Final Results
Morgan Sindall PLC
19 February 2004
MORGAN SINDALL PLC
('Morgan Sindall' or 'the Group')
Preliminary Results for the year ended 31 December 2003
Morgan Sindall plc, the construction brands group, today announces record
preliminary results for the year to 31 December 2003.
Financial
• Record year with good performances across all four divisions
2003 2002 % increase
Group turnover £1,137.5m £1,038.4m +10%
Profit before tax and goodwill amortisation £24.1m £18.6m +29%
Profit before tax £20.9m £15.5m +35%
Earnings per share before goodwill amortisation 43.78p 33.01p +33%
Earnings per share 36.04p 25.32p +42%
Total dividend per share 16.50p 15.00p +10%
• Cash at bank more than doubled to £14.6m (2002: £6.8m)
Divisions
• Fit Out market improving with order book up 17%
- margins maintained despite tough trading environment
• Construction returns to profit
- focus on project selectivity providing better margins
• Infrastructure Services achieved record year
- driven by outperformance of key projects
• Affordable Housing operating profit up 50%
- exciting long term growth prospects mirrored by strong order book
Outlook
• Current trading strong with record Group order book of £1.63bn (2002:
£1.35bn)
John Morgan, Executive Chairman, commented:
'2003 was a record year in turnover, profit and earnings per share. The
diversity of our operations between public and private sector work and across
different sectors of the economy is providing a strong foundation for growth. We
have clearly demonstrated that our strategy is effective and resilient.'
'The year has started well. We are now operating in better market conditions
where we are confident that all four of our divisions will make further
progress.'
19 February 2004
ENQUIRIES:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
John Bishop, Finance Director
College Hill Tel: 020 7457 2020
Kate Pope
Matthew Smallwood
MORGAN SINDALL PLC
Chairman and Chief Executive's Statement
2003 has been a successful year for the Group. Our long term strategy has been
to build a diversified construction group with market leading brands operating
in a number of distinct niche sectors to provide the Group with the best
opportunity for sustainable growth. This past year has seen subdued demand in
many private sectors of the economy, albeit more opportunities have been
available in the public sector. The fact that the Group has achieved a record
result in both turnover and profit is therefore particularly satisfying and has
demonstrated the effectiveness of the Group's strategy.
Management
Paul Smith joined the Group as chief executive in March 2003. This has allowed
greater focus to be brought to operational leadership whilst allowing John
Morgan as chairman more opportunity to consider the strategic options for the
Group. In the period since March we have considered the succession planning
need arising from the fact that John Bishop will reach the normal retirement age
next year. We are pleased to announce that, after considering both internal and
external candidates, we have decided to appoint David Mulligan as finance
director with effect from 1 April 2004. David has been with the Group for six
years as financial controller and has in particular established a strong working
relationship with Paul Smith. For the coming year John Bishop will continue as
an executive director, reverting back to his original brief of corporate
development, whilst also providing continuity and support to David.
Outlook
Looking ahead there is every reason for optimism. Our Fit Out division is
starting to see tentative but definite signs of the market improving for the
first time in eighteen months. The Construction division is progressing steadily
and is benefiting from its restructuring and refocusing programme, and from the
same improving market that is being experienced by the Fit Out division.
Infrastructure Services made real progress in 2003. It is expected that the
growth of this division will be more modest in 2004 as current major projects
near completion. Nevertheless its growing market recognition augers well for
its longer term development. However it is our Affordable Housing division that
enjoys the most exciting prospects. It has the leading position in a market
that is projected to grow strongly over an extended period.
This year will mark the tenth anniversary of the creation of Morgan Sindall.
Much has changed since 1994 when turnover was running at £100m per annum and the
Group employed fewer than 600 people compared to our present £1.1bn turnover and
over 5,000 employees. However much remains the same; there is the same
commitment to building excellence and to producing outstanding work. There is
still a belief that by increasing the range and scope of our construction
services in which we excel, the Group will continue to prosper and grow for the
benefit of our clients, staff and shareholders. We remain as enthusiastic about
the future and excited by the challenges ahead as we were ten years ago.
