Interim Results

Morgan Sindall PLC 14 August 2001 MORGAN SINDALL PLC ('Morgan Sindall' or 'the Group') Interim Results for the six months to 30 June 2001 Morgan Sindall Plc, the construction brands group, today announces interim results for the six months to 30 June 2001. 6 months to 6 months to Percentage Year to 30 June 2001 30 June 2000 Increase % 31 December 2000 Turnover (£m) 407.3 288.8 + 41 654.8 Profit before tax (£m) 10.1 5.8 + 75 15.4 Earnings per share (p) 19.45 11.08 + 76 29.75 Interim dividend (p) 4.00 3.00 + 33 10.50 - Record results driven by improved performances from all Divisions - Acquisitions of Miller Civil Engineering Services ('MCES') and Carillion Housing demonstrate strategic development of Group - Lovell now the market leader and largest specialist provider of affordable housing - Infrastructure Services market has exciting potential - MCES will be a leading player - Fit Out and Construction Divisions ahead of previous year - Balance sheet remains strong showing net cash of £15 million John Morgan, Executive Chairman of Morgan Sindall plc, said: 'This year has seen significant growth both organically and through acquisition. Our core Divisions continued to perform well, yet again achieving record performances. We are particularly delighted with the acquisitions of MCES and Carillion Housing and believe that both businesses will drive growth into new areas and bring substantial rewards.' 14 August 2001 Enquiries: Morgan Sindall Tel: 020 7307 9200 John Morgan, Executive Chairman John Bishop, Finance Director College Hill Tel: 020 7457 2020 Kate Pope/Matthew Smallwood Chairman's Statement We have seen a successful start to the year with record profits and two acquisitions being the key highlights. Profits before tax increased to £10.1 million (2000: £5.8 million) on turnover of £407 million (2000: £289 million), predominately driven by improved performances from our existing businesses. The acquisition of Miller Civil Engineering Services Ltd ('MCES'), completed on 10 May, made a small contribution but more importantly gives the Group a strong entry to the Infrastructure Services market. The acquisition of Carillion Housing, was completed on 31 July and will expand our range of expertise in Affordable Housing. The consideration was £6.25 million satisfied from cash resources. This will prove to be a major strategic development for the Division. Our balance sheet remains strong and shows net cash of £15 million. The £20 million cost of purchasing MCES was in part funded by an issue of ordinary shares which raised £8.4m. This placement helped restore tangible net worth which was reduced by the goodwill content of the acquisition. Earnings per share are 19.45p (2000: 11.08p) and the Board has agreed to declare an interim dividend of 4.00p (2000: 3.00p). Operating Performance Affordable Housing Lovell has made an excellent start to the year with turnover of £66 million (2000: £50 million) and operating profit of £1.90 million (2000: £1.1 million). The acquisition of Carillion Housing will add approximately £80 million per annum of turnover and makes Lovell the largest specialist provider of affordable housing. It also gives a unique skill set capable of meeting all the demands of the social housing market embracing PFI, design and build, refurbishment and open market development. This increased breadth of expertise will be particularly advantageous with large stock transfer schemes and those financed by PFI. Construction Turnover increased 35% to £193million (2000: £143 million) and profits were also ahead by 39% to £2.37 million (2000: £1.70 million). Whilst I am pleased to see the strong growth in volume, we continue to seek further improvement in margin and accept that changes may well be needed to achieve the goal of a consistent minimum margin of 3% in all brands. Fit Out Operating profits for the six months to June were £5.66 million (2000: £4.24 million) on turnover of £113 million (2000: £97 million). This record performance has been achieved by working closely with a client base that has been built up over the last twenty years and ensuring that we set ourselves ever-higher standards of delivery. Opportunities to expand both geographically and into other niche fit out markets will ensure this Division keeps moving steadily forward. Infrastructure Services MCES is a highly experienced infrastructure services provider operating in