Final Results - Year Ended 31 December 1999

Morgan Sindall PLC 15 February 2000 MORGAN SINDALL PLC Record preliminary results for the year ended 31 December 1999 Morgan Sindall plc, the specialist construction group, comprising fit out, regional construction and affordable housing, today announces record preliminary results. 1999 1998 Increase Turnover £521m £425m +23% Pre-tax profits on ongoing £13.85m £10.02m +38% activities Pre-tax profits on £10.08m £9.76m +3% ordinary activities * Earnings per share before 28.30p 22.15p +28% exceptional loss Earnings per share 22.17p 22.15p 0% Net assets £37.9m £23.2m +63% * Substantial margin improvement benefited fit out performance with increased record operating profits up 20% to £7.56m (1998: £6.31m) * Regional construction network now complete: record operating profits of £3.10m, up 31% (1998: £2.36m) * Positive first time contribution from Lovell Partnerships; confident that market position can be further exploited * John Morgan to become Executive Chairman post AGM to concentrate on strategy and implementation of vision. Sir Derek Hornby to remain on Main Board as a non-executive director * Cash remains strong with £22m net cash. Recommended final dividend of 6.00p, making a total for the year of 8.50p (1998: 6.50p), up 31% * Market strong, order book up on last year John Morgan said: 'We have yet again achieved record results with our core businesses. We are confident of the growth prospects from regional construction as well as the potential that Lovell Partnerships has to offer. We are in a great position to move forward.' 15 February 2000 * - including the £3.8 million cost of discontinuing SMHA Limited ENQUIRIES: Morgan Sindall plc Today: 020 7457 2020 John Morgan, Chief Executive Thereafter: 020 7307 9200 John Bishop, Finance Director College Hill Tel: 020 7457 2020 Matthew Smallwood Kate Pope MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 CHAIRMAN'S STATEMENT 1999 was another active and successful year for Morgan Sindall. Strategically our most significant development was the acquisition of Lovell Partnerships. This established a third core business activity for the Group in Affordable Housing, a significant and fast growing sector. Our Regional Construction business has made significant progress and our Fit Out business has had another record year. Financial Results Turnover in 1999 reached £521m, an increase of 23% and profits before tax on ongoing businesses was £13.9m, an increase of 38%. Despite the loss arising from a discontinued business of £3.8m, profit before tax was a record £10.1m. The Board is pleased to recommend a final dividend of 6.00p making 8.50p for the year (1998 6.50p). Board Changes It is ten years since I joined the Board of the privately owned Morgan Lovell, and five years since that company went public by the reverse takeover that created Morgan Sindall. I am delighted to have been part of the team and proud to see the Group become one of the UK's top construction companies. I think it is now appropriate for me to step down as Chairman at this year's AGM to allow John Morgan to take on the role as Executive Chairman. At the same time Andy Stoddart will move from Operations Director to Managing Director. I will continue as a Non-Executive Director. Whilst the size of the Group has increased dramatically, the sense of being different and the determination to succeed are still as strong as ever, and I am sure this momentum will carry the Group to further success in the future. Sir Derek Hornby Chairman MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 CHIEF EXECUTIVE'S REVIEW 1999 has been a significant year for the Group, not simply because of record turnover and profit, but I believe the diversification into Affordable Housing by the purchase of Lovell Partnerships is a clear demonstration of the way we see Morgan Sindall continuing to develop. Our Fit Out business, started 20 years ago, has provided a solid base for the Group. The formation of our network of Regional Construction companies began in 1994 and was completed nationally in 1998. They are becoming stronger each year and still have huge potential for growth. The next few years will see our hard work and investment in this business rewarded. The purchase in June 1999 of Lovell Partnerships introduces another core area of activity for us to develop whilst our other two businesses