MORGAN SINDALL PLC
Operating and financial review
2003 has been the most profitable year in the Group's history with profit before
tax increasing 35% to £20.92m (2002: £15.53m) on turnover of £1,138m (2002:
£1,038m). Earnings per share grew by 42% to 36.04p compared to 25.32p for the
previous year. Consequently the board recommends an increase in the final
dividend to 11.75p giving a total of 16.50p for the year (2002: 15.00p)
Cash generated during the year totalled £7.76m giving a cash balance at the end
of December of £14.61m (2002: £6.85m).
The order book at the start of 2004 stands at a record level of £1,630m compared
to £1,350m last year.
General market conditions
The construction industry within the United Kingdom is expected to amount to
£49.1bn in 2003, with potential growth towards £52.6bn in 2005. Public sector
expenditure on construction is forecast to grow at 5% per annum over the next
three years, offering the industry the opportunity to deliver the government's
investment programme in transport infrastructure, education and health
facilities.
It is the Group's view that construction activity will remain buoyant in the
medium term, underpinned by government expenditure and an expectation that the
commercial sectors of the market will recover towards the end of 2004 following
a downturn in activity in 2002 and 2003.
Group strategy
The Group's strategy is to build a diversified construction group with leading
brands operating in a number of distinct market sectors to provide sustainable
growth. The diversity of activities within the Group has created a balance
whereby cash generated from Fit Out and Construction provides funds for
investment in Affordable Housing where superior returns are achieved. This
diversity also provides a good balance between public and private sectors which
helps to reduce the risk to the Group of changes between particular sectors of
the economy.
Divisional performance
Fit Out
The Fit Out division operates through four brands, namely Overbury (turnover in
2003 £154m), Morgan Lovell (£28m), Vivid Interiors (£6m), and Backbone Furniture
(£1m).
Overbury provides fit out and refurbishment services to the commercial property
sector and works for larger clients who employ their own professional teams of
project managers and architects. Morgan Lovell provides design and build fit
out solutions to the commercial sector, giving advice to clients as to their
requirements and managing the building works. Vivid Interiors is a new business
started in 2002 focusing specifically on the retail, leisure and entertainment
sectors of the fit out market. Backbone Furniture was also established in 2002
and supplies innovative solutions to clients' furniture needs.
The strategy of the Fit Out division is for each of its brands to be the market
leader in its chosen sector through superior quality of service and workmanship.
Historically the division has been focused on the commercial property market
in South East and Central England. The division is increasingly asked by its
clients to undertake contracts in other parts of the country and will therefore
expand its service in the United Kingdom during 2004.
In 2003 the division's turnover was £189m (2002: £193m) with an operating profit
of £8.41m (2002: £10.48m) and an operating margin of 4.4% (2002: 5.4%). Fit Out
has experienced tough trading conditions during 2003 as the ongoing slow down in
the commercial property sector dampened demand for new office space. Despite
this the division has been successful by undertaking more restack work, where
clients' property is refurbished whilst they continue in occupation, and also by
working with public sector clients. The public sector workload through 2003 has
been about 30%, which is above historic levels of around 20%.
Margins have been maintained at acceptable levels of 4.4% within this division
despite the increasing challenges in the market place. This demonstrates the
strength of the Fit Out brands and the ability of the management team to adapt
swiftly to changing market conditions.
The division starts 2004 with an order book of £77m compared to £66m at this
stage last year which gives confidence that Fit Out will move ahead in 2004.
Although the market remains challenging the division is beginning to see
improvements in the level of enquiries particularly as the financial services
sector begins to recover. It is anticipated that public spending will be
maintained in the short to medium term, which together with the anticipated
gradual recovery of the private sector leads management to believe that the
division will return to modest growth in the near future.