three distinct sectors: water, tunnelling and civils. In the two months following acquisition MCES contributed a modest £0.56 million of operating profit from £24 million turnover, which met our expectation that the company would be earnings enhancing from acquisition. We believe that the infrastructure services market is strong and growing and will be dominated by a smaller number of bigger well-funded operators. The MCES staff are confident that, with their track record and the support of Morgan Sindall, they will be one of the leading providers to this sector. Investments The improvement in property profits and interest of £2.13 million (2000: £0.78 million) reflects the successful sale of our refurbished property in Shepherds Bush. Our redeveloped building in Wigmore Street, where the office element became income producing in February, is now fully let. Our joint venture, Primary Medical Properties, has completed its six year development programme. It will now focus on managing its investment portfolio which will yield an increasing profit stream over the coming years. Together with returns from future PFI investments we will have a more predictable income stream from our balance sheet investment. The Board As previously announced, Jack Lovell, a founding director of Morgan Sindall, relinquished his executive responsibilities from the end of July. The Group will retain his input and counsel as he remains a Non-Executive Director and substantial shareholder. I would particularly like to record my thanks to Jack with whom I have worked for twenty-four years and wish him well as he pursues new interests. Outlook With record results and two acquisitions broadening our offering, Morgan Sindall is in good shape. Whilst we cannot be immune to the economy we operate within, our order book is strong, future potential work shows no sign of abating and we have strength in those areas where government expenditure is growing rapidly. John Morgan Executive Chairman 14 August 2001 Group Profit and Loss Account (Unaudited) Unaudited Unaudited Audited Six Six Year to months to months to December June 2001 June 2000 2000 £'000s £'000s £'000s Turnover Continuing operations 384,287 289,003 655,980 Acquisitions 23,641 - - Less share of joint venture turnover (672) (249) (1,144) 407,256 288,754 654,836 Cost of sales (365,842) (257,799) (588,180) Gross profit 41,414 30,955 66,656 Administrative expenses (32,263) (25,433) (52,804) Other operating income 587 394 897 Operating profit Continuing operations 9,179 5,916 14,749 Acquisitions 559 - - Total operating profit 9,738 5,916 14,749 Share of losses of joint venture (255) - - Net interest receivable 612 553 1,295 Exceptional loss on closure of discontinued operation - (684) (684) Profit on ordinary activities before taxation 10,095 5,785 15,360 Tax charge on ordinary activities (2,625) (1,590) (3,964) Profit on ordinary activities after taxation 7,470 4,195 11,396 Dividends on equity and non-equity shares (1,644) (1,238) (4,163) Retained profit for the period 5,826 2,957 7,233 Earnings per ordinary share 19.45p 11.08p 29.75p Diluted earnings per ordinary share 18.47p 10.67p 28.58p Group Balance Sheet (Unaudited) Unaudited Unaudited Audited June 2001 June 2000 December 2000 £'000s £'000s £'000s Fixed assets Intangible assets 29,615 11,426 11,218 Tangible assets 19,850 12,981 11,865 Share of joint venture gross assets 19,209 15,291 17,929 Share of joint venture gross (18,375) (14,498) (16,840) liabilities Investment in joint venture 834 793 1,089 Investments 1,293 1,213 1,245 51,592 26,413 25,417 Current assets Stocks 39,970 33,813 35,355 Debtors 147,747 104,384 117,964 Cash at bank and in hand 15,441 14,057 23,474 203,158 152,254 176,793 Creditors: amounts falling due within one year (193,722) (137,765) (156,510) Net current assets 9,436 14,489 20,283 Total assets less current liabilities 61,028 40,902 45,700 Creditors: amounts falling due after more than one year (729) - - Net assets 60,299 40,902 45,700 Capital and reserves Called up share capital 5,794 6,714 5,686 Share premium account 21,729 11,810 13,064 Revaluation reserve 4,259 3,963 4,259 Profit and loss account 28,517 18,415 22,691 Total shareholders' funds 60,299 40,902 45,700 Shareholders' funds are attributable to: Equity shareholders' funds 56,506 36,049 41,907 Non-equity shareholders' funds 3,793 4,853 3,793 60,299 40,902 45,700 Group Cash Flow Statement (Unaudited) Unaudited