satisfy the demanding overall growth in returns we have set ourselves. Our vision is a balanced group of branded companies with above average growth prospects. The board changes reflect the need to ensure separate focus on strategic and operational issues as the Group develops. My enthusiasm and commitment to making Morgan Sindall the most exciting company in our sector remains undiminished. Fit Out Our Fit Out business has had another excellent year. Strong market recognition allows us to be selective in the open market tender work, while repeat business from satisfied clients showed the benefit to both parties of the efficiencies derived from established working relationships. Consequently, turnover of £174m (1998: £163m) produced operating profits of £7.6m (1998: £6.3m), 20% ahead of last year, which itself was a record year. Morgan Lovell and Overbury have each developed a strong client base and both are aware of the need to be ahead of their competitors in this fast moving sector of the industry. Morgan Lovell work directly for end user clients and offer a complete workplace solution including consultancy, design, construction and ongoing support. Overbury work for clients who purchase fit out work in the traditional way through professional teams. Both companies operate in London, the Home Counties and the Thames Valley undertaking contracts of up to £15m in value. Current order levels are satisfactory, albeit that the fast track nature of fit out does not provide long order cover. Over the years, brand loyalty has enabled us to be resilient to construction peaks and troughs, but as many companies who have tried to enter the market have found it is a demanding and specialist segment. Both Morgan Lovell and Overbury accept that success is only sustained by delighting clients and tackling each new project accordingly. MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 CHIEF EXECUTIVE'S REVIEW (cont'd) Regional Construction The second half results confirmed the continuing trend in our Regional Construction business of improving performance. Record annual turnover of £275m (1998: £251m) and operating profits of £3.1m (1998: £2.4m) demonstrate the progress being made. All seven operating brands are now trading profitably and have good order books. I believe this year will prove this business as a major contributor to group profits. It is five years since Morgan Sindall commenced development of a Regional Construction network, with turnover in the first year being less than £40m. Whilst we have made four further acquisitions during this time, it has been the development of all these companies that has been the main reason for the turnover increase. This organic growth supports our belief that clients are pleased to entrust their work and build relationships with companies that offer a clear regional presence combined with the technical and financial strength of a large group. Our view remains unchanged that the turnover of this business in its present format can double within three or four years. Affordable Housing Lovell Partnerships made a positive contribution in its first six months within the Group. Turnover of £65m and operating profits of £1.1m are in line with our expectations at acquisition and similarly our view of 2000 remains unchanged. The inherent project time cycle of this sector, involving lengthy pre-contract negotiations means that the results of our increased investment in this business will take time to materialise. Since acquisition we have undertaken a thorough review and strengthening of management at both the head and regional offices. This will ensure that the structure is capable of responding to the increased challenge that results from our commitment to build this business. With the right structure and resource we are looking to move the business forward both in margin and volume terms. Key to meeting this objective is our ability to increase the mix of open market sale units to those built for housing associations. This is particularly relevant in mixed tenure schemes, for which Lovell Partnerships has such a strong track record. The demand for affordable housing is huge and there are some interesting opportunities for large urban regeneration schemes where Lovell Partnerships is clearly seen as one of the major brands. We are confident of the ability to develop this business to be a significant