Construction
This division operates through the Bluestone brand focusing on construction
services to the education, health, commercial and industrial market sectors with
an emphasis on contracts up to £15m in value. Its network of regional offices
provide a national service throughout England and Wales.
The Bluestone brand was created at the start of 2002 from six existing
regionally based construction businesses. This major structural change in the
division contributed to an operating loss in 2002 of £4.95m. The new structure
is in place and the division is better positioned to respond to customer
requirements on a local and national basis.
Bluestone's strategy is to gradually move an increasing proportion of its
workload towards key clients, where work tends to be more negotiated in nature
and toward framework type arrangements, reducing the reliance upon competitively
tendered work and its associated risks. The market in which Bluestone operates
is historically competitive due to low barriers to entry. In order to mitigate
the inherent risks the division's approach is to be selective in projects
undertaken, aligning contract requirements closely to its core skills. As such
it is the division's intention to constrain volume growth in the short to medium
term.
In 2003 the division's turnover was £300m compared to £337m in 2002 and a peak
of £403m in 2001, with an operating profit of £0.60m (2002: a loss of £4.95m).
The benefits of restructuring in 2002 continue to be realised and the division
is expected to consolidate its position in 2004.
Bluestone begins 2004 with orders of £170m which is at a similar level to last
year. This is consistent with the division's approach to hold turnover at a
manageable level whilst the focus is placed on margin improvement.
Infrastructure Services
The Infrastructure Services division operates through the Morgan Est brand and
is one of the major civil engineering businesses in the United Kingdom. It is
focused on the water, tunnelling, utilities, road and rail sectors.
In bringing key skills and specialists together for complex projects the
division has entered into a number of joint venture arrangements with some of
Europe's top construction companies. Workload is procured across the full
spectrum of contract types, namely traditional contracts, design and build
contracts, partnering and framework agreements as well as Private Finance
Initiative (PFI) structures.
The division is based in Rugby and has a network of offices around the United
Kingdom aligned to its main clients and project commitments.
Morgan Est's strategy is to be a major provider of infrastructure solutions in
the United Kingdom to the civil engineering and utilities markets. It delivers
these solutions and provides best value through collaborative working and
innovative early solutions developed together with its clients and partners.
In 2003 the division's turnover was £365m compared to £281m last year, with
operating profit rising 41% to £9.24m (2002: £6.55m). Key factors in the
division's growth in 2003 have been its major infrastructure projects as well as
expansion of its water and utilities activities. The civil engineering market
remains buoyant, reflecting the government's commitment to investment in roads
and rail, and the utilities companies' continued investment in their
infrastructure.
The division starts the year with an order book of £695m reflecting the long
term nature of its major projects and framework agreements. Following a high
level of activity in its key projects and an overall strong performance in 2003
it is expected that the growth of this division will be more gradual in 2004 as
major tunnelling and rail projects draw to a close towards the end of this year
and into 2005.
In the water sector the major utility companies are beginning to make the
transition from Asset Management Programme ('AMP') 3 to AMP 4 over the next two
years. These are five year investment programmes agreed with the water
regulator. It is expected that levels of investment will be maintained during
this transition.
Affordable Housing
This division operates through the Lovell brand and is the United Kingdom's
leading provider of affordable housing. Affordable housing are homes designed
for low and moderate income households. The division's strategy is to maintain
its market leadership and continue to provide cutting edge affordable housing
solutions.
Lovell operates through a structure of nine regions which cover England, Wales
and Scotland and provides new build homes and housing refurbishment services.
Refurbishment services are typically large scale schemes focused on improvements
to kitchens, bathrooms, building exteriors and public areas. New build homes
include those for the open market, for local authorities and housing
associations. Lovell's particular expertise is in mixed tenure developments
which combine both open market properties and homes for public ownership and may
also include refurbishment of existing dwellings.
