division's position on their AMP6
frameworks.
In addition, its specialist tunnelling capability on large-scale
civil engineering schemes was demonstrated by further progress on
Crossrail projects and Thames Water's Lee Tunnel. Further
investment will be made in 2014 to secure, in joint venture, a
contract within the Thames Tideway Tunnel project, following
pre-qualification success.
The Construction business has worked on projects alongside all
other Group divisions, demonstrating how the Group's integrated
approach can help reduce complexity for clients and overcome
barriers to success. It has continued to increase its foothold in
the Commercial sector, not least in London where it was appointed
by The Crown Estate in June to refurbish 1-3 Regent Street, a Grade
II listed building in St. James's. It is well positioned as the
sector's recovery gains traction. In Education, GBP264m awards were
secured across the country during the year.
Importantly, the division has secured a place on the Defence
Infrastructure Organisation design and build framework covering the
East Midlands and Eastern England. The framework, estimated to be
worth between GBP100m and GBP250m over an initial four year period,
and potentially for a further three years, is the first of seven
Capital Works Frameworks procured under the Next Generation Estates
Contracts programme for the delivery of construction projects on
the Defence Estate.
Exceptional operating items of GBP14.7m have been charged in the
year representing impairments to trade and other receivables in
relation to four old construction contracts held on the balance
sheet. During the second half, there has been commercial resolution
achieved on one of these contracts, whilst another has been
impaired to reduce the carrying value to nil.
Looking ahead, the division is focused on building its
integrated offering to its key strategic sectors, with a view to
securing more complex and long-term projects that offer enhanced
returns through strategic alliances, frameworks and working
collaboratively across the Group. At the same time, on-going
investment in developing the division's skill base and supply chain
will further enhance its ability to deliver the highest operational
standards to its customers.
Although increasing market confidence in future construction
output has become apparent in the latter part of the year, as
evidenced by increased activity and bidding levels, this has been
accompanied by upward pressure on supply chain costs and
availability, which will impact on full margin recovery. Against
this backdrop, continued stringent bid selection and rigorous
management of working capital will underpin performance and will
further position the division to benefit from future growth
opportunities as they arise.
Fit Out
FY 2013 FY 2012 % change
GBPm GBPm
----------------------------- ------- ------- --------
Revenue 427 437 -2%
Operating profit - adjusted 10.9 11.3 -4%
Operating margin - adjusted 2.6% 2.6% -
----------------------------- ------- ------- --------
Market conditions for Fit Out have remained broadly stable
throughout the year, with strong competition resulting in a price
sensitive market. In the final quarter of the year though, early
indications of growing confidence in market improvement were noted
in London and across the regions.
Although revenue was down 2% on the prior year, the operating
margin was held level at 2.6% (FY 2012: 2.6%) resulting in an
operating profit of GBP10.9m (FY 2012: GBP11.3m). The committed
order book of GBP142m was down 16% compared to the prior year end,
however the current level of expected orders and high quality
prospects in the bid pipeline suggest an increasing level of
overall sales activity going into 2014.
The London market, which accounts for 74% of revenue, has
experienced improving occupier confidence with customers in
professional services and the technology, media and telecoms
sectors all driving demand. Activity has been weighted towards
refurbishment of offices whilst in occupation and the division's
flagship project, the fit out of PwC's 450,000 sq ft headquarters
at Embankment Place, London has been successfully delivered. This
ambitious and highly technical refurbishment programme set out to
revitalise dated and inefficient workspaces and was carried out
with around 2,000 staff in occupation. The complex refurbishment of
the building achieved an 'outstanding' BREEAM score (Building
Research Establishment Environmental Assessment Method) and the
building now boasts some of the highest sustainability credentials
in Europe.
In other regions (26% of revenue), high profile completions
include ITV's new high specification facilities at MediaCityUK in
Salford whilst the integrated services of the Fit Out and
Construction & Infrastructure divisions delivered a highly
technical and strategic project for National Grid.
Beside the commercial office market sector which accounts for
88% of revenue, higher education (8% of revenue) and retail banking
(1% of revenue) remain other strategic growth sectors. As major
universities embark on significant capital spend programmes, the
division has increased its sector presence with noteworthy wins
from five of London's leading universities and three major regional
universities. Within retail banking, market opportunities are
expected to increase as banks undergo consolidation and estate
rationalisation.
The period has also seen the successful launch of the division's
Workplace Consultancy service, undertaking work within its first
year of operation for prominent clients including Nuffield Health
and SAS. Other highlights include the division winning its first
fit out project through referral from one of its international
alliances.
Looking ahead, it is anticipated that the market will show a
measured recovery in 2014, with renewed confidence leading to an
increase in profitable opportunities across all core sectors. The
division is well placed to capitalise on the increasing number of
larger corporates securing office space for 2015-16 occupation and
the expected significant surge in lease expiries expected in London
over the next four years. As occupiers seek new premises in a
supply-constrained market, it is anticipated that this demand will
lead to an improved profitable pipeline from which the division is
well-positioned to benefit.
Affordable Housing
FY 2013 FY 2012 % change
GBPm GBPm
----------------------------- ------- ------- --------
Revenue 381 386 -1%
Operating profit - adjusted 8.6 11.5 -25%
Operating margin - adjusted 2.3% 3.0% -70bps
----------------------------- ------- ------- --------
Strategically, the Affordable Housing divisional activities can
be categorised into (i) Regeneration (mixed-tenure schemes which
include open market housing developments) and (ii) Construction
& Services (being new build housing contracting and planned and
response maintenance services).