part of the Morgan Sindall Group. MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 CHIEF EXECUTIVE'S REVIEW (cont'd) Property and Interest Before the expansion into Affordable Housing, the Group's trading operations were all cash generative and our policy had been to maintain reserves in cash and property investment. Whilst Lovell Partnerships will require working capital investment, the continued strengthening of the balance sheet from the growth in overall activity will result in having ongoing funds to invest. Our approach will continue to be proactive but conservative. As highlighted in the interim report, the current year's Property profits are mainly attributable to the sale of the office building in Jockey's Fields. In the coming year the construction of the Wigmore Street offices should be complete, and at present the rental market is strong and at higher levels than when we purchased the building. Out of London, the strong market has enabled us to move ahead with a partnering agreement on our property in Chatham, and we are noting interest in some of the undeveloped sectors of our industrial estate in Cambridge. Primary Medical Property, our joint venture business which develops and retains primary medical buildings, has had another successful year adding a further seven properties to its portfolio. Whilst it is still premature to expect capital growth from rent reviews, it is clear that yields are already improving as appreciation of this type of investment broadens amongst private and institutional investors. Discontinued Activity On 3 November 1999 we announced the closure of our tendered term maintenance business for housing associations. Although the demand was evident we were unable to find satisfactory bases for trading. This business has adversely affected 1999 results by £3.8m. We will continue to monitor this market through our other relationship with housing associations and Lovell Partnerships. MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 CHIEF EXECUTIVE'S REVIEW (cont'd) Future Prospects The market remains strong and our Fit Out and Regional Construction companies entered 2000 with order books higher than last year, both in absolute terms and budget cover. Lovell Partnerships has strengthened its senior management team and is benefiting from the Group's financial backing. I remain confident of the long term growth potential of this business. Overall therefore I believe the Group is in a great position to move forward. John Morgan Chief Executive MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Group Profit and Loss Account (unaudited) for the year ended 31 December 1999 1999 1998 £'000s £'000s £'000s £'000s Turnover Continuing operations 454,320 423,169 Acquisitions 65,065 - Discontinued operations 1,900 3,235 Less share of joint (658) (1,837) venture turnover Group turnover 520,627 424,567 Cost of sales (465,584) (379,084) Gross profit 55,043 45,483 Administrative expenses (44,299) (38,081) Other operating income 983 1,045 Operating profit Continuing operations 11,320 8,705 Acquisitions 1,057 - Discontinued operations (650) (258) Total operating profit 11,727 8,447 Exceptional loss on (3,129) - closure of discontinued business Share of profits of 51 67 joint venture Net interest receivable 1,426 1,246 Profit on ordinary 10,075 9,760 activities before taxation Tax charge on profit on (1,910) (2,046) ordinary activities Profit on ordinary 8,165 7,714 activities after taxation Dividends on equity and (3,439) (2,464) non-equity shares Retained profit for the 4,726 5,250 year Earnings per ordinary 22.17p 22.15p share Earnings per ordinary share before exceptional 28.30p 22.15p loss Diluted earnings per 21.34p 21.11p ordinary share MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Group Balance Sheet (unaudited) at 31 December 1999 1999 1998 £'000s £'000s £'000s £'000s Fixed Assets Intangible assets 11,768 3,970 Tangible assets 12,637 11,384 Share of joint venture gross 13,697 6,754 assets Share of joint venture gross (12,904) (6,570) liabilities Investment in joint venture 793 184 Investment in own shares 1,170 690 26,368 16,228 Current Assets Stocks 24,812 7,155 Debtors 88,820 67,828 Cash at bank and in hand 22,042 28,386 135,674 103,369 Creditors: amounts falling (124,113) (96,415) due within one year Net current assets 11,561 6,954 Net assets 37,929 23,182 Capital and reserves Called up