In 2003 the division's turnover was £279m (2002: £224m), with a record operating
profit increasing 50% to £8.92m (2002: £5.97m). Lovell's growth has been aided
by the government's ongoing investment in the affordable housing sector. In
addition local authorities continue to transfer homes to housing associations
which provides another source of finance for improvements.
The division's order book stands at £688m at the start of 2004 compared to £565m
last year, reflecting the development of Lovell and the long lead times required
on affordable housing projects. The sector is expected to expand at a
significant rate through the medium to long term reflecting the government's
commitment to improving the availability and quality of affordable housing in
the United Kingdom.
Financial Review
Turnover and operating profit
Group turnover increased 10% during the year to £1,138m (2002: £1,038m). The
increase was mainly due to growth in Affordable Housing (up 25% to £279m) and
Infrastructure Services (up 30% to £365m). Fit Out turnover was in line with
the previous year while Construction turnover fell 11% to £300m reflecting the
decision to constrain turnover and focus the business more closely on its core
activities.
Group operating profit was a record at £21.97m, up 40% on the prior year (2002:
£15.69m). This improvement is attributable to the return to profitability of
the Construction division which contributed £0.60m during the year (2002: loss
of £4.95m) and the significant growth in profitability at Affordable Housing and
Infrastructure Services. Affordable Housing increased its profits by 50% to
£8.92m (2002: £5.97m) and Infrastructure Services by 41% to £9.42m (2002:
£6.55m) driven by margin enhancement and organic growth within both divisions.
Fit out operating profit contracted to £8.41m (2002: £10.48m), reflecting the
tighter market conditions, however margins achieved were an acceptable 4.4%.
The cost of Group activities has increased to £5.20m (2002: £2.35m) reflecting
increased PFI bid costs during 2003, payment of performance bonuses and the loss
of rental income from the property portfolio following the disposal of an
investment property during the year.
Profit before and after taxation
Profit before taxation of £20.92m was 35% ahead of last year's £15.53m. This
reflects a 40% improvement in operating profit partly offset by a net interest
charge of £1.18m (2002: £0.76m) due to greater cash borrowings funding the
increase of working capital at Affordable Housing as the business grows.
Profit after taxation was £14.91m (2002: £10.39m). The tax charge was £6.01m
(2002: £5.14m) giving a current year effective tax rate of 29%, which reflects
the utilisation of tax losses brought forward from 2002.
Cash flow and treasury
Net cash inflow from operating activities was £22.83m (2002: £0.63m). Capital
expenditure was £3.03m (2002: £5.28m) which reflects ongoing investment in the
business and £9.21m was raised from the sale of fixed assets. Payments of
£6.80m were made during the year to redeem loan notes relating to the
acquisition of Pipeline Constructors Group in 2002. The remaining preference
shares were redeemed during 2003 for £0.62m. After payments for taxation,
dividends and servicing of finance the net increase in cash was £7.76m (2002:
net decrease of £27.79m).
During the year additional banking facilities were put in place to fund seasonal
movements in working capital. A £25m three year revolving facility is available
until June 2006 priced at an agreed margin over prevailing market interest
rates. In addition the Group has a £30m overdraft facility with its main
clearing bankers, which is annually renewed and priced at an agreed margin over
the bank's base interest rate. Banking facilities are subject to normal
financial covenants, none of which have been breached in the year.