Total divisional revenue of GBP381m was slightly down by 1% (FY
2012: GBP386m), whilst operating profit of GBP8.6m was down 25% (FY
2012: GBP11.5m). Although overall performance showed an improvement
in the second half, the reduction in margin in the year was driven
primarily by competition and a lower margin contribution from the
Construction & Services activities, offset in part by positive
revenue and margin growth from the Regeneration activities.
Regeneration (28% of divisional revenue) is the key strategic
focus of the division through its mixed-tenure activities. The
division experienced improved conditions mainly in the second half
of the year, driven by an uplift in open market house sales which
were boosted by the Government's 'Help to Buy' Scheme. This
contributed to a 36% increase in open market sales in the year with
the average open market sales price increasing by 14% to GBP177,000
(2012: GBP155,000). Of the total number of sales, 30% were through
the 'Help to Buy' scheme. The full benefit of this increase,
however, was diluted by some being sales from older, lower return
sites, although such sales have returned capital to the business
for re-investment in newer, higher margin opportunities.
In business development, successful new awards in the year
include the GBP269m Woolwich Estates regeneration scheme, the
GBP78m Lymington Fields, Dagenham scheme and the division's
preferred bidder status on the GBP30m Ponders End scheme in
Enfield.
Additionally, working as a partner in the Compendium Living
joint venture, considerable progress has been made on the GBP100m
Castleward Urban Village regeneration scheme, with the first
tranche of 850 homes scheduled for completion in early 2014.
Compendium Living has also been appointed lead developer for the
East Hull Ings regeneration scheme, transforming the area with 770
new quality homes.
Further growth opportunities in mixed-tenure schemes are
anticipated from appointments on the four-year London Development
Panel, expected to procure up to GBP5bn of housing-led mixed-use
development on public land, and also on all four lots of the Homes
and Communities Agency's four-year GBP4bn DPP2 (Delivery Partner
Panel 2) housing framework.
Collaborative schemes with other Group divisions have continued
to provide a strong growth platform for Affordable Housing, with
the division working with both the Urban Regeneration and
Construction & Infrastructure divisions and with Investments
also procuring work from the division on projects in Slough and
Towcester.
The regeneration & development pipeline of GBP715m was an
increase of 102%, underpinning the future growth and profit
potential of this part of the division.
Construction & Services (72% of divisional revenue) includes
the new build housing contracting activities and planned and
response maintenance services.
The new build housing contracting activities accounted for 24%
of divisional revenue and although focus has been on maintaining a
selective approach to bidding for contracts that offer clear
margins and securing work through long-term frameworks, competitive
pressure in the year has resulted in significantly lower revenue
and margin. Additionally, increasing material and subcontractor
costs were evident through the second half of the year.
In recent business development, following the year end in
January 2014, the division was appointed by the Defence
Infrastructure Organisation (DIO) to redevelop Beacon Barracks in
Stafford. The division will work with the DIO under a GBP51m
contract to deliver 346 high-quality new homes for service
personnel and families alongside infrastructure improvements, on
and off-site utility services and landscaping, with completion
expected in summer 2015. Other appointments won on major
house-building and development frameworks include the GBP1bn
four-year Circle Housing Group framework.
The committed order book for the division's new build housing
construction activities increased by 25% to GBP581m compared to the
prior year end.
The Planned Maintenance business (30% of divisional revenue) has
broadly maintained its overall revenue against the backdrop of a
declining market, as housing associations and local authorities
reduce their Decent Homes programmes. It is anticipated that this
gap will be partially filled by the division's expertise in energy
efficiency that has led to securing several projects funded or
part-funded by ECO (Energy Companies Obligation), although the
opportunities from this are now expected to be lower than
previously projected.
Response Maintenance (18% of divisional revenue) has had a
difficult year, with contract expiries outweighing the impact of
new business wins resulting in lower revenue. Margin has been
squeezed as a result of the lower volumes and the investment
required in overhead and infrastructure. Operational focus is on
business development and on positioning the business to pursue the
significant opportunities available in the market, which are
required to deliver sustained profitable growth.
Looking ahead, the division will maintain its strategic focus on
developing and winning opportunities on complex mixed-tenure
schemes and on capitalising on opportunities via long-term
framework positions. It is expected that 2014 will see an increase
in working capital investment, required to develop these newer and
more profitable mixed-tenure schemes, although the profit benefit
of these will not be seen until 2015 and beyond. Additional
challenges in relation to increasing material and subcontractor
costs, together with skills availability, will place further
pressure on the overall divisional margin.
Urban Regeneration
FY 2013 FY 2012 % change
GBPm GBPm
------------------------------------ ------- ------- --------
Capital employed 76 64 +19%
(excluding goodwill and intangible
assets)
Revenue 62 62 -
Operating profit - adjusted 1.0 2.7 -63%
------------------------------------ ------- ------- --------
Urban Regeneration revenue has remained level with the prior
year at GBP62m (FY 2012: GBP62m), whilst the order book and the
regeneration & development pipeline have both increased, which
is reflective of the positive progress made through the year in
ensuring schemes are well placed to capitalise as the market
recovers. Operating profit reduced to GBP1.0m, which reflects the
nature of the business where the timing of profit recognition
depends on the mixture of schemes and stages of completion.
Levels of activity across the division's portfolio of 35 active
projects have been, and are currently, significantly higher than in
previous years, with GBP250m of construction contracts placed
during the year across a broad mix of residential, commercial and
leisure.