share capital 6,714 6,619 Share premium account 11,794 3,419 Revaluation reserve 3,963 2,620 Profit and loss account 15,458 10,524 Total shareholders' funds 37,929 23,182 Shareholders' funds are attributable to: Equity shareholders' funds 33,076 18,247 Non-equity shareholders' 4,853 4,935 funds 37,929 23,182 MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Group Cash Flow Statement (unaudited) for the year ended 31 December 1999 1999 1998 £'000s £'000s Net cash inflow from operating activities 12,648 9,276 Returns on investments and servicing of finance Interest received 1,494 1,358 Interest paid (395) (412) Dividends paid to preference shareholders (275) (278) 824 668 Taxation Corporation tax paid (2,191) (1,264) Capital expenditure and financial investment Payments to acquire tangible fixed assets (3,286) (2,000) Receipts from sale of tangible fixed assets 778 6,687 Payments to acquire fixed asset investments (480) (190) (2,988) 4,497 Acquisitions and disposals Purchase of subsidiary undertakings (20,689) (424) Net cash/(overdrafts) acquired with 9 (888) subsidiary undertakings Sale of subsidiary undertaking - 35 Net cash disposed of with subsidiary - (90) undertaking (20,680) (1,367) Equity dividends paid (2,427) (1,889) Net cash (outflow)/inflow before financing (14,814) 9,921 Financing Issue of shares, net of expenses 8,470 79 Loans repaid - (4,334) Net cash inflow/(outflow) from financing 8,470 (4,255) activities (Decrease)/ increase in cash (6,344) 5,666 MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Combined Statement of Movements in Reserves and Shareholders' Funds (unaudited) for the year ended 31 December 1999 1999 1998 Share Revalua- Profit Share- Share- premium tion and loss Total Share holders holders account reserve account Reserves capital funds funds Group £'000s £'000s £'000s £'000s £'000s £'000s £'000s Balance at 3,419 2,620 10,524 16,563 6,619 23,182 17,398 1 January Retained - - 4,726 4,726 - 4,726 5,250 profit for year New shares issued 7,989 - - 7,989 162 8,151 124 net of expenses Converted 81 - - 81 (81) - - preference shares Options 305 - - 305 14 319 79 exercised Goodwill realised on - - 68 68 - 68 - discontinue d operation Transfer of realised - (140) 140 - - - - revaluation reserve Surplus on - 1,483 - 1,483 - 1,483 331 revaluation Balance at 11,794 3,963 15,458 31,215 6,714 37,929 23,182 31 December Included within the profit and loss account balance at 31 December 1999 is an amount for unrealised goodwill totaling £7,034,000 (1998: £7,102,000). 1999 1998 Share Revalua- Profit Share- Share- premium Special tion & loss Total Share holders holders account reserve reserve account reserve capital funds funds Company £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s Balance at 3,419 13,644 2,289 14,528 33,880 6,619 40,499 37,945 1 January Retained - - - 10,285 10,285 - 10,285 2,351 profit for year New shares 7,989 - - - 7,989 162 8,151 124 issued Converted 81 - - - 81 (81) - - preference shares Options 305 - - - 305 14 319 79 exercised Transfer of realised - - (140) 140 - - - - revaluation reserve Surplus on - - 925 - 925 - 925 - revaluation Balance at 11,794 13,644 3,074 24,953 53,465 6,714 60,179 40,499 31 December MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Statement of Total Recognised Gains and Losses (unaudited) for the year ended 31 December 1999 1999 1998 £'000s £'000s Profit for the financial year before 8,165 7,714 dividends Share of joint venture's surplus on 558 331 revaluation of investment property Surplus on revaluation of investment 925 - property Total recognised gains and losses 9,648 8,045 Note of Historical Cost Profits and Losses (unaudited) for the year ended 31 December 1999 1999 1998 £'000s £'000s Profit on ordinary activities before 10,075 9,760 taxation Realisation of property valuation gains of 140 4,032 prior years Difference between the historical cost depreciation charge and the actual 6 19 depreciation charge for the year calculated on the revalued amount Historical cost profit on ordinary 10,221 13,811 activities before taxation Historical cost profit on ordinary activities 4,872 9,301 after taxation and dividends MORGAN SINDALL PLC Preliminary results for the year ended 31 December 1999 Notes 1. Analysis of turnover, gross profit, operating profit and net assets 1999 1998 Profits/ Net Profits/ Net Turnover (losses) assets Turnover (losse assets £'000s £'000s £'000s £'000s £'000s £'000s Regional 274,516 3,097 (684) 251,365 2,360 (2,033) construction Fit out 174,146 7,564 (4,427) 162,967 6,306 (11,005) Affordable 65,065 1,057 8,546 - - - housing Property 5,000 2,235 14,866 7,000 1,548 14,404 Group - (1,576) (4,190) - (1,509) (8,595) activities Ongoing 518,727 12,377 14,111 421,332 8,705 (7,229) activities Discontinued 1,900 (650) 1,776 3,235 (258) 2,025 operations 520,627 11,727 15,887 424,567 8,447 (5,204) Net cash 22,042 28,386 balances Net assets 37,929 23,182 Segmental net assets are stated after deducting interest bearing net cash balances. Continuing Acquist- Discontiued 1999 1998 operation ions operations Total Total £'000s £'000s £'000s £'000s £'000s Group turnover 453,662 65,065 1,900 520,627 424,567 Cost of sales (403,989) (59,403) (2,192) (465,584) (379,084) Gross profit 49,673 5,662 (292) 55,043 45,483 Administrative (39,336) (4,605) (358) (44,299) (38,081) expenses Other operating 983 - - 983 1,045 income Operating 11,320 1,057 (650) 11,727 8,447 profit 2. Tax charge on profit on ordinary activities 1999 1998 £'000s £'000s Corporation tax payable at 30.25% (1998: 31%) 3,000 1,773 (Over)/under provision in prior years (143) 273 Share of tax of joint venture - - Tax on exceptional loss (947) - 1,910 2,046 The tax charge for the year is lower than the standard rate due to the availability of tax losses brought forward. 3. Dividends on equity and non-equity shares 1999 1998 £'000s £'000s Non-equity dividends on preference shares Paid 219 219 Accrued 56 59 275 278 Equity dividends on ordinary shares Interim paid 2.50p (1998: 2.05p) 929 688 Final proposed 6.00p (1998: 4.45p) 2,235 1,498 3,164 2,186 3,439 2,464 The proposed final dividend will be paid on 13 April 2000 to shareholders on the register at 17 March 2000. 4. Earnings per ordinary share The calculation of the earnings per share is based on the weighted average number of 35,591,000 ordinary shares in issue during the year (1998: 33,575,000) and on the profits for the year attributable to shareholders of £7,890,000 (1998: £7,436,000). In calculating the earnings per share before exceptional loss, earnings are adjusted for the exceptional loss of £3,129,000 (1998: nil) and the tax on exceptional loss of £947,000 (1998: nil) making adjusted earnings of £10,072,000 (1998: £7,436,000). In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £275,000 (1998: £278,000) making adjusted earnings of £8,165,000 (1998: £7,714,000). The weighted average number of ordinary shares are adjusted for the dilutive effect of the convertible preference shares by 1,941,000 (1998: 1,974,000) and share options by 722,000 (1998: 999,000) giving an adjusted number of ordinary shares of 38,254,000 (1998: 36,548,000). 5. Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £'000s £'000s Operating profit 11,727 8,447 Depreciation of tangible fixed assets 1,660 1,507 Amortisation of goodwill 379 191 Profit on disposal of business - (40) Loss/(profit) on sale of fixed assets 28 (494) Increase in stocks and work in progress (242) (285) Increase in debtors (8,177) (8,444) Increase in creditors 10,334 8,394 Exceptional loss (3,061) - Net cash inflow from operating activities 12,648 9,276 6. Reconciliation and analysis of net cash flow to movement in net cash 1998 Cash 1999 flow £'000s £'000s £'000s Cash at bank and in hand 28,386 (6,344) 22,042 7. Accounting policies This announcement is prepared on the basis of accounting policies as stated in the financial statements for the year ended 31 December 1998, except for the change noted below. By adopting Financial Reporting Standard 15, non-investment properties are now held at cost. Under the transitional rules of the Standard, the Group has retained the book amounts of certain revalued properties and the valuation has not been updated. 8. The financial information set out above does not constitute the Companys's statutory accounts for the years ended 31 December 1999 and 1998. No accounts for the Company or its subsidiaries in resect of the year ended 31 December 1999 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. Full accounts for the Group for the year ended 31 December 1998 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. 9. The annual report for the year ended 31 December 1999 will be posted to shareholders by 9 March 2000.

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