MORGAN SINDALL PLC
Preliminary results for the year ended 31 December 2003
Group Profit and Loss Account
for the year ended 31 December 2003
2003 2002
£'000s £'000s
Turnover
Continuing operations 1,139,456 1,040,646
Less share of joint ventures turnover (1,919) (2,259)
Group turnover 1,137,537 1,038,387
Cost of sales (1,030,719) (942,782)
Gross profit 106,818 95,605
Administrative expenses (85,276) (80,672)
Other operating income 428 758
Operating profit from continuing operations (note 1) 21,970 15,691
Share of profit of joint ventures 132 603
Net interest payable (1,182) (764)
Profit on ordinary activities before taxation 20,920 15,530
Tax charge on profit on ordinary activities (note 2) (6,006) (5,138)
Profit on ordinary activities after taxation 14,914 10,392
Dividends on equity and non-equity shares (note 3) (6,830) (6,254)
Retained profit for the year 8,084 4,138
Earnings per ordinary share (note 4) 36.04p 25.32p
Diluted earnings per ordinary share 35.45p 25.00p
MORGAN SINDALL PLC
Preliminary results for the year ended 31 December 2003
Group Balance Sheet
at 31 December 2003
2003 2002
£'000s £'000s £'000s £'000s
Fixed assets
Intangible assets 53,002 54,395
Tangible assets 13,375 21,308
Share of joint ventures gross assets 59,509 31,771
Share of joint ventures gross liabilities (53,711) (27,287)
Investment in joint ventures 5,798 4,484
Other investments 1,197 1,337
73,372 81,524
Current assets
Stocks 65,411 49,644
Debtors 195,546 176,491
Cash at bank and in hand 14,613 6,849
275,570 232,984
Creditors: amounts falling due within one year (267,401) (243,657)
Net current assets/(liabilities) 8,169 (10,673)
Total assets less current liabilities 81,541 70,851
Creditors: amounts falling due after more (1,569) (571)
than one year
Net assets 79,972 70,280
Capital and reserves
Called up share capital 2,100 3,646
Share premium account 25,392 24,375
Capital redemption reserve 623 -
Revaluation reserve 5,507 6,941
Profit and loss account 46,350 35,318
Total shareholders' funds 79,972 70,280
Shareholders' funds are attributable to:
Equity shareholders' funds 79,972 68,696
Non-equity shareholders' funds - 1,584
79,972 70,280
MORGAN SINDALL PLC
Preliminary results for the year ended 31 December 2003
Group Cash Flow Statement
for the year ended 31 December 2003
2003 2002
£'000s £'000
Net cash inflow from operating activities (note 5) 22,832 630
Dividend received from joint venture 355 -
Returns on investments and servicing of finance
Interest received 2,021 821
Interest paid (3,127) (1,557)
Dividends paid to preference shareholders (62) (128)
Interest paid on finance lease charges (80) (56)
(1,248) (920)
Taxation
Corporation tax paid (6,946) (6,349)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (3,034) (5,282)
Receipts from sale of tangible fixed assets 9,205 416
Payments to acquire fixed asset investments - (103)
6,171 (4,969)
Acquisitions and disposals
Purchase of subsidiary undertakings (6,801) (10,606)
Net cash acquired with subsidiary undertakings - 506
(6,801) (10,100)
Equity dividends paid (6,357) (5,755)
Net cash inflow/(outflow) before financing 8,006 (27,463)
Financing
Issue of shares, net of expenses 717 132
Redemption of preference shares (623) -
Capital element of finance leases (336) (459)
Net cash outflow from financing activities (242) (327)
Net cash inflow/(outflow) 7,764 (27,790)
Management of liquid resources 421 3,917
Increase/(decrease) in cash 7,343 (31,707)
7,764 (27,790)
MORGAN SINDALL PLC
Preliminary results for the year ended 31 December 2003
Notes
1. Analysis of turnover, operating profit and net assets
2003 2002
Net Net
Profit/ assets/ Profit/ assets/
Turnover (loss) (liabilities) Turnover (loss) (liabilities)
£'000s £'000s £'000s £'000s £'000s £'000s
Fit Out 189,001 8,407 (3,221) 192,934 10,483 (9,109)
Construction 300,313 599 (690) 337,027 (4,952) 2,241
Infrastructure Services 365,108 9,241 31,153 280,565 6,548 27,769
Affordable Housing 278,814 8,920 24,393 223,558 5,965 12,032
Group activities 4,301 (5,197) 16,024 4,303 (2,353) 38,461
1,137,537 21,970 67,659 1,038,387 15,691 71,394
Net funds/(debt) (note 6) 12,313 (1,114)
Net assets 79,972 70,280
Segmental net assets are stated after deducting interest bearing net debt/funds.