In looking to capitalise on the Government's commitment to
support residential development, GBP70m of Government funding has
been secured by the division, helping to unlock stalled housing
developments including the first phase of Wapping Wharf, a 250,000
sq ft mixed-use development in Bristol. As part of funding
conditions, a number of residential developments have been brought
forward and 1,200 residential units are now under construction over
12 projects.
Forward funding from British Steel Pension Fund and Canada Life
has enabled site starts on KPMG's pre-let regional headquarters in
Leeds and the first phase of the GBP100m Grand Central scheme in
Stockport and 216 residential units have been forward sold in
Reading and Manchester.
GBP200m of new development agreements have been secured on major
regeneration schemes in Aberdeen and South Shields. In addition,
the division was selected in November as Lambeth Council's partner
for a project across three sites in Brixton town centre, with a
value of circa GBP140m. Elsewhere, a prestigious letting for a
combined John Lewis at home and Waitrose store was secured at
Basing View and a detailed planning application for the first phase
of development submitted.
Planning consents have been secured on seven major projects with
a total development value of GBP140m and construction has started
on 13 new sites. New start-ups in the year include major
developments in Leeds, Salford, Reading and the second phase of the
125-home Stockton Northshore Vivo residential scheme under
development in partnership with Affordable Housing and the Homes
and Communities Agency. The division continues to add value to
partnerships through the Group's integrated capability and has
procured work from the Construction & Infrastructure and
Affordable Housing divisions on four major schemes.
Looking ahead, Urban Regeneration's current pipeline of
opportunities places the division in a good position to benefit
from market improvements in 2014 and beyond and to deliver
significantly increased profits as schemes mature. On the
commercial side, emerging occupier confidence, high levels of lease
expiries and a generally supply-constrained market should enable
the division to benefit, whilst on the residential front, the
continuing demand for housing aligned with Government support for
homebuyers and the expected growth of the institutional private
rented sector, should allow Urban Regeneration to maximise the
returns from its investments. As these markets improve and more
schemes become active, further working capital investment will be
required to support the increased activity.
Investments
FY 2013 FY 2012 % change
GBPm GBPm
-------------------------------- ------- ------- --------
Directors' portfolio valuation 13.8 32.0 -57%
Investments carrying value 12.8 18.2 -30%
Operating profit - adjusted 6.1 7.4 -18%
-------------------------------- ------- ------- --------
The strategic rationale for the Investments division remains the
creation of investments which will provide prime long-term
construction opportunities for other divisions within the Group
working with both the public and private sector. The division is
focused on helping partners realise the potential for
under-utilised property assets and promote economic growth,
predominantly through long-term strategic partnerships with the
public sector. It has developed a particular expertise in strategic
property partnerships, including Local Asset Backed Vehicle (LABVs)
joint ventures and land swaps through which the division identifies
innovative structuring and financing solutions and provides
development expertise.
During the year, the continued strategy of recycling capital
from mature investments has resulted in the disposals of interests
in the Wigan Life Centre scheme for GBP6.6m (profit GBP1.5m), the
Miles Platting social housing PFI scheme for GBP8.4m (profit of
GBP4.4m) and the Tayside Acute Adult Mental Health scheme in
Scotland for GBP8.8m (profit of GBP4.0m).
Flagship regeneration schemes include the GBP500m 20-year
Bournemouth Town Centre LABV and the GBP1bn 15-year Slough Borough
Council LABV, where both joint ventures have procured work from
other Group divisions (Affordable Housing and Construction &
Infrastructure).
In Bournemouth, three projects with a GBP39m gross development
value are underway and in Slough the GBP16m community development
"The Curve" is on site, with further construction opportunities for
Group divisions scheduled within both project development
programmes next year. Investments is also progressing the GBP38m
mixed-use Towcester Regeneration and Civic Accommodation project as
lead developer in partnership with both Affordable Housing and
Construction & Infrastructure.
In Scotland, the Investments division is leading the WellSpring
Partnership which is delivering GBP200m public sector health and
education projects over the next nine years for the Western
Territory Hub Programme Board and the Scottish Futures Trust.
Construction & Infrastructure will be delivering five projects
valued at GBP48.3m for the WellSpring Partnership in 2014.
From a sector perspective, the division continues to work with
the Affordable Housing division in Healthcare, as founder members
of the HB Community Solutions strategic joint venture alongside HB
Villages, delivering a rolling programme of new build supported
living accommodation to meet the burgeoning needs of local
authorities, health services and care providers across the
country.
In Education, financial close has been reached on the final
school to be delivered under Hull City's GBP400m Building Schools
for the Future programme. As a member of the Hull Esteem
Consortium, Investments has played a critical role in delivering
the majority of the schools within the programme and is now looking
to capitalise on its significant PFI expertise within the
Government's GBP2bn Priority Schools Building Programme.
Looking ahead, the main focus for the division in 2014 will be
to advance projects throughout its existing portfolio and identify
opportunities for new long-term strategic partnerships where it can
leverage its expertise in project finance, development and asset
management alongside the strength of the Group's integrated
delivery capability. With a positive pipeline of opportunities, it
is expected that the division will continue to capitalise on the
release of under-utilised land assets to help its partners unlock
land values and fulfil regeneration ambitions.