Unaudited Audited June 2001 June 2000 December 2000 £'000s £'000s £'000s Net cash inflow/(outflow) from operating activities 4,412 (4,475) 8,211 Returns on investments and servicing of finance Interest received 812 677 1,411 Interest paid (549) (281) (615) Dividends paid to preference (107) (136) (253) shareholders Interest paid on finance lease (6) - - charges 150 260 543 Taxation Corporation tax paid (1,820) (214) (2,563) Capital expenditure and financial investment Receipts from sale of tangible 163 104 8 fixed assets Payments to acquire tangible fixed (1,223) (1,434) (2,288) assets Payments to acquire fixed asset (194) (43) (155) investments (1,254) (1,373) (2,435) Acquisitions and disposals Purchase of subsidiary undertakings (20,162) - 750 Net cash acquired 4,720 - - (15,442) - 750 Equity dividends paid (2,852) (2,199) (3,316) Net cash (outflow)/inflow before (16,806) (8,001) 1,190 financing Financing Issue of share capital, net of 8,773 16 242 expenses Net cash inflow from financing 8,773 16 242 activities (Decrease)/increase in cash (8,033) (7,985) 1,432 Statement of Movements in Shareholders' Funds (Unaudited) Unaudited Unaudited Audited June 2001 June 2000 December 2000 £'000s £'000s £'000s Opening shareholders' funds 45,700 37,929 37,929 Retained profit for the period 5,826 2,957 7,233 Options exercised 408 16 242 New shares issued net of 8,365 - - expenses Surplus on revaluation - - 296 Closing shareholders' funds 60,299 40,902 45,700 Notes to the Interim Report 1. Analysis of turnover and operating profit Unaudited six months to Unaudited six months to June 2001 June 2000 £'000s £'000s £'000s £'000s Turnover Profit/ Turnover Profit/ (losses) (losses) Construction 193,107 2,371 142,585 1,699 Fit out 113,334 5,662 96,578 4,235 Affordable housing 66,167 1,899 49,591 1,103 Infrastructure 23,641 559 - - Services Investments 11,007 1,513 - 223 Group activities - (2,266) - (1,344) 407,256 9,738 288,754 5,916 2. Acquisition of Miller Civil Engineering Services Limited On 10 May 2001 the Company acquired Miller Civil Engineering Services Limited. Consideration of £20 million was paid in cash on completion and there were costs of approximately £0.2 million which have been capitalised. Tangible net assets acquired were nil and in addition provisional fair value adjustments have been made recognising assets totalling £1.3 million. The resultant goodwill capitalised of £18.9 million is provisional and will be subject to any subsequent adjustments to fair value of the net assets acquired. 3. Earnings per share The calculation of the earnings per ordinary share is based on the weighted average number of 37,850,000 ordinary shares in issue during the period and on the profit for the period attributable to ordinary shareholders of £7,363,000. In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £107,000 giving adjusted earnings of £7,470,000. The weighted average number of ordinary shares are adjusted for the dilutive effect of the convertible preference shares by 1,517,000, share options by 691,000 and contingent awards under the Long Term Incentive Plan of 383,000 giving an adjusted number of ordinary shares of 40,441,000. 4. Taxation Taxation on current period profits is charged at 26% being the estimated effective rate of taxation for the year. 5. Reconciliation of operating profit to net cash inflow/(outflow) from operating activities Unaudited Unaudited Audited Six Six Year to months to months to December June 2001 June 2000 2000 £'000s £'000s £'000s Operating profit 9,738 5,916 14,749 Depreciation of tangible fixed 1,334 1,006 2,082 assets Amortisation of goodwill 472 342 650 Loss/(profit) on sale of fixed 5 (21) (360) assets Increase in stocks and work in (3,876) (8,844) (10,044) progress Increase in debtors (543) (15,564) (28,564) (Decrease)/Increase in creditors (2,718) 13,374 30,382 Exceptional loss - (684) (684) Net cash inflow/(outflow) from 4,412 (4,475) 8,211 operating activities 6. Reconciliation of net cash flow to movement in net cash 2001 2000 Net cash Net cash £'000s £'000s At 1 January 2001 23,474 22,042 Cash (outflow)/inflow (8,033) 1,432 Cash at bank at 30 June 2001 15,441 23,474 7. Interim dividend The interim dividend of 4.00p per share (2000: 3.00p) will be paid on 17 September 2001 to shareholders on the register at 24 August 2001. The ex-dividend date will be 22 August 2001.

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