The principal activities are carried out in the United Kingdom and Channel
Islands.
2. Tax charge on profit on ordinary activities
2003 2002
£'000s £'000s
Current taxation:-
UK corporation tax charge for the year 6,697 5,525
Adjustment in respect of prior years 24 199
Share of taxation of joint ventures (23) -
Total current tax 6,698 5,724
Deferred taxation:-
Origination and reversal of timing differences (692) (572)
Share of taxation of joint ventures - (14)
Tax charge on profit on ordinary activities 6,006 5,138
3. Dividends on equity and non-equity shares
2003 2002
£'000s £'000s
Non-equity dividends on preference shares:-
Paid 62 82
Accrued - 46
62 128
Equity dividends on ordinary shares:-
Interim paid 1,944 1,736
Final proposed 4,824 4,390
6,768 6,126
Total dividends 6,830 6,254
The proposed final dividend will be paid on 6 April 2004 to shareholders on the
register at 5 March 2004. The ex-dividend date is 3 March 2004.
4. Earnings per ordinary share
The calculation of the earnings per share is based on the weighted average
number of 41,207,000 (2002: 40,535,000) ordinary shares in issue during the year
and on the profits for the year attributable to ordinary shareholders of
£14,852,000 (2002: £10,264,000).
In calculating the diluted earnings per share, earnings are adjusted for the
preference dividend of £62,000 (2002: £128,000) making adjusted earnings of
£14,914,000 (2002: £10,392,000). The weighted average number of ordinary shares
is adjusted for the dilutive effect of the convertible preference shares by
313,000 (2002: 634,000) and share options by 311,000 (2002: 398,000) and
contingent Long Term Incentive Plan shares by 243,000 (2002: nil) giving an
adjusted number of ordinary shares of 42,074,000 (2002: 41,567,000).
5. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
£'000s £'000s
Operating profit 21,970 15,691
Depreciation of tangible fixed assets 4,292 4,069
Amortisation of goodwill 3,191 3,116
Profit on sale of fixed assets (1,056) (166)
Increase in stocks and work in progress (15,767) (11,292)
Increase in debtors (18,367) (5,480)
Increase/(decrease) in creditors 28,569 (5,308)
Net cash inflow from operating activities 22,832 630
6. Analysis of net funds
Acquisition of
31 December Non cash subsidiary 31 December
2002 Cash flow movement undertaking 2003
£'000s £'000s £'000s £'000s £'000s
Cash at bank 6,849 7,764 - - 14,613
Finance leases (802) 336 (1,474) - (1,940)
Loan notes (7,161) - - 6,801 (360)
Total (1,114) 8,100 (1,474) 6,801 12,313
7. Reconciliation of net cash flow to movement in net funds
£'000s
Increase in cash 7,764
Cash outflow from decrease in finance leases 336
Changes in net funds from cashflows 8,100
Loan notes redeemed 6,801
Non cash movement (1,474)
13,427
Net debt at 1 January 2003 (1,114)
Net funds at 31 December 2003 12,313
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 2003.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2003 and 2002. No accounts
for the Company in respect of the year ended 31 December 2003 have been
delivered to the Registrar of Companies. The auditors of the Company have made
an unqualified report under Section 235 of the Companies Act 1985 in respect of
the Company's statutory accounts for the year ended 31 December 2003.
The statutory accounts for the year ended 31 December 2003 will be posted to
shareholders on 27 February 2004 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 2002 have been
delivered to the Registrar of Companies and contain an unqualified audit report.
This information is provided by RNS
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