Other Financial Information
Net finance expense. Net finance expense was GBP2.3m, a GBP1.3m
increase versus FY 2012 which is broken down as follows:
FY 2013 FY 2012
GBPm GBPm
--------------------------------- ------- -------
Net interest charge on net debt (1.3) (1.9)
Amortisation of bank fees &
non-utilisation fees (1.2) (0.7)
Interest from JVs 1.0 1.5
IAS 19 pension finance charge (0.1) -
Unwind of discount on deferred
consideration (0.6) (0.1)
Other (0.1) 0.2
Total net finance expense (2.3) (1.0)
--------------------------------- ------- -------
Tax. A tax credit of GBP1.1m is shown for the year (FY 2012:
charge of GBP3.5m). This has arisen primarily due to a deferred tax
credit of GBP2.5m as a result of a reduction in the UK corporation
tax rate (FY 2012: deferred tax credit of GBP1.5m). In addition, no
tax liability is expected upon the gains on disposals of
investments which occurred during the year. The remaining net
income will attract tax at an effective tax rate approximating to
the UK statutory rate.
FY 2013 FY 2012
GBPm GBPm
---------------------------------- ------- -------
Profit before tax 13.9 34.2
Less: share of net profit of
joint ventures (0.9) (5.7)
Less: gains on disposal of joint
ventures (9.9) (8.8)
Profit subject to tax 3.1 19.7
Statutory tax rate 23.3% 24.5%
Current tax charge at statutory
tax rate (0.7) (4.8)
Other adjustments (0.7) (0.2)
Exceptional deferred tax credit 2.5 1.5
Tax credit/(charge) 1.1 (3.5)
---------------------------------- ------- -------
Net working capital. 'Net Working Capital' is defined as
'Inventories plus Trade & Other Receivables, less Trade &
Other Payables', adjusted to exclude deferred consideration
payable, accrued interest receivable and capitalised arrangement
fees.
FY 2013 FY 2012
GBPm GBPm
----------------------------------- -------- --------
Inventories 161.0 159.4
Trade & Other Receivables
(excluding exceptional operating
items) 399.9 403.8
Trade & Other Payables (613.2) (623.9)
Net Working Capital - adjusted (52.3) (60.7)
Exceptional operating items (14.7) -
Net Working Capital - reported (67.0) (60.7)
----------------------------------- -------- --------
Cash flow. Operating cash flow improved to an inflow of
GBP14.9m. Likewise, free cash flow improved to an inflow of
GBP11.9m.
FY 2013 FY 2012 % Change
GBPm GBPm
------------------------------------------------------ ------- ------- --------
Operating profit - adjusted for non-cash exceptional
operating items 33.6 48.1 -30%
Depreciation 5.2 6.5 -20%
Share option expense 1.2 0.2 +500%
Movement in fair value of shared equity loans (0.2) (0.2) -
Gains on disposal of joint ventures (9.9) (8.8) -13%
Share of net profit of joint ventures (0.9) (5.7) +84%
Loss/(gain) on disposal of PPE 0.2 (0.6) n/a
Other operating items* (2.8) (4.5) +38%
Change in working capital (excluding exceptional
operating items) (8.4) (76.9) +89%
Net capital expenditure (including repayment of
finance leases) (4.8) (3.5) -37%
Dividends and interest received from joint ventures 1.7 2.7 -37%
Operating cash flow 14.9 (42.7) n/a
Income taxes paid (1.2) (8.1) +85%
Net interest paid (non-joint venture) (1.8) (2.2) +18%
Free cash flow 11.9 (53.0) n/a
------------------------------------------------------ ------- ------- --------
* Other operating items in 2013 includes property dilapidation provisions
released to the income statement within the Construction & Infrastructure
division
Net cash. Net cash at the end of the period was GBP69.7m, an
increase of GBP19.3m from 1 January 2013.
GBPm
--------------------------------- -------------
Net cash as at 1 January
2013 50.4
Free cash flow 11.9
Dividends (11.5)
Disposals of joint ventures 23.6
Other (4.7)
Net cash as at 31 December
2013 69.7
--------------------------------- -------------
Pension. As at 31 December 2013, the Group's IAS 19 gross
pension liability was GBP9.3m (FY 2012: GBP10.4m) with a net
liability of nil (FY 2012: GBP1.5m). The deficit has been
calculated after updating the asset values and certain assumptions
as at 31 December 2013.
Dividend. The Board of Directors has approved a final dividend
of 15.0p per share (FY 2012: 15.0p), level with the prior year,
resulting in a total dividend for the year of 27.0p per share (FY
2012: 27.0p).
Board changes. Steve Crummett was appointed to the Board as
Finance Director, with effect from 25 February 2013. David Mulligan
stood down from the Board on 25 February 2013 and left the Group on
10 April 2013. Paul Whitmore resigned as Commercial Director and
left the Group on 31 December 2013.
Principal risks and uncertainties.
The Group has a clear and established risk framework in place
for managing its risks. The framework is designed and operated to
identify, control and mitigate any threat to the Group achieving
its goals. The framework and the risks including details of the
mitigations taken to manage them will be set out more fully in the
risk review in the Group's 2013 annual report. The principal risks
and uncertainties that the directors consider may have a material
impact on the Group's performance are:
-- Markets: The markets in which the Group operates are affected
to varying degrees by general macro-economic
conditions. The Group is particularly focused at present on
managing the impact of the challenging economic
conditions, changes in Government spending priorities together
with the availability of private sector funding.
-- Strategy: The Group's strategy needs to be clearly
articulated and understood to ensure successful outcomes are
achieved. The Group's success is both a product of the strength
of business management and its people.
-- People: In a rising economic environment, it can become
increasingly difficult to retain key employees, especially
those targeted by competitors.
-- Winning in our markets: The Group undertakes several hundred
contracts each year and it is important that
contractual terms reflect risks arising from the nature and
complexity of the works and the duration of the contract.
-- Maximise efficiency: The Group has a unique and
differentiating approach. If employees are not properly engaged
with the culture of the business, clients are less likely to
receive exceptional levels of service.
