Interim Results

Morgan Sindall PLC 06 August 2007 MORGAN SINDALL plc ('Morgan Sindall' or 'the Group') Interim results for the six months to 30 June 2007 6 August 2007 Morgan Sindall plc, the construction and regeneration group that now operates within five divisions; Affordable Housing, Construction, Development, Fit Out and Infrastructure Services today announces record interim results. 2007 2006 Revenue £836m £674m + 24% Profit before tax £25.2m £21.3m + 18% Cash balance £62.4m £20.5m +205% Order book, including impact of acquisition £4.1bn £3.4bn + 23% Earnings per share 41.1p 35.4p + 16% Interim dividend per share 10.0p 8.0p + 25% Group Highlights •Strategy continues to deliver long-term sustainable growth •Record interim results •Growth driven by enhanced profitability across all divisions •Acquisition of Amec Developments (ADL) and Amec Design and Project Services (DPS) completed since period end Divisional Highlights Fit Out •Profit up 21% to £12.4m (2006: £10.2m) on revenue of £225m (2006: £182m) •Margins at 5.5% (2006: 5.6%) •Market remains very strong with order book increasing to £206m (2006: £165m) •Strong market expected to continue into next year Construction •Revenue grew strongly to £199m (2006: £162m) with profit rising to £2.2m (2006: £1.6m) •Successful in securing the Bury, Tameside and Glossop NHS LIFT scheme •Financial close on the Dorset Emergency Services and Police Initiative (DESPI) PFI •Business rebranded as Morgan Ashurst following acquisition of DPS •Order book at £891m (2006: £487m) following inclusion of DPS' construction future workload. It has further increased by £65m since the period end Infrastructure Services •Revenue growth of 54% to £220m (2006: £143m) and profit increased to £4.0m (2006: £2.7m) •Order book at £1.5bn (2006: £1.3bn) following inclusion of DPS' civil engineering future workload •Division expected to return to previous margin levels in 2008 Affordable Housing •Profit up 13% to £11.5m (2006: £10.2m) on revenue of £192m (2006: £186m) •Margin increased due to continued focus on mixed tenure opportunities •First social housing PFI secured •Order book of £1.5bn (2006: £1.4bn) Development •Acquired business renamed Muse Developments •£3.7bn development pipeline of opportunities on own account and in partnership John Morgan, Executive Chairman, commented: 'We have delivered impressive profit growth in all business areas. Fit Out and Affordable Housing have again returned strong profits, but equally pleasing is our performance in Infrastructure Services and Construction, with profