Final Results
Morgan Sindall PLC
19 February 2008
MORGAN SINDALL plc
('Morgan Sindall' or 'the Group')
Preliminary results for the year ended 31 December 2007
Morgan Sindall plc, the construction and regeneration group that operates five
divisions; Fit Out, Construction, Infrastructure Services, Affordable Housing
and Urban Regeneration today announces record preliminary results.
2007 2006
Revenue £2,115m £1,497m + 41%
Profit from operations £53.5m £46.2m + 16%
Adjusted profit before tax(1) £62.1m £47.6m + 30%
Profit before tax £57.6m £47.6m + 21%
Net cash balance £219m £95m + 131%
Adjusted earnings per share (1) 104.5p 78.2p + 34%
Basic earnings per share 93.8p 78.2p + 20%
Total dividend per share 38.0p 28.0p + 36%
(1) Adjusted for amortisation of intangible assets
Group highlights
• Record set of preliminary results with profit up in all divisions
• Strong cash generation
• Acquisition strengthens market leading positions and adds urban
regeneration division
• Company ideally positioned to take advantage of challenges and
opportunities in 2008
Divisional highlights
Fit Out
• Strong market throughout 2007
• Profit up 15% to £25.9m (2006: £22.6m) on revenue of £492m (2006: £426m)
• Margin maintained at 5.3%, above 5% for third successive year
• Forward order book of £179m (2006: £187m)
Construction
• Buoyant market conditions throughout 2007, driven particularly by growth
in commercial sector and public spending
• Profit up 44% to £4.9m (2006: £3.4m), after integration costs of £2.8m
• Revenue growth of 81% to £621m (2006: £343m), with organic revenue
growth to £442m, and £179m contributed by acquisition
• Acquisition significantly increases range of services and geographical
coverage
• Extended sector coverage to include defence, retail, pharmaceuticals and
manufacturing
• Forward order book at £810m (2006: £491m)
Infrastructure Services
• Improved market conditions driven by increased infrastructure investment
• Profit up 108% to £10.6m (2006: £5.1m)
• Revenue growth of 77% to £575m (2006: £324m), with organic revenue
growth to £475m, and £100m contributed by acquisition
• Margin up to 2.1% as anticipated (2006: 1.6%) when profit adjusted for
£1.4m of integration costs
• Acquisition strengthens division's capabilities in tunnelling, water and
piling
• Forward order book at £1.7bn (2006: £1.2bn)
Affordable Housing
• Market driven by Government commitment to affordable housing
• Profit up to £25.5m (2006: £24.0m)
• Margin improvement for eighth successive year to 6.4% (2006: 5.9%)
• Focus on mixed tenure opportunities key to continued success
• Financial close of first mixed tenure PFI project at Miles Platting,
Manchester
• Forward order book at £1.5bn (2006: £1.4bn)
Urban Regeneration
• Newly formed division following acquisition
• Five months profit (to 31 Dec 2007) of £4.2m
• Strong margin at 16%
• Four projects now at preferred bidder stage valued at £1.1bn
• Forward development pipeline of £1.2bn
John Morgan, Executive Chairman, commented:
'Our business strategy has proved highly successful in helping us to achieve
record preliminary results, with all operating divisions delivering impressive
profit growth. The businesses we acquired last year have been substantially
integrated and have extended our capabilities in Construction, Infrastructure
Services and Urban Regeneration, thereby bringing an increasing balance to the
Group.
'The Group has a strong net cash balance and each of our divisions is well
positioned to meet both the challenges and opportunities we expect to see in
2008.'
ENQUIRIES:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
Blythe Weigh Communications Tel: 020 7138 3204
Tim Blythe Mobile: 07816 924626
Paul Weigh Mobile: 07989 129658
Preliminary Statement
We are pleased to report a year of significant progress and another set of
record results. Profit before tax and amortisation of intangible assets rose by
30% to £62.1m (2006: £47.6m) on revenue that increased by 41% to £2.1bn (2006:
£1.5bn). Adjusted earnings per share before amortisation increased by 34% to
104.5p (2006: 78.2p).
Profit before tax for the year (after amortisation of intangible assets) was
£57.6m (2006: £47.6m). The Board recommends a final dividend of 28.0p (2006:
20.0p) giving a total dividend for the year of 38.0p (2006: 28.0p), an increase
of 36%.
Operating cash flow was particularly strong in 2007 with year end net cash of
£219m (2006: £95m) driven by the increased profitability of the Group and an
improvement in working capital management.
Acquisition and performance
Our strategy is to develop leading positions in each of our chosen sectors
within the construction and regeneration markets. The acquisition in July of two
businesses from Amec plc, Amec Developments (renamed Muse Developments) and
Amec's Design and Project Services business ('DPS'), was driven by this
objective. DPS' construction and civil engineering activities have been
integrated into our existing Construction and Infrastructure Services divisions.
The acquisition has been significant in strengthening the market positions of
both these divisions. In addition, the acquisition of Muse Developments has
created a fifth division of the Group, Urban Regeneration. Muse Developments is
a leader in inner city regeneration, specialising in complex, mixed use schemes
in partnership with both private and public sector landowners. Overall the
acquisition has delivered revenue for the five months to December of £305m and
made a positive contribution.
During 2007, Fit Out benefited from its leading position in the commercial
property sector with strong growth in revenue and profit from operations.
Affordable Housing continued its focus on mixed tenure regeneration, improving
its operating margin for a fifth consecutive year. Construction's performance
improved as anticipated. It has broadened its offering following the acquisition
of DPS to provide nationwide coverage across a full range of project sizes.
Infrastructure Services increased its activity, as expected, and also benefited
from the acquisition of DPS, strengthening its market positions in the water and
transport sectors as well as enhancing its tunnelling expertise. The newly
created Urban Regeneration division, created by the acquisition of Muse
Developments, traded slightly ahead of expectations since its acquisition and
secured a number of key mixed use projects during the year.
Board Changes
We welcome back Geraldine Gallacher to the Board as a non-executive director.
Geraldine's experience in the area of executive development will be valuable to
the Board as the Group continues to grow.
Outlook
The forward order book at the start of 2008 was £4.3bn compared with £3.3bn last
year. It was boosted by £0.6bn from the acquisition of DPS, hence the organic
growth, year on year, was 12%. In addition Muse Developments' forward
development pipeline, its share of regeneration projects in which it has an
interest, is valued at £1.2bn.
In the coming year against a macro economic backdrop where there is a degree of
uncertainty, Fit Out is seeking to maintain its level of performance. The fit
out market continues to be strong in the short term and we remain of the view
that it will be robust at least until the second half of the year. Construction
and Infrastructure Services divisions are both experiencing positive market
conditions led by public sector investment. The Affordable Housing and Urban
Regeneration divisions will continue to target opportunities in the regeneration
market, which remains a key Government priority.
Overall the Group made a significant step forward during 2007 with continued
growth across all divisions and with the acquisition of DPS and Muse
Developments. The Group has started 2008 with confidence and with the forward
order book at £4.3bn it is well positioned to take advantage of challenges and
opportunities in the coming year.
Divisional performance and outlook
Operating profit is the profit from operations for each division before
amortisation of intangible assets.
Fit Out
2007 2006
Revenue £492m £426m
Operating profit £25.9m £22.6m
Margin 5.3% 5.3%
Forward order book £179m £187m
Fit Out provides fit out and refurbishment services to the financial, legal,
public, leisure, education, hotel and retail sectors. The fit out market in 2007
showed strong growth. Fit Out, with around a 20% share of the office fit out
market, grew strongly with revenue increasing by 15% to £492m (2006: £426m) and
the division achieved a record operating profit of £25.9m (2006: £22.6m), an
increase of 15%. Margins were maintained above 5% for the third year in
succession at 5.3% (2006: 5.3%).
Fit Out's activities are largely centred on London and the South East with
around 70% of its revenues derived from the West End and City of London.
Projects range in size from £10,000 to £50m. The division is pursuing a strategy
of building on its strength in the London commercial property market by opening
offices outside London and continuing to develop Vivid Interiors, a business
focused on the hotel, retail, leisure and education sectors. During 2007 the
division opened a new office in Birmingham and grew Vivid Interiors' revenue by
51%. In addition, the division has been targeting larger projects (in excess of
£20m) in order to develop its business.
The immediate outlook to the middle of 2008 for Fit Out remains encouraging with
the forward order book at the start of the year at £179m, a similar level to
that at the start of 2007. The forward order book is usually not more than four
to five months in length in this division due to the short lead times for
projects. Consequently, longer term market predictions are more difficult to
make.
Construction
2007 2006
Revenue £621m £343m
Operating profit* £4.9m £3.4m
Margin 0.8% 1.0%
Forward order book £810m £491m
* After deducting £2.8m of integration costs
The Construction division experienced positive market conditions in 2007 helped
in particular by growth in the commercial sector and by public sector spending
on education and health. The key highlight of the year was the acquisition of
the Design and Project Services (DPS) business from Amec plc which added size,
scale and additional capabilities to the division and was a significant step
towards delivering its strategy of market leadership in the general construction
sector. The business was subsequently rebranded as Morgan Ashurst (formerly
Bluestone). The acquisition has also extended the sectors that the division
covers from health, education, light industrial and property services to include
defence, retail and the pharmaceutical and manufacturing sectors. In addition
project capabilities have been broadened to include projects over £300m and to
provide a nationwide construction and design service. Revenue derived from key
client relationships, frameworks and negotiated arrangements remain key to the
division's strategy.
Overall the operating profit increased by 44% to £4.9m (2006: £3.4m) on revenue
of £621m (2006: £343m), an increase of 81%. The acquisition contributed revenue
of £179m, with organic revenue growth of 29% to £442m (2006: £343m). The
operating profit is stated after £2.8m of integration costs. Adjusting the
operating profit for these integration costs gives an operating margin of 1.2%
for the year (2006: 1.0%). In addition, the division made a significant
contribution to the overall improvement in the Group's operating cash flow
during 2007.