-- Disciplined use of capital: In a rising market there is an
increased risk that the terms on which the Group trades with
counterparties affects its liquidity. Without sufficient
liquidity, the Group's ability to meet its liabilities as they
fall
due would be compromised, which could ultimately lead to its
failure as a going concern.
-- Pursue innovation: The Group is committed to offering clients
innovative and cost effective solutions. If it fails to
encourage an innovative approach across the Group it will become
less effective.
Cautionary forward-looking statement
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from any future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Group accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Consolidated income statement
For the year ended 31 December 2013
2013 2012
Before Exceptional Before Exceptional
exceptional operating exceptional operating
items items Total items items Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Revenue 5 2,094.9 - 2,094.9 2,047.1 - 2,047.1
Cost of sales (1,923.6) (14.7) (1,938.3) (1,860.4) - (1,860.4)
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Gross profit 171.3 (14.7) 156.6 186.7 - 186.7
Administrative expenses (148.5) - (148.5) (153.7) (10.0) (163.7)
Share of net profit of joint
ventures 0.9 - 0.9 5.7 - 5.7
Other gains and losses 9.9 - 9.9 9.4 - 9.4
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Operating profit before
amortisation
of intangible assets 33.6 (14.7) 18.9 48.1 (10.0) 38.1
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Amortisation of intangible
assets 5 (2.7) - (2.7) (2.9) - (2.9)
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Operating profit 5 30.9 (14.7) 16.2 45.2 (10.0) 35.2
Finance income 1.2 - 1.2 2.3 - 2.3
Finance expense (3.5) - (3.5) (3.3) - (3.3)
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit before tax 28.6 (14.7) 13.9 44.2 (10.0) 34.2
Tax 6 (2.3) 3.4 1.1 (5.9) 2.4 (3.5)
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit for the year 26.3 (11.3) 15.0 38.3 (7.6) 30.7
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Attributable to:
Owners of the Company 26.4 (11.3) 15.1 38.4 (7.6) 30.8
Non-controlling interests (0.1) - (0.1) (0.1) - (0.1)
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit for the year 26.3 (11.3) 15.0 38.3 (7.6) 30.7
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Earnings per share
Basic 8 35.4p 72.5p
Diluted 8 34.9p 72.0p
----------------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
There were no discontinued operations in either the current or
comparative years.
Consolidated statement of comprehensive income
For the year ended 31 December 2013
2013 2012
GBPm GBPm
--------------------------------------------------------- ----- -----
Profit for the year 15.0 30.7
Items that will not be reclassified subsequently to
profit or loss:
Actuarial gain/(loss) arising on defined benefit pension
obligation 0.9 (0.8)
Deferred tax on defined benefit pension obligation - 0.1
--------------------------------------------------------- ----- -----
0.9 (0.7)
Items that may be reclassified subsequently to profit
or loss:
Movement on cash flow hedges in joint ventures 0.2 (0.4)
Losses on cash flow hedges transferred to the income
statement on disposal of joint ventures 1.4 2.1
Foreign exchange movement on translation of overseas
operations (0.4) -
Other movement on cash flow hedges 0.1 -
--------------------------------------------------------- ----- -----
1.3 1.7
--------------------------------------------------------- ----- -----
Other comprehensive income 2.2 1.0
--------------------------------------------------------- ----- -----
Total comprehensive income 17.2 31.7
--------------------------------------------------------- ----- -----
Attributable to:
Owners of the Company 17.3 31.8
Non-controlling interests (0.1) (0.1)
--------------------------------------------------------- ----- -----
Total comprehensive income 17.2 31.7
--------------------------------------------------------- ----- -----
Consolidated balance sheet
At 31 December 2013
2013 2012
GBPm GBPm
--------------------------------------------- ------- -------
Assets
Goodwill and other intangible assets 220.5 223.2
Property, plant and equipment 18.3 20.1
Investment property 10.0 11.3
Investments in joint ventures 54.0 62.2
Investments 0.4 0.4
Shared equity loan receivables 19.7 19.2
Non-current assets 322.9 336.4
Inventories 161.0 159.4
Trade and other receivables 385.5 404.9
Cash and cash equivalents 92.8 50.4
Asset held for resale 3.1 -
--------------------------------------------- ------- -------
Current assets 642.4 614.7
--------------------------------------------- ------- -------
Total assets 965.3 951.1
--------------------------------------------- ------- -------
Liabilities
Trade and other payables (613.5) (619.5)
Current tax liabilities (5.3) (5.2)
Finance lease liabilities (1.5) (1.2)
Provisions (2.2) (3.0)
Current liabilities (622.5) (628.9)
--------------------------------------------- ------- -------
Net current assets/(liabilities) 19.9 (14.2)
--------------------------------------------- ------- -------
Trade and other payables (20.6) (22.9)
Finance lease liabilities (3.9) (5.0)
Borrowings (23.1) -
Retirement benefit obligation - (1.5)
Deferred tax liabilities (16.0) (19.0)
Provisions (22.2) (24.5)
--------------------------------------------- ------- -------
Non-current liabilities (85.8) (72.9)
--------------------------------------------- ------- -------
Total liabilities (708.3) (701.8)
--------------------------------------------- ------- -------
Net assets 257.0 249.3
--------------------------------------------- ------- -------
Equity
Share capital 2.2 2.2
Share premium account 26.9 26.7
Other reserves (0.4) (1.7)
Retained earnings 228.8 222.5
--------------------------------------------- ------- -------
