Final Results

Morgan Sindall PLC 12 February 2002 MORGAN SINDALL PLC ('Morgan Sindall' or 'the Group') Preliminary Results for the year ended 31 December 2001 Morgan Sindall plc, the construction brands group, today announces a seventh consecutive year of record results. 2001 2000 Increase Turnover £909m £655m +39% Pre-tax profits (pre goodwill) £22.25m £16.01m +39% Pre-tax profits on ordinary activities £20.77m £15.36m +35% Earnings per share 36.03p 29.75p +21% Adjusted earnings per share (pre goodwill) 39.82p 31.48p +26% Proposed final dividend 10.00p 7.50p +33% • Creation of Infrastructure Services Division, Morgan Est - civils market remains buoyant • Excellent prospects for Affordable Housing - addition of Carillion Housing to market-leading Lovell has extended capability - sector remains a priority for the Government - opportunities in PFI and Stock Transfer • Bluestone is the unification of our regional construction business and demonstrates our commitment to continually improve the quality and profitability of this Division • Fit Out continues to deliver substantial growth • Record order book of over £1bn, with much increased public element • Current trading remains strong John Morgan, Executive Chairman, commented: 'Morgan Sindall is now a better balanced business with four distinct operational Divisions that individually endeavour to be market leaders in their fields. 'With increasingly optimistic forecasts for the UK construction industry, we are confident of further growth both in 2002 and beyond.' 12 February 2002 ENQUIRIES: Morgan Sindall plc Tel: 020 7307 9200 John Morgan, Executive Chairman John Bishop, Finance Director College Hill Tel: 020 7457 2020 Kate Pope/Matthew Smallwood MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Chairman's Statement 2001 represented a strategic step change for the Group. As well as achieving record financial results for the seventh consecutive year, we announced three important acquisitions that have significantly strengthened and broadened the Group's offering. Two of these acquisitions form the basis of a new fourth Division, Infrastructure Services, now trading under the name of Morgan Est. Our Affordable Housing Division was boosted by the acquisition of Carillion Housing, which has expanded our geographical coverage, manpower resource and expertise. We are pleased to report that turnover for the year was £909m, up 39% (2000: £655m). Profit before tax of £20.8m was 35% up on last year and represents 38% compound growth since 1995. Earnings per share increased 21% to 36p per share which represents 28% compound growth over the same period. The Group's Balance Sheet remains robust and cash positive. In light of the Company's strong performance the Board recommends an increased final dividend of 10.0p making a total of 14.0p for the year (2000: 10.5p). Trading Overview The Fit Out Division had another excellent year with operating profits up 23% to £10.7m (2000: £8.7m) on turnover of £233m (2000: £229m). It remains a focused business with a 20 year track record that has not only survived but prospered in difficult economic times. It enters 2002 with a strong order book, reflecting both the strength of the brands and increased spending on refurbishment and restack of existing offices compensating for reductions in new office take up. Regional Construction did not meet expectations in 2001. Whilst turnover again increased we have been unable to move margins ahead. Consequently the decision has been taken to merge the six regional construction brands into one new company - Bluestone. This change will impact results for 2002 but we are confident that the Division will benefit in the longer term from restructuring investment. The Affordable Housing Division had an excellent year with operating profits increasing 58% to £4.3m on turnover of £156m (2000: £108m). The Carillion Housing acquisition is now fully integrated into Lovell and has considerably broadened the Division's range of expertise and geographical coverage. With increased public expenditure forecast in this sector Lovell as market leader is well positioned for significant growth. This will involve increased investment but at levels capable of being financed out of current resources. 2001 saw the establishment of our Infrastructure Services Division with the £20m acquisition of Miller Civil Engineering Services, now renamed Morgan Est. In the eight months of 2001 the Division contributed £2.7m operating profit from £95m turnover broadly in line with our expectations at acquisition. On 2 January 2002 we acquired Pipeline Constructors Group, a utilities services provider that will merge into Morgan Est strengthening the Division's offering particularly in the Water Sector. Morgan Est now has the technical and financial resource to enable it to be a major player in this important sector where it is likely that only the stronger broad based suppliers will prosper. Once again our property investments have contributed positively to Group results. During the year we sold two London properties, one in Shepherds Bush and another in Wigmore Street. Together with rental income and interest from positive cash balances we have continued to show a good return on the funds required in the Group but not utilised in the operating divisions. With increased investment in Affordable Housing and PFI projects there will be a shift in how these available funds are employed but no change in our desire to ensure that they are proactively rather than passively invested. Board At the half year we announced that Jack Lovell had decided to relinquish his executive role but had agreed to remain as a Non Executive Director. In May we welcomed Jon Walden as a Non-Executive Director. Jon is a Main Board Director of Lex Service plc and Managing Director of its subsidiary Lex Vehicle Leasing and consequently brings an alternative and helpful insight to the challenges faced by growing, service orientated groups. As a result of these additions to the Board, Sir Derek Hornby has decided that it is appropriate for him to retire as a Non-Executive Director at the forthcoming Annual General Meeting having been with Morgan Sindall since our formation in 1994. We thank him for his enormous contribution to the Group. Outlook The first few weeks of the year have remained buoyant and our total order book is at a record of over £1bn. Each of the four Divisions is well positioned and has great potential, and as such, we see the immediate challenge in developing these businesses rather than making further acquisitions. The Group has never been better balanced. Strength in those areas where governmental expenditure is forecast to increase and a strong order book sits well alongside our historic base of focusing on a wide spread of clients and smaller projects in both the new and refurbishment markets. The pace of change in our industry is dramatically increasing, driven by economic volatility, complex procurement methods, testing environmental and safety standards and more demanding employee expectations. I see these conditions as profoundly exciting and I believe that Morgan Sindall has both the ability and the will to succeed. Operational Overview Fit Out Despite a much tighter market in 2001, the Fit Out Division was able to deliver healthy growth with operating profits of £10.7m, an increase of 23% over last year. The fundamental reason for the improvement is that the continuously improving quality of our service delivery to clients remains the Division's primary goal. 'Perfect Delivery', the business improvement process, has enabled the business to benefit from a high level of repeat orders, measurably improved client satisfaction and consistent profitability. In 2001 three quarters of Overbury's projects were 'Perfectly Delivered' including the largest project to date a £15m refurbishment in Central London, completed on time and snag free, over a tight six month programme. Morgan Lovell will be launching its own 'Perfect Delivery' initiative early in 2002. 2002 will continue to set new challenges, but we enter the year with a strong order book that should result in an improved first quarter trading performance. The Division is well positioned to react to increasing industry interest in 'frameworks' and long term partnership arrangements. With considerable experience of mutually beneficial partnering with clients, the Fit Out Division is able to match private and public sector goals to find better value and consistent quality. Our businesses continue to respond to the changing market demands requiring new and more diverse skills. These include experience of working at the technological edge of the workplace. Increased cost constraints facing many organisations encourage them to make better use of their existing workspace, offering us new opportunities to demonstrate our skills. As we have learnt, these projects require tighter team work, effective programme management skills and fast problem solving abilities, in order to reduce business disruption. Our brands have worked hard to become market leaders in terms of service delivery and client satisfaction but we are far from complacent. We continue to challenge ourselves on how we might improve our service and working procedures. This striving to outperform the industry standard will underpin the Division's future expansion both organically and into other sectors allied to our current business. Regional Construction Whilst 2001 did not live up to expectations, turnover increased to £403m (2000: £318m). However, the operating profit reduced to £4.0m (2000: £4.5m) resulting in a margin of just over 1%. Whilst this level of margin is fairly typical within the industry, we believe that better margins are sustainable as evidenced in several of the profit centres within the Division. At the end of the year we announced that from 1 January 2002, the six existing regional companies would be merged to create one brand, Bluestone. The new structure is designed to engender a greater sense of one purpose for the Division without changing the profit centre culture where regional offices serve their local community. Driving performance and removing the geographical boundaries will better place us to serve our customers irrespective of project location. Additionally the ability to utilise the whole construction skill base across the Division will strengthen our position in the market place and create a more dynamic structure for our people. We see this change as the next stage of development for the Division albeit it is our intention to build on the many successful achievements over the years rather than start anew. The profile of specialisation by geography or work type and the spread of risk across a variety of value bands will continue. The reputation built up in some cases over many decades for expertise in Education, Health, Commercial, Industrial, Leisure and Non-Food Retail will remain the Division's focus. Nevertheless the changes to be made in 2002 are significant and there is no expectation of either turnover or profit growth for this year, however we are confident that the new structure will ultimately improve consistency of delivery and financial performance. Whilst our Regional Construction business has moved a long way forward from its entry point into the Group, the pace of improvement has been slower than we expected. Nevertheless the Group remains committed to the sector and to making Bluestone a top performing regional construction business. Affordable Housing Lovell made significant progress in 2001. Not only did turnover and margins improve but the acquisition of Carillion Housing in July expanded the range of expertise and extended the geographical coverage particularly into Scotland. Divisional turnover was £156m and operating profit £4.3m (2000: £108m and £2.7m), with the acquisition contributing five months' turnover of £20m, although little in net contribution after the costs of merging the operation into Lovell. Affordable Housing during 2001 has increasingly come under the spotlight. It is accepted by Government and Local Authorities that much more must be done to reduce the estimated £20bn backlog in repairs and meet the Government's target to achieve a decent standard of homes for all in social housing by 2010. Lovell is well positioned as the largest specialist provider of mixed tenure affordable housing in the UK, and can satisfy the full range of demands from design and build, refurbishment and open market development. It is therefore ideally placed to respond to the release of larger schemes whether traditional, Stock Transfers, or PFI. Lovell is currently short listed for five of the eight Social Housing Pathfinder Schemes and is reviewing the second tranche. Typical of the expertise Lovell has in urban regeneration schemes is a £25m project at Central Park, Birmingham to provide 264 mixed tenure homes. With many Lovell projects, price is only one of several factors in winning contracts, awards being based on design, consultation with residents and local employment training opportunities amongst other considerations. Lovell enters 2002 with confidence. The Carillion Housing acquisition has been fully integrated into the company. The order book is at a record £255m and the market in which it operates is buoyant. The Lovell management have achieved much in the last year and are confident that the rewards of these endeavours will be increasingly apparent in the next few years. Infrastructure Services The Infrastructure Services Division was created in May 2001 by the £20m acquisition of Miller Civil Engineering Services, subsequently renamed Morgan Est. The business has a good track record in three distinct areas of operation, Water, Tunnelling and Civils and in the last full year before acquisition had a turnover of £135m and made an operating profit of £3.76m. Morgan Sindall had for some time been looking to enter the infrastructure services market and found in Morgan Est a major operator in its fields of activity with strong management. In 2001 in the eight months post acquisition, Morgan Est had a turnover of £95m and made an operating profit of £2.7m. At acquisition the order book stood at £330m. This was increased over the year, not least by securing the £178m Contract 310 for the Channel Tunnel Rail Link between Dagenham and Thurrock and the award of preferred bidder status on the £55m Newport Southern Distributor Road in South Wales. Both of these major contracts were won in joint venture arrangements, a structure which Morgan Est has successfully used before with European construction companies. In December 2001 the Group announced that it had agreed the purchase of Pipeline Constructors Group for £16.45m which was completed on 2 January 2002. Pipeline is a leading provider of utility services primarily in the water sector with a turnover of £75m. Pipeline will become the utilities division of Morgan Est, as there are powerful synergies between the two companies with many shared clients. The combined companies will bring both greater scale to the Division, with overhead economy, and be better positioned to undertake the integrated outsourcing contracts, which the utilities markets increasingly require. 2002 will be a busy year for the Infrastructure Services Division. With an existing combined turnover of over £200m and a forward order book of £525m Morgan Est has the opportunity to be one of the leaders in the sector, and a major contributor to the Morgan Sindall Group. John Morgan Executive Chairman 12 February 2002 MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Group Profit and Loss Account for the year ended 31 December 2001(unaudited) 2001 2000 £'000s £'000s £'000s £'000s Turnover Continuing operations 795,854 655,980 Acquisitions 114,912 - Less share of joint venture turnover (1,598) (1,144) Group turnover 909,168 654,836 Cost of sales (820,004) (588,180) Gross profit 89,164 66,656 Administrative expenses (70,709) (52,804) Other operating income 1,133 897 Operating profit Continuing operations 16,848 14,749 Acquisitions 2,740 - Total operating profit (note 1) 19,588 14,749 Share of profits of joint venture 17 - Exceptional loss on closure of discontinued business - (684) Net interest receivable 1,165 1,295 Profit on ordinary activities before taxation 20,770 15,360 Tax charge on profit on ordinary activities (note 2) (6,536) (3,964) Profit on ordinary activities after taxation 14,234 11,396 Dividends on equity and non-equity shares (note 3) (5,824) (4,163) Retained profit for the year 8,410 7,233 Earnings per ordinary share (note 4) 36.03p 29.75p Diluted earnings per ordinary share 34.87p 28.58p MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Group Balance Sheet at 31 December 2001 (unaudited) 2001 2000 £'000s £'000s £'000s £'000s Fixed Assets Intangible assets 40,009 11,218 Tangible assets 19,887 11,865 Share of joint venture gross assets 22,151 17,929 Share of joint venture gross liabilities (20,551) (16,840) Investment in joint venture 1,600 1,089 Investment in own shares 1,366 1,245 62,862 25,417 Current Assets Stocks 36,028 35,355 Debtors 155,261 117,964 Cash at bank and in hand 34,639 23,474 225,928 176,793 Creditors: amounts falling due within one year (224,418) (156,510) Net current assets 1,510 20,283 Total assets less current liabilities 64,372 45,700 Creditors: amounts falling due after more than one year (629) - Net assets 63,743 45,700 Capital and reserves Called up share capital 4,993 5,686 Share premium account 22,896 13,064 Revaluation reserve 4,627 4,259 Profit and loss account 31,227 22,691 Total shareholders' funds 63,743 45,700 Shareholders' funds are attributable to: Equity shareholders' funds 60,779 41,907 Non-equity shareholders' funds 2,964 3,793 63,743 45,700 MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Group Cash Flow Statement for the year ended 31 December 2001 (unaudited) 2001 2000 £'000s £'000s Net cash inflow from operating activities (note 5) 36,159 8,211 Returns on investments and servicing of finance Interest received 1,434 1,411 Interest paid (727) (615) Dividends paid to preference shareholders (190) (253) Interest paid on finance lease charges (62) - 455 543 Taxation Corporation tax paid (6,079) (2,563) Capital expenditure and financial investment Payments to acquire tangible fixed assets (3,330) (2,288) Receipts from sale of tangible fixed assets 551 8 Payments to acquire fixed asset investments (311) (155) (3,090) (2,435) Acquisitions and disposals Purchase of subsidiary undertakings (25,658) 750 Net cash acquired with subsidiary undertakings 4,720 - (20,938) 750 Equity dividends paid (4,368) (3,316) Net cash inflow before financing 2,139 1,190 Financing Issue of shares, net of expenses 9,139 242 Capital element of finance leases (113) - Net cash inflow from financing activities 9,026 242 Increase in cash (notes 6 & 7) 11,165 1,432 MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Statement of Total Recognised Gains and Losses for the year ended 31 December 2001 (unaudited) 2001 2000 £'000s £'000s Profit for the financial year before dividends 14,234 11,396 Share of joint venture's surplus on revaluation of investment property 494 296 Total recognised gains and losses 14,728 11,692 Note of Historical Cost Profits and Losses for the year ended 31 December 2001 (unaudited) 2001 2000 £'000s £'000s Profit on ordinary activities before taxation 20,770 15,360 Realisation of property valuation gains of prior years 126 - Difference between the historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 70 73 Historical cost profit on ordinary activities before taxation 20,966 15,433 Historical cost profit on ordinary activities after taxation and dividends 8,606 7,306 Combined Statement of Movements in Reserves and Shareholders' Funds for the year ended 31 December 2001 (unaudited) 2001 2000 Share Profit Share- Share- premium Revaluation and loss Total Share holders' holders' account reserve Account reserves capital funds funds Group £'000s £'000s £'000s £'000s £'000s £'000s £'000s Balance at 1 January 13,064 4,259 22,691 40,014 5,686 45,700 37,929 Retained profit for year - - 8,410 8,410 - 8,410 7,233 New shares issued 8,270 - - 8,270 95 8,365 - Converted preference shares 812 - - 812 (812) - - Options exercised 750 - - 750 24 774 242 Surplus realised on property - (126) 126 - - - - Surplus on revaluation - 494 - 494 - 494 296 Balance at 31 December 22,896 4,627 31,227 58,750 4,993 63,743 45,700 Included within the profit and loss account balance at 31 December 2001 is an amount for unrealised goodwill totalling £7,034,000 (2000: £7,034,000). MORGAN SINDALL PLC Preliminary results for the year ended 31 December 2001 Notes (Unaudited) 1. Analysis of turnover, cost of sales, administrative expenses, operating profit and net assets 2001 2000 Profit/ Net Profit/ Net Turnover (loss) assets