Other highlights from 2007 include securing the construction contract for a
fifth NHS LIFT concession at Bury, Tameside and Glossop as well as for the
Dorset Emergency Services and Police Initiative PFI project. Also, the division
developed its presence in the education sector with the construction contract
for the East Dunbartonshire Schools PFI project.
The division begins 2008 with a forward order book of £810m (2006: £491m).
Overall the outlook for the general construction sector remains positive,
supported by the Government's commitments to education and health. The priority
for the division remains to improve the quality of its margins and to fully
realise the benefits of the integrated business following the acquisition.
Infrastructure Services
2007 2006
Revenue £575m £324m
Operating profit* £10.6m £5.1m
Margin 1.8% 1.6%
Forward order book £1.7bn £1.2bn
* After deducting £1.4m of integration costs
The infrastructure services market experienced further improved market
conditions during 2007 driven in particular by increased investment by key
clients such as the Scottish Executive, Network Rail and the Highways Agency.
The division also benefited from the acquisition of DPS which complemented the
growth in the underlying business.
The acquisition introduced new clients to the division such as BAA, Defence
Estates and Welsh Water. In addition the acquisition strengthened the division's
tunnelling capabilities, creating the UK's leading tunnelling business.
Overall revenue increased by 77% to £575m (2006: £324m) and delivered an
operating profit of £10.6m (2006: £5.1m), an increase of 108% on the previous
year. The acquisition contributed revenue of £100m, with organic revenue growth
of 47% to £475m (2006: £324m).
The operating profit is stated after £1.4m of integration costs. Adjusting the
operating profit for these integration costs gives an operating margin of 2.1%
for the year (2006: 1.6%) and was in line with the expected improvement in the
margin for the year. The division also made an important contribution to the
improvement in the Group's operating cash flow through its improved
profitability and management of its working capital.
After securing £800m of new orders in 2006, the division prioritised operational
delivery of its key projects, which have progressed well during 2007. In 2007 it
also secured framework contracts across the utilities sector as well as major
road projects such as the M1 widening at junctions 25 to 28 for the Highways
Agency and the A1073 project for Lincolnshire County Council, both under the
Early Contractor Involvement (ECI) procurement process.
The division started 2008 with a forward order book of £1.7bn (2006: £1.2bn).
The overall outlook for the division remains positive with further growth in the
market expected in 2008. In January 2008, the division completed the acquisition
of the isolations and possessions business of Elec-Track Installations for £1m,
which will strengthen its electrical capabilities in the rail sector.
Affordable Housing
2007 2006
Revenue £398m £404m
Operating profit £25.5m £24.0m
Margin 6.4% 5.9%
Forward order book £1.5bn £1.4bn
The Affordable Housing division, Lovell, continued with its focus on mixed
tenure developments with profits rising by 6% to £25.5m (2006: £24.0m) on
revenue of £398m (2006: £404m). The focus on mixed tenure developments (schemes
including both social housing for rent and houses built for sale on the open
market) helped to increase the margins for the eighth year in succession to 6.4%
(2006: 5.9%).
A highlight in 2007 was the division achieving financial close of its first PFI
housing and refurbishment project at Miles Platting in Manchester. This was an
important milestone as PFI will be an important method of procurement to enable
the Government to meet its housing regeneration agenda in the coming years. In
addition, the division secured notable new opportunities at Coalville in
Stoke-on-Trent (via its Compendium joint venture with Riverside Housing
Association) and at Mildmay in Islington. The Decent Homes programme also
continues to provide new refurbishment framework opportunities.
The Government's commitment to the affordable housing and regeneration sector
was reiterated with the announcement in 2007 of the target to build 70,000 new
social houses per annum by 2010, from around 25,000 currently. Whilst the impact
of the 'credit crunch' on the housing sector has been widely reported the affect
on Lovell has been limited as open market sales represent only 30% of the
division's revenues (and only around 5% of the Group's revenue). The division
experienced a modest fall in demand for open market sales during the last
quarter of 2007, but this was compensated for by resilient refurbishment and new
build social housing work.
The division started 2008 with an order book of £1.5bn (2006: £1.4bn). The
priority for the division will be to continue to develop its mixed tenure
capabilities and secure larger scale regeneration schemes including those with
commercial, retail and leisure components, which we believe to be an
increasingly important part of the market moving forward.
Urban Regeneration
2007
Revenue £26m
Operating profit £4.2m
Margin 16%
Forward development pipeline £1.2bn
The newly formed fifth division, Urban Regeneration, was created following the
acquisition of Amec Developments in July 2007, which has been renamed Muse
Developments. The division is a leading mixed use property development and urban
regeneration business.
2007 was a success for Muse Developments. For the five months to December 2007
the division achieved an operating profit of £4.2m on revenue of £26m. In
addition, in 2007 the division was appointed as preferred bidder for four large
urban regeneration schemes in Swindon, Doncaster, Manchester and Blackpool with
a combined development value of £1.1bn. The division also successfully completed
schemes at Wakefield, Bromley and Durham.