Equity attributable to owners of the Company 257.5 249.7
Non-controlling interests (0.5) (0.4)
--------------------------------------------- ------- -------
Total equity 257.0 249.3
--------------------------------------------- ------- -------
Consolidated cash flow statement
For the year ended 31 December 2013
2013 2012
GBPm GBPm
------------------------------------------------------ ------ ------
Operating activities
Operating profit 16.2 35.2
Adjusted for:
Amortisation of intangible assets 2.7 2.9
Share of net profit of equity accounted joint
ventures (0.9) (5.7)
Depreciation 5.2 6.5
Share option expense 1.2 0.2
Profit on disposal of interests in joint ventures (9.9) (8.8)
Loss/(gain) on disposal of property, plant and
equipment 0.2 (0.6)
Revaluation of investment properties - 0.5
Movement in fair value of shared equity loan
receivables (0.2) (0.2)
Non-cash exceptional operating items 14.7 3.2
Additional pension contributions (0.7) (0.6)
Net disposals of/(additions to) investment properties 1.3 (0.7)
Net increase in shared equity loan receivables (0.3) (1.4)
Decrease in provisions (3.1) (2.3)
------------------------------------------------------ ------ ------
Operating cash flows before movement in working
capital 26.4 28.2
Increase in inventories (1.6) (10.9)
Decrease in receivables 3.8 10.8
Decrease in payables (10.6) (76.8)
------------------------------------------------------ ------ ------
Movements in working capital (8.4) (76.9)
------------------------------------------------------ ------ ------
Cash inflow/(outflow) from operating activities 18.0 (48.7)
------------------------------------------------------ ------ ------
Income taxes paid (1.2) (8.1)
------------------------------------------------------ ------ ------
Net cash inflow/(outflow) from operating activities 16.8 (56.8)
------------------------------------------------------ ------ ------
Investing activities
Interest received 1.5 2.2
Dividend from joint ventures 0.4 1.3
Proceeds on disposal of property, plant and
equipment 0.3 1.6
Purchases of property, plant and equipment (3.9) (4.0)
Net payments to acquire or increase interests
in joint ventures (4.9) (7.0)
Proceeds on disposal of interests in joint ventures 23.6 26.2
Payments for the acquisition of subsidiaries
and other businesses - (0.1)
----------------------------------------------------- ------ ------
Net cash inflow from investing activities 17.0 20.2
----------------------------------------------------- ------ ------
Financing activities
Interest paid (2.0) (3.0)
Dividends paid (11.5) (17.8)
Repayments of obligations under finance leases (1.2) (1.1)
Proceeds from long-term borrowings 23.1 -
Proceeds on issue of share capital 0.2 -
----------------------------------------------------- ------ ------
Net cash inflow/(outflow) from financing activities 8.6 (21.9)
----------------------------------------------------- ------ ------
Net increase/(decrease) in cash and cash equivalents 42.4 (58.5)
Cash and cash equivalents at the beginning of
the year 50.4 108.9
----------------------------------------------------- ------ ------
Cash and cash equivalents at the end of the
year 92.8 50.4
----------------------------------------------------- ------ ------
Consolidated statement of changes in equity
For the year ended 31 December 2013
Share premium Retained Non-controlling
Share capital account Other reserves earnings Total interests Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------- ------------- -------------- --------- ------ --------------- ------------
1 January 2012 2.2 26.7 (3.4) 210.4 235.9 (0.3) 235.6
Total comprehensive
income - - 1.7 30.1 31.8 (0.1) 31.7
Share option expense - - - 0.2 0.2 - 0.2
Tax relating to
share option expense - - - (0.4) (0.4) - (0.4)
Dividends paid - - - (17.8) (17.8) - (17.8)
---------------------- ------------- ------------- -------------- --------- ------ --------------- ------------
1 January 2013 2.2 26.7 (1.7) 222.5 249.7 (0.4) 249.3
Total comprehensive
income - - 1.3 16.0 17.3 (0.1) 17.2
Share option expense - - - 1.2 1.2 - 1.2
Issue of shares
at a premium - 0.2 - - 0.2 - 0.2
Exercise of share
options and vesting
of share awards - - - 0.4 0.4 - 0.4
Tax relating to
share option expense - - - 0.2 0.2 - 0.2
Dividends paid - - - (11.5) (11.5) - (11.5)
---------------------- ------------- ------------- -------------- --------- ------ --------------- ------------
31 December 2013 2.2 26.9 (0.4) 228.8 257.5 (0.5) 257.0
---------------------- ------------- ------------- -------------- --------- ------ --------------- ------------
Other reserves
Other reserves include:
-- Capital redemption reserve of GBP0.6m (2012: GBP0.6m) which
was created on the redemption of preference shares in 2003.
-- Hedging reserve of (GBP0.6m) (2012: GBP(2.3)m) arising 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.
-- Translation reserve of (GBP0.4m) (2012: GBPnil) arising on
the translation of overseas operations into the Group's
functional
currency.
Retained earnings
Retained earnings include shares that 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 2013 was 575,397 (2012: 723,970) with a cost
of GBP4.3m (2012: GBP5.6m).
Notes to the condensed consolidated financial statements
For the year ended 31 December 2013
1 General information
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2013 or
2012 but is derived from those accounts. A copy of the statutory
accounts for 2012 was delivered to the Registrar of Companies and
those for 2013 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 2013
that comply with IFRS available on the Company's website on or
about 25 March 2014. 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 2014. 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 2013.
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 2012 and the period to 30
June 2013.