Turnover (loss) assets £'000s £'000s £'000s £'000s £'000s £'000s Fit out 232,513 10,717 (12,077) 229,350 8,716 (13,817) Regional construction 402,609 4,034 1,118 317,605 4,542 (2,366) Affordable housing 155,971 4,292 19,833 107,709 2,715 16,879 Infrastructure services 95,384 2,662 15,202 - - - Group activities and investments 22,691 (2,117) 5,882 172 (1,224) 21,530 909,168 19,588 29,958 654,836 14,749 22,226 Net funds (note 6) 33,785 23,474 Net assets 63,743 45,700 Segmental net assets are stated after deducting interest bearing net funds. All activities are carried out in the United Kingdom and Channel Islands. Included within cost of sales is an amount of £106,658,000 derived from acquisitions and £713,346,000 from continuing operations. Administrative expenses includes an amount of £4,051,000 relating to acquisitions and £66,658,000 to continuing operations. 2. Tax charge on profit on ordinary activities 2001 2000 £'000s £'000s Corporation tax payable at 30% (2000: 30%) 6,286 4,073 Under provision in prior years 250 96 Share of tax of joint venture - - Tax on exceptional loss - (205) 6,536 3,964 There are taxation losses to carry forward of approximately £5m (2000: £8m). 3. Dividends on equity and non-equity shares 2001 2000 £'000s £'000s Non-equity dividends on preference shares Paid 144 197 Accrued 46 46 190 243 Equity dividends on ordinary shares Interim paid 1,542 1,133 Final proposed 4,151 2,839 5,693 3,972 Total dividends 5,883 4,215 Dividends on shares held in trust relating to the Long Term Incentive Plan (59) (52) 5,824 4,163 The proposed final dividend will be paid on 12 April 2002 to shareholders on the register at 15 March 2002. The ex-dividend date is 13 March 2002. 4. Earnings per ordinary share The calculation of the earnings per share is based on the weighted average number of 38,974,000 (2000: 37,494,000) ordinary shares in issue during the year and on the profits for the year attributable to ordinary shareholders of £14,043,000 (2000: £11,153,000). In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £191,000 (2000: £243,000) making adjusted earnings of £14,234,000 (2000: £11,396,000). The weighted average number of ordinary shares are adjusted for the dilutive effect of the convertible preference shares by 1,185,000 (2000: 1,517,000) and share options by 561,000 (2000: 554,000) and contingent Long Term Incentive Plan shares by 94,000 (2000: 290,000) giving an adjusted number of ordinary shares of 40,814,000 (2000: 39,855,000). 5. Reconciliation of operating profit to net cash inflow from operating activities 2000 2000 £'000s £'000s Operating profit 19,588 14,749 Depreciation of tangible fixed assets 3,119 2,082 Amortisation of goodwill 1,478 650 Profit on sale of fixed assets (80) (360) Decrease/(increase) in stocks and work in progress 231 (10,044) Increase in debtors (4,825) (28,564) Increase in creditors 16,648 30,382 Exceptional loss - (684) Net cash inflow from operating activities 36,159 8,211 6. Analysis of net funds Acquisition of 31 31 December subsidiary December 2000 Cash flow undertaking 2001 £'000s £'000s £'000s £'000s Cash at bank 23,474 11,165 - 34,639 Finance leases - 113 (967) (854) Total 23,474 11,278 (967) 33,785 7. Reconciliation of net cash flow to movement in net funds £'000s Increase in cash 11,165 Cash outflow from decrease in finance leases 113 11,278 Finance leases acquired with subsidiary undertaking (967) 10,311 Net funds at 1 January 2001 23,474 Net funds at 31 December 2001 33,785 8. Accounting policies This announcement is prepared on the basis of accounting policies as stated in the financial statements for the year ended 31 December 2000, with the addition of the following policy: Leased Assets Assets acquired under finance leases are included in tangible fixed assets at equivalent cost. Depreciation is provided at rates designed to write-off this amount using the straight line method over the shorter of the estimated useful lives of the assets or the period of the leases. The capital element of the future rentals is treated as a liability in the balance sheet and the interest element is charged to the profit and loss account over the period of the leases in proportion to the balances outstanding. Rental costs under operating leases are charged to the profit and loss account in equal amounts over the period of the leases. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2001 and 2000. No accounts for the Company or its subsidiaries in respect of the year ended 31 December 2001 have been delivered to the Registrar of Companies, nor have the auditors of the Company or its subsidiaries made a report under Section 236 of the Companies Act 1985 in respect of any accounts for that financial year. The statutory accounts for the year ended 31 December 2001 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be posted to shareholders by 1 March 2002 and delivered to the Registrar of Companies following the Company's Annual General Meeting. Full accounts for the Group for the year ended 31 December 2000 have been delivered to the Registrar of Companies and contain an unqualified audit report, and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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