The division starts 2008 with interests in 30 projects with a projected future
value of £2.6bn, of which the division's share is £1.2bn. In addition, the
division will be seeking to finalise and sign development agreements for the
four projects referred to above, which are currently being negotiated, and the
opportunities for the division remain encouraging. With its focus on long term
strategic partnership arrangements the division is well placed with a secure
forward development pipeline and limited exposure to the revaluation issues
currently affecting the property sector.
Financial review
Revenue and profit from operations
Revenue increased by 41% to £2.1bn (2006: £1.5bn), of which £305m was attributed
to businesses acquired from Amec plc in July 2007, otherwise the increase was
driven primarily by growth in the Fit Out, Construction and Infrastructure
Services divisions. Fit Out revenue increased by 15% to £492m, Construction by
81% to £621m (of which £179m was from the acquired business) and Infrastructure
Services by 77% to £575m (of which £100m was from the acquired business). The
Urban Regeneration division made a first time revenue contribution of £26m.
Affordable Housing's revenue dropped by 1% to £398m.
Group profit from operations increased by 26% to £58.0m (2006: £46.2m) prior to
the amortisation of intangible assets of £4.5m. This improvement was due to
strong growth in all divisions. Fit Out increased its profit from operations by
15% to £25.9m, Construction by 44% to £4.9m, Infrastructure Services by 108% to
£10.6m and Affordable Housing by 6% to £25.5m. Urban Regeneration's profit from
operations (for the five month period since acquisition) was £4.2m. The cost of
Group Activities increased by 47% to £13.1m (2006: £8.9m) reflecting principally
the increased costs of information technology and acquisition related costs.
Profit before and after tax
Profit before tax and amortisation of intangible assets of £62.1m was 30% ahead
of last year's £47.6m. This includes net finance income of £4.1m (2006: £1.4m).
Profit after tax was £39.4m (2006: £32.8m). The tax charge was £18.2m (2006:
£14.8m) giving an effective tax rate of 32% (2006: 31%).
Earnings per share and dividends
Basic earnings per share was 93.8p (2006: 78.2p). Adjusted earnings per share
(adjusted for amortisation of intangible assets) increased by 34% to 104.5p
(2006: 78.2p). The final dividend is proposed at 28.0p (2006: 20.0p) giving a
total dividend for the year of 38.0p which is 36% higher than last year (2006:
28.0p). Adjusted earnings cover the dividend 2.8 times (2006: 2.8 times).
The Group's dividend policy is to progressively grow the dividend in line with
the growth in earnings, aiming to cover the dividend by earnings of between 2.5
times and 3 times.
Equity and capital structure
Shareholders' equity increased to £165.7m (2006: £141.9m). The number of shares
in issue at 31 December 2007 was 42,801,848 (2006: 42,520,090). The increase of
281,758 shares was due to the exercise of options under employee share option
schemes.
Each year the Company seeks the normal authority allot shares with a nominal
value of up to one third of the issued share capital of the Company, with the
power to allot up to 5% of the issued share capital for cash on a non
pre-emptive basis. In addition this year the Group has included a resolution
which gives the directors authority to repurchase up to 10% of the Company's
shares either for cancellation or to be held in treasury. Whilst the directors
have no current intention to use this authority, it would give them the
flexibility to make purchases of shares if it considered that this would be in
the best interests of the Company and shareholders and would result in an
increase in earnings per share.
Cash flow and treasury
Net cash from operating activities was £158.1m (2006: £47.9m) as a result of
increased profitability and an improvement in working capital management. The
net payment to acquire subsidiaries was £11.3m (2006: £18.2m), capital
expenditure was £8.0m (2006: £3.2m) and payments to increase interests in joint
ventures were £5.0m (2006: £0.9m), reflecting ongoing investment in the
business. After payments for tax, dividends and servicing of finance the net
increase in cash and cash equivalents was £123.5m resulting in a year end
balance of £218.9m. It is anticipated that these resources will be used for the
continued growth of the Group's businesses either through acquisitions or
investment in working capital as required.
In addition to its cash resources, the Group has a £25m, three-year revolving
facility available until November 2009, a further £25m, three-year revolving
facility available until June 2010, a £25m, 364-day revolving facility available
until June 2008 and a £10m overdraft facility with its main clearing bankers.
The overdraft facility is reviewed annually. Banking facilities are subject to
normal financial covenants, all of which have been met in the year.
The Group has established treasury policies which set out clear guidelines as to
the use of counterparties and the maximum period of borrowings and deposits.
Deposits are for periods of no longer than three months and are at rates
prevailing on the day of the transaction. The Group has very limited exposure to
foreign exchange risk because its operations are based almost entirely in the UK
, where non-UK suppliers are used only occasionally.