5 Business segments
For management purposes, the Group is organised into five
operating divisions: Construction & Infrastructure, Fit Out,
Affordable Housing, Urban Regeneration and Investments. The
divisions' activities are as follows:
-- Construction & Infrastructure: offers national design,
construction and infrastructure services to private and public
sector clients.
The division works on projects, and in frameworks and strategic
alliances of all sizes across a broad range of markets
including
commercial, defence, education, energy, healthcare, industrial,
leisure, retail, transport and water.
-- Fit Out: specialises in fit out and refurbishment projects in
the commercial, central and local government office, further
education
and retail banking markets. Overbury operates as a national fit
out company through multiple procurement routes and Morgan
Lovell specialises in workspace consultancy and in the interior
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 and residential-led projects. Typically creates
commercial, retail, residential, leisure and public realm
facilities.
-- Investments: realises the potential for under-utilised
property assets and promotes economic growth, primarily through
strategic partnerships with the public sector, by providing
flexible structuring and funding solutions and development
expertise. The division covers a wide range of markets including
asset backed, education, health and social care, residential,
student accommodation, leisure and infrastructure.
Group Activities represents costs and income arising from
corporate activities which cannot be meaningfully allocated to the
operating segments. These include costs such as treasury
management, corporate tax coordination, insurance management and
company secretarial services. The divisions are the basis on which
the Group reports its segmental information as presented below:
2013
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Construction
& Affordable Urban Group
Infrastructure Fit Out Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
External
revenue 1,234.4 410.5 379.7 61.6 8.7 - - 2,094.9
Inter-segment
revenue - 16.8 1.3 - - - (18.1) -
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Total revenue 1,234.4 427.3 381.0 61.6 8.7 - (18.1) 2,094.9
Operating
profit/(loss)
before
amortisation
of intangible
assets and
exceptional
operating
items 12.7 10.9 8.6 1.0 6.1 (5.7) - 33.6
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Amortisation
of intangible
assets - - (0.7) (2.0) - - - (2.7)
Exceptional
operating
items (14.7) - - - - - - (14.7)
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Operating
profit/(loss) (2.0) 10.9 7.9 (1.0) 6.1 (5.7) - 16.2
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
2012
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Construction
& Affordable Urban Group
Infrastructure Fit Out Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
External
revenue 1,168.1 426.8 385.8 62.3 4.1 - - 2,047.1
Inter-segment
revenue 0.1 10.0 - - - - (10.1) -
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Total revenue 1,168.2 436.8 385.8 62.3 4.1 - (10.1) 2,047.1
Operating
profit/(loss)
before
amortisation
of intangible
assets and
exceptional
operating
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)
Exceptional
operating
items (6.8) - (2.5) - (0.2) (0.5) - (10.0)
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
Operating
profit/(loss) 12.9 11.3 8.2 0.6 7.2 (5.0) - 35.2
--------------- --------------- ------- ---------- -------------- ----------- ----------- ------------ -------
During the year ended 31 December 2013 and the year ended 31
December 2012, inter-segment sales were charged at prevailing
market prices and significantly all of the Group's operations were
carried out in the UK.
6 Income tax expense
2013 2012
GBPm GBPm
------------------------------------------------ ----- -----
Current tax expense/(credit):
UK corporation tax 1.0 5.4
Adjustment in respect of prior years as set out
below 0.3 (0.8)
------------------------------------------------ ----- -----
1.3 4.6
------------------------------------------------ ----- -----
Deferred tax (credit)/expense:
Current year (2.3) (1.3)
Adjustment in respect of prior years as set out
below (0.1) 0.2
------------------------------------------------ ----- -----
(2.4) (1.1)
------------------------------------------------ ----- -----
Income tax (credit)/expense for the year (1.1) 3.5
------------------------------------------------ ----- -----
Corporation tax is calculated at 23.25% (2012: 24.5%) of the
estimated assessable profit for the year.
In 2013 a net tax credit of GBP1.1m has arisen, comprising a
current tax charge of GBP1.3m and a deferred tax credit of GBP2.4m
(2012: net tax charge GBP3.5m). The deferred tax credit has arisen
due to changes in the UK statutory tax rate from 23% to 20%, which
reduced the net deferred tax liability by GBP2.5m. The current tax
liability on profits was at a low effective rate because no tax
liabilities are expected upon gains on disposals of investments. As
set out in the table below, without these two factors the tax
charge for the year would be approximately equal to tax at the UK
statutory corporation tax rate:
2013 2012
Current tax expense: GBPm GBPm
---------------------------------------------------- ------ -----
Profit before tax 13.9 34.2
Less: post tax share of profits from joint ventures (0.9) (5.7)
---------------------------------------------------- ------ -----
13.0 28.5
UK corporation tax rate 23.25% 24.5%
Income tax expense at UK corporation tax rate 3.0 7.0
Tax effect of:
Gain on disposal of joint ventures not giving
rise to a tax liability (2.3) (2.2)
Expenses that are not deductible in determining
taxable profits 0.2 0.9
Adjustments in respect of prior years 0.2 (0.6)
Effect of expected forthcoming change in tax
rates upon deferred tax balance (2.5) (1.5)
Other 0.3 (0.1)
---------------------------------------------------- ------ -----
Income tax (credit)/expense for the year (1.1) 3.5
---------------------------------------------------- ------ -----
7 Dividends
Amounts recognised as distributions to equity holders
in the year:
------------------------------------------------------ ---- ----
2012 2011
GBPm GBPm
------------------------------------------------------ ---- ----
Final dividend for the year ended 31 December 2012
of 15.0p per share 6.4 -
Final dividend for the year ended 31 December 2011
of 30.0p per share - 12.7
Interim dividend for the year ended 31 December 2013
of 12.0p per share 5.1 -
Interim dividend for the year ended 31 December 2012
of 12.0p per share - 5.1
------------------------------------------------------ ---- ----
11.5 17.8
------------------------------------------------------ ---- ----
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 final
dividend will be payable to shareholders on 23 May 2014 to
shareholders on the register on 2 May 2014. The ex-dividend date is
30 April 2014.
8 Earnings per share
2013 2012
GBPm GBPm
--------------------------------------------------- ----- -----
Profit attributable to the owners of the Company 15.1 30.8
Adjustments:
Exceptional operating items net of tax 11.3 7.6
Intangible amortisation net of tax 2.1 2.2
Deferred tax credit arising due to change in tax
rates (2.5) (1.5)
--------------------------------------------------- ----- -----
Adjusted earnings 26.0 39.1
--------------------------------------------------- ----- -----
Basic weighted average ordinary shares (m) 42.7 42.5
Diluted effect of share options and conditional
shares not vested (m) 0.6 0.3
--------------------------------------------------- ----- -----
Diluted weighted average ordinary shares (m) 43.3 42.8
--------------------------------------------------- ----- -----
Basic earnings per share 35.4p 72.5p
Diluted earnings per share 34.9p 72.0p
Adjusted earnings per share 60.9p 92.0p
Diluted adjusted earnings per share 60.0p 91.4p
------------------------------------ ----- -----
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 GBP6.46 (2012: GBP6.41).
A total of 698,089 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 2013
(2012: 1,030,688).
9 Net cash
2013 2012
GBPm GBPm
------------------------------------ ------ ----
Cash and cash equivalents 92.8 50.4
Borrowings due between two and five
years (15.0) -
Non-recourse project financing due
after one year (8.1) -
------------------------------------ ------ ----
Net cash 69.7 50.4
------------------------------------ ------ ----
Borrowings of GBP15.0m were drawn down under the Group's
existing loan facilities. The Group has committed banking
facilities of GBP140m, of which GBP110m will mature in September
2015 and GBP30m will mature during 2016. Additional project finance
borrowings of GBP8.1m (2012: nil) were drawn from separate
facilities to fund specific projects. These project finance
borrowings are without recourse to the remainder of the Group's
assets.
10 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 2013 2012 2013 2012
GBPm GBPm GBPm GBPm
-------------------------------------------------- ----- --------- --------- ----------- ---------
Access for Wigan (Holdings) Limited (a) - - - 0.1
Ashton Moss Developments Limited - - (0.1) (0.1)
Bromley Park Limited - - (0.6) (0.6)
Community Solutions Investment Partners
Limited (b) - 1.7 - -
ECf (General Partner) Limited 1.3 1.4 - -
HB Community Solutions Holdings Limited - - 0.5 -
HB Community Solutions Limited 0.1 - - -
HB Community Solutions Living Limited - - 0.8 -
Hull Esteem Consortium PSP Limited 22.3 44.1 0.1 1.9
Leyton Mount Development LLP 0.2 - - -
Renaissance Miles Platting Limited (a) - 0.1 - -
Slough Regeneration Partnership Community
Projects LLP 0.2 - 0.3 -
St Andrews Brae Developments Limited - - 0.4 0.1
Taycare Health (Holdings) Limited (a) 0.1 0.2 - 0.1
The Bournemouth Development Company
LLP 13.7 0.1 2.5 1.3
The Compendium Group Limited 3.5 4.5 2.9 2.0
Wapping Wharf (Alpha) LLP - - 0.1 -
Wellspring Partnership Limited 0.1 - 0.6 -
--------------------------------------------------------- --------- --------- ----------- ---------
41.5 52.1 7.5 4.8
-------------------------------------------------------- --------- --------- ----------- ---------
(a) During 2013 the Group disposed of its interests in Access for Wigan
(Holdings) Limited, Renaissance Miles Platting Limited and Taycare Health
(Holdings) Limited
(b) During 2012 the Group disposed of its interests in Community Solutions
Investment Partners Limited
Amounts owed by/(to)
related parties
----------------------
2013 2012
GBPm GBPm
-------------------------------- ---------- ----------
Amounts owed by related parties 8.2 5.5
Amounts owed to related parties (0.7) (0.7)
-------------------------------- ---------- ----------
7.5 4.8
-------------------------------- ---------- ----------
In addition, during 2012, 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 Group considers key management personnel to be the members
of the Group Management Team, and sets out below in aggregate,
remuneration for each of the categories specified in IAS 24
'Related Party Disclosures'. In previous years, the key management
personnel of the Group was considered to be the directors. The
prior year comparative has been restated to be on a comparable
basis.
2013 2012 as restated
GBPm GBPm
------------------------------ ---- ----------------
Short-term employee benefits 4.2 5.1
Post-employment benefits 0.3 0.3
Termination benefits 0.7 0.5
Share option expense/(credit) 0.6 (0.3)
------------------------------ ---- ----------------
5.8 5.6
------------------------------ ---- ----------------
Directors' transactions
There have been no related party transactions with any director
in the year or in the subsequent period to 18 February 2014.
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 18 February 2014.
11 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 2013, contract bonds in issue under
uncommitted facilities covered GBP185.3m (2012: GBP186.5m) of
contract commitments of the Group.
12 Subsequent events
Other than the disposal of the asset held for sale, there were
no significant subsequent events.
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 2013. 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 18
February 2014 and is signed on its behalf by:
John Morgan Steve Crummett
Chief Executive Finance Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UBRKRSAAUAAR
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