Although the Group does not use derivatives, some of its joint venture
businesses use interest rate swaps to hedge floating interest rate exposures and
a Retail Price Index swap to hedge inflation exposure. The Group considers that
its exposure to interest rate and inflation movements is appropriately managed.
Forward-looking statements
This business review has been prepared solely to assist shareholders to assess
the Board's strategies and their potential to succeed. It should not be relied
on by any other party for other purposes. Forward-looking statements have been
made by the directors in good faith using information available up until the
date of this announcement. Forward looking statements should be regarded with
caution because of the inherent uncertainties in economic trends and business
risks.
Consolidated income statement (unaudited)
For the year ended 31 December 2007
Notes 2007 2006
£m £m
Continuing operations
Revenue 1 2,114.6 1,496.8
Cost of sales (1,892.9) (1,331.4)
------------ ------------
Gross profit 221.7 165.4
------------ ------------
Other administrative expenses (168.4) (118.4)
Amortisation of intangible assets (4.5) -
------------ ------------
Total administrative expenses (172.9) (118.4)
Share of net profit/(loss) of equity
accounted 4.7 (0.8)
joint ventures ------------ ------------
Profit from operations 53.5 46.2
Finance income 8.5 3.8
Finance expenses (4.4) (2.4)
------------ ------------
Net finance income 4.1 1.4
Profit before income tax expense 1 57.6 47.6
Income tax expense 2 (18.2) (14.8)
------------ ------------
Profit for the year from attributable to
equity 39.4 32.8
holders of the parent company ============ ============
Earnings per share
From continuing operations
Basic 4 93.8p 78.2p
============ ============
Diluted 4 91.7p 76.3p
============ ============
Consolidated balance sheet (unaudited)
At 31 December 2007
2007 2006
Notes £m £m
Non current assets
Property, plant and equipment 24.0 16.6
Goodwill 5 122.8 72.7
Other intangible assets 5 35.2 -
Investments in equity accounted joint ventures 38.1 5.3
Investments 0.1 0.1
Deferred tax assets 5.0 3.6
------------ ------------
225.2 98.3
------------ ------------
Current assets
Inventories 128.8 86.8
Amounts recoverable on construction contracts 209.1 145.9
Trade and other receivables 238.3 134.9
Cash and cash equivalents 218.9 95.4
------------ ------------
795.1 463.0
------------ ------------
Total assets 1,020.3 561.3
============ ============
Current liabilities
Trade and other payables (756.5) (379.4)
Amounts received in advance on construction (67.4) (27.3)
contracts
Current tax liabilities (10.6) (6.4)
Finance lease liabilities (1.4) (1.3)
------------ ------------
(835.9) (414.4)
------------ ------------
Net current (liabilities)/assets (40.8) 48.6
------------ ------------
Non current liabilities
Trade and other payables (12.2) -
Retirement benefit obligation (3.3) (2.5)
Finance lease liabilities (3.2) (2.5)
------------ ------------
(18.7) (5.0)
------------ ------------
Total liabilities (854.6) (419.4)
============ ============
Net assets 165.7 141.9
============ ============
Equity
Share capital 6 2.1 2.1
Share premium account 6 26.3 26.2
Capital redemption reserve 6 0.6 0.6
Own shares 6 (5.5) (3.4)
Hedging reserve 6 (2.2) (0.8)
Retained earnings 6 144.4 117.2
------------ ------------
Total equity 165.7 141.9
============ ============
Consolidated statement of recognised income and expense (unaudited)
For year ended 31 December 2007
2007 2006
£m £m
Actuarial (losses)/gains arising on defined benefit (0.9) 0.7
plan
Income tax credit in respect of share options
recognised - 0.9
directly in equity
Deferred tax on retirement benefit obligation
recognised 0.3 (0.3)
directly in equity
Movement on hedged items on cash flow hedges in
equity accounted (1.4) 1.4
joint ventures ------------ ------------
Net (expense)/income recognised directly in equity (2.0) 2.7
Profit for the year 39.4 32.8
------------ ------------
Total recognised income and expense for the year
attributable to 37.4 35.5
equity holders of the parent company ============ ============
Consolidated cash flow statement (unaudited)
For the year ended 31 December 2007
Notes 2007 2006
£m £m
Net cash inflow from operating activities 8 158.1 47.9
----------- ------------
Cash flows from investing activities
Interest received 8.4 3.8
Dividends received from joint ventures - 7.2
Proceeds on disposal of property, plant and 0.6 1.1
equipment
Purchases of property, plant and equipment (8.0) (3.2)
Payments to acquire interests in joint ventures (5.0) (0.9)
Payment for the acquisition of a subsidiary (25.5) (23.0)
Net cash acquired on acquisition of a 14.2 4.8
subsidiary ----------- ------------
Net cash outflow from investing activities (15.3) (10.2)
----------- ------------
Cash flows from financing activities
Payments to acquire own shares (2.1) (1.6)
Dividends paid (12.6) (10.9)
Repayments of obligations under finance leases (4.7) (1.9)
Repayment of loan notes - (0.1)
Proceeds on issue of share capital 0.1 0.2
----------- ------------
Net cash outflow from financing activities (19.3) (14.3)
----------- ------------
Net increase in cash and cash equivalents 123.5 23.4
Cash and cash equivalents at beginning of year 95.4 72.0
----------- ------------
Cash and cash equivalents at end of year
Bank balances and cash 218.9 95.4
=========== ============
Notes (unaudited)
For the year ended 31 December 2007
1. Business segments
For management purposes, the Group is organised into five operating divisions:
Fit Out, Construction, Infrastructure Services, Affordable Housing and Urban
Regeneration. The divisions are the basis on which the Group reports its primary
segment information. Segment information about the Group's continuing operations
is presented below:
2007 Fit Out Cnstrn Infra Afford Urban Group Total
Serv Housing Regen Activities
£m £m £m £m £m £m £m
Revenue 491.7 621.4 575.4 398.0 25.9 2.2 2,114.6
Operating
profit
before 25.9 4.9 10.6 25.5 0.9 (14.5) 53.3
amortisation
Share of
results of
associates
and
joint - - - - 3.3 1.4 4.7
ventures ------- ------- ------ ------- ------- ------- ------
after tax
Profit from
operations
before
amortisation 25.9 4.9 10.6 25.5 4.2 (13.1) 58.0
Amortisation
of
intangible - (1.0) (0.3) - (3.2) - (4.5)
assets ------- ------- ------ ------- ------- ------- ------
Profit from
operations 25.9 3.9 10.3 25.5 1.0 (13.1) 53.5
======= ======= ====== ======= ======= =======
Net finance
income 4.1
------
Profit
before 57.6
tax ======
2006 Fit Out Cnstrn Infra Afford Urban Group Total
Serv Housing Regen Activites
£m £m £m £m £m £m £m
Revenue 425.6 343.3 323.7 404.2 - - 1,496.8
Operating
profit
before 22.6 3.4 5.1 24.0 - (8.1) 47.0
amortisation
Share of
results of
associates
and
joint - - - - - (0.8) (0.8)
ventures ------- ------- ------ ------- ------- ------- ------
after tax
Profit from
operations
before
amortisation 22.6 3.4 5.1 24.0 - (8.9) 46.2
Amortisation - - - - - - -
of ------- ------- ------ ------- -------- ------- ------
intangible
assets
Profit from
operations 22.6 3.4 5.1 24.0 - (8.9) 46.2
======= ======= ====== ======= ========= =======
Net finance
income 1.4
------
Profit
before 47.6
tax ======
The Group's operations are principally carried out in the United Kingdom.
Notes continued (unaudited)
For the year ended 31 December 2007
2. Income tax expense
2007 2006
£m £m
Current tax expense:
UK corporation tax 19.7 14.7
Adjustment in respect of prior years 0.3 0.5
--------- --------
20.0 15.2
--------- --------
Deferred tax expense:
Current year (0.1) (0.1)
Adjustment in respect of prior years (1.7) (0.3)
--------- --------
Income tax expense for the year 18.2 14.8
========= ========
Corporation tax is calculated at 30% (2006: 30%) of the estimated assessable
profit for the year.
The charge for the year can be reconciled to the profit per the income statement
as follows:
2007 2006
£m % £m %
Profit before tax 57.6 47.6
======= =======
Income tax expense at UK corporation
tax rate 17.3 30.0 14.3 30.0
Tax effect of:
Share of net profit of equity
accounted joint ventures (1.4) (2.4) 0.2 0.5
Expenses that are not deductible in
determining taxable profits 3.7 6.4 0.2 0.5
Movements not reflected in income
statement (0.3) (0.5) (0.1) (0.4)
Adjustments in respect of prior years (1.4) (2.4) 0.2 0.5
Effects of rate change 0.3 0.5 - -
------- ------ ------- ------
Income tax expense and effective tax
rate for the year 18.2 31.6 14.8 31.1
======= ====== ======= ======
Notes continued (unaudited)
For the year ended 31 December 2007
3. Dividends
2007 2006
£m £m
Amounts recognised as distributions to equity holders in
the period:
Final dividend for the year ended 31 December 2006 of 8.4 7.5
20.00p
(2005: 18.00p) per share
--------- ---------
Interim dividend for the year ended 31 December 2007 of 4.2 3.4
10.00p
(2006: 8.00p) per share
--------- ---------
12.6 10.9
========= =========
Proposed final dividend for the year ended 31 December
2007 of 12.0 8.4
28.00p (2006: 20.00p) per share ========= =========
The proposed final dividend is subject to approval by shareholders at the annual
general meeting and has not been included as a liability in the financial
statements. The proposed dividend will be paid on 6 May 2008 to shareholders on
the register at 11 April 2008. The ex-dividend date will be 9 April 2008.
Notes continued (unaudited)
For the year ended 31 December 2007
4. Earnings per share
There are no discontinued operations in either the current or prior year.
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings
2007 2006
£m £m
Earnings before taxation 57.6 47.6
Deduct taxation expense per the income statement (18.2) (14.8)
---------- ----------
Earnings for the purposes of basic and dilutive earnings
per
share being net profit attributable to equity holders of 39.4 32.8
the
parent company
Add back current year's amortisation expense 4.5 -
---------- ----------
Earnings for the purposes of basic and dilutive earnings
per
share adjusted for amortisation expense being 43.9 32.8
attributable ========== ==========
to equity holders of the parent company
Number of shares
2007 2006
No. '000s No. '000s
Weighted average number of ordinary shares for the
purposes of basic earnings per share 41,989 41,949
Effect of dilutive potential ordinary shares:
Share options 720 877
Conditional shares not vested 239 179
---------- ----------
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 42,948 43,005
========== ==========
Earnings per share as calculated in accordance with IAS 33 'Earnings per Share'
are disclosed below:
2007 2006
Basic earnings per share 93.8p 78.2p
Diluted earnings per share 91.7p 76.3p
Basic and diluted earnings per share adjusted for amortisation
expense:
Basic earnings per share excluding amortisation expense 104.5p 78.2p
Diluted earnings per share excluding amortisation expense 102.2p 76.3p
Notes continued (unaudited)
For the year ended 31 December 2007
5. Intangible assets
Secured Other contracts Software Non-compete Goodwill Total
customer and related agreement
contracts relationships
£m £m £m £m £m £m
Cost or
valuation
At 1 January
2006 - - - - 56.7 56.7
Additions
through
acquisitions - - - - 16.0 16.0
-------- ---------- -------- -------- -------- -------
At 1 January
2007 - - - - 72.7 72.7
Additions
through
acquisitions 3.1 30.7 0.9 5.0 50.1 89.8
-------- ---------- -------- -------- -------- -------
At 31
December 3.1 30.7 0.9 5.0 122.8 162.5
2007 ======== ========== ======== ======== ======== =======
Accumulated
amortisation
At 1 January - - - - - -
2006
Charge for - - - - - -
the year -------- ---------- -------- -------- -------- -------
At 1 January - - - - - -
2007
Charge for
the (0.8) (2.8) (0.2) (0.7) - (4.5)
year -------- ---------- -------- -------- -------- -------
At 31
December (0.8) (2.8) (0.2) (0.7) - (4.5)
2007 ======== ========== ======== ======== ======== =======
Carrying
amount at 31
December 2.3 27.9 0.7 4.3 122.8 158.0
2007 ======== ========== ======== ======== ======== =======
Carrying
amount at 31
December - - - - 72.7 72.7
2006
The carrying amounts of goodwill by business segment are as follows:
2007 2006
Fit Out - -
Construction 29.7 6.6
Infrastructure Services 64.5 50.7
Affordable Housing 15.4 15.4
Urban Regeneration 13.2 -
Group Activities - -
---------- ----------
122.8 72.7
========== ==========
Amortisation charges in respect of intangible assets with a finite life are
recorded within administration expenses in the income statement.
Notes continued (unaudited)
For the year ended 31 December 2007
6. Reserves
Share Share Capital Reserve Cash Retained Total
Capital Premium Redemption for own flow earnings Equity
Account Reserve shares hedging
held reserve
£m £m £m £m £m £m £m
Balance at 1
January 2006 2.1 26.0 0.6 (1.8) (2.2) 91.9 116.6
Total
recognised
income and
expense - - - - 1.4 34.1 35.5
Share based
payments - - - - - 1.0 1.0
Issue of
shares at a
premium - 0.2 - - - - 0.2
Exercise of - - - - - - -
share options
Deferred tax
asset on share
based payments - - - - - 1.1 1.1
Own shares
bought back - - - (1.6) - - (1.6)
Dividends paid
Final dividend
- 2005 - - - - - (7.5) (7.5)
Interim
dividend -
2006 - - - - - (3.4) (3.4)
------ ------- ------ ------ ------- ------ -------
Balance at 31
December 2006 2.1 26.2 0.6 (3.4) (0.8) 117.2 141.9
------ ------- ------ ------ ------- ------ -------
Balance at 1
January 2007 2.1 26.2 0.6 (3.4) (0.8) 117.2 141.9
Total
recognised
income and
expense - - - - (1.4) 38.8 37.4
Share based
payments - - - - - 1.7 1.7
Issue of
shares at a
premium - 0.1 - - - - 0.1
Exercise of - - - - - - -
share options
Deferred tax
(liability) on
share based
payments - - - - - (0.7) (0.7)
Own shares
bought back - - - (2.1) - - (2.1)
Dividends paid
Final dividend
- 2006 - - - - - (8.4) (8.4)
Interim
dividend -
2007 - - - - - (4.2) (4.2)
------ ------- -------- ------- ------ -------- -----
Balance at 31
December 2007 2.1 26.3 0.6 (5.5) (2.2) 144.4 165.7
====== ======= ======== ======= ====== ======== =====
Cash flow hedging reserve
Under cash flow hedge accounting, movements on the effective portion of the
hedges are recognised through the hedging reserve, while any ineffectiveness is
taken to the income statement.
Notes continued (unaudited)
For the year ended 31 December 2007
7. Acquisitions
On 27 July 2007, the Group acquired Amec Developments Ltd and certain assets and
business carried on by Amec Investments Limited and the assets, liabilities and
contracts relating to the Design and Project Services ('DPS') division of Amec
plc, save for certain excluded assets and liabilities.
Details of the net assets acquired and goodwill arising are as follows:
£m
Purchase consideration:
Cash paid 23.7
Costs directly attributable to the acquisition 1.8
---------
Total purchase consideration 25.5
Net liabilities acquired (24.6)
---------
Goodwill 50.1
=========
Acquiree's Provisional Fair value
carrying amount fair value
adjustments
£m £m £m
Cash and cash
equivalents 14.2 - 14.2
Intangible fixed assets:
Secure
customer
contracts - 3.1 3.1
Other
contracts and
related
relationships - 30.7 30.7
Software - 0.9 0.9
Non-compete
agreement - 5.0 5.0
Tangible fixed
assets 2.0 0.2 2.2
Investments in
joint ventures
and associates 28.7 (4.2) 24.5
Inventories 33.6 (2.0) 31.6
Trade
receivables 149.8 (16.7) 133.1
Trade payables (251.6) (18.3) (269.9)
--------- --------- ---------
Net
liabilities
acquired (23.3) (1.3) (24.6)
========= ========= =========
Purchase
consideration
settled in
cash 23.7
Directly
attributable
acquisition
costs 1.8
Cash and cash
equivalents
acquired (14.2)
---------
Cash outflow
on acquisition 11.3
=========
The goodwill is attributable to the workforce of the acquired businesses
expertise and the anticipated operating synergies expected to arise after the
acquisition.
Notes continued (unaudited)
For the year ended 31 December 2007
7. Acquisitions (continued)
At 31 December 2007, certain fair value adjustments in relation to the
acquisition were subject to finalisation. Further fair value adjustments may
occur as a result of final settlements in respect of certain construction
contracts novated to the Group on acquisition and from the subsequent revision
of estimates made at the acquisition date. The Group has twelve months from the
acquisition date to finalise these values. Any adjustment to the provisional
fair values of net assets acquired will result in an adjustment to intangible
assets or, where the purchase consideration changes, to the net liabilities
acquired and goodwill.
Impact of the acquisition on the Group's revenue and operating profit
The acquired Urban Regeneration business (now Muse Developments) and the
acquired DPS business contributed £304.7m of revenue in the period between 27
July 2007 and 31 December 2007. Due to the fact that DPS has been integrated
into our existing construction and infrastructure services divisions, it is
impracticable to disclose the amount of DPS profit that is included in the
Group's results or for the full year.
8. Cash flows from operating activities
2007 2006
£m £m
Cash flows from operating activities
Profit from operations for the year 53.5 46.2
Adjusted for:
Amortisation of fixed life intangible assets 4.5 -
Share of net (profit)/loss of equity accounted joint (4.7) 0.8
ventures
Depreciation of property, plant and equipment 6.3 5.0
Expense in respect of share options 1.7 1.0
Defined benefit pension payment (0.2) (0.2)
Defined benefit pension charge 0.1 0.1
Loss/(gain) on disposal of property, plant and equipment 1.2 (0.2)
--------- ---------
Operating cash flows before movements in working capital 62.4 52.7
Decrease/(increase) in inventories (10.4) 0.8
(Increase) in receivables (33.3) (35.8)
Increase in payables 159.2 46.4
--------- ---------
Cash generated from operations 177.9 64.1
Income taxes paid (15.8) (13.9)
Interest paid (4.0) (2.3)
--------- ---------
Net cash inflow from operating activities 158.1 47.9
========= =========
Additions to property, plant and equipment during the year amounting to £2.9m
(2006: £2.1m) and additions to leasehold property amounting to £2.3m (2006:
£0.5m) were financed by new finance leases. Cash and cash equivalents (which are
presented as a single class of assets on the face of the balance sheet) comprise
cash at bank and other short-term highly liquid investments with a maturity of
three months or less.
Notes continued (unaudited)
For the year ended 31 December 2007
9. Accounting policies
This announcement is prepared on the basis of the significant accounting
policies as stated in the financial statements for the year ended 31 December
2006.
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2007 or 2006. The
financial statements for the year ended 31 December 2006 have been delivered to
the Registrar of Companies. The auditors reported on those accounts; their
report was unqualified and did not contain a statement under s237(2) or (3)
Companies Act 1985.
No accounts for the Company in respect of the year ended 31 December 2007 have
been delivered to the Registrar of Companies, nor have the auditors of the
Company 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 2007 will be finalised on
the basis of the financial information presented by the directors in this
preliminary announcement, will be posted to shareholders on or about the 17
March 2008 and will be delivered to the Registrar of Companies following the
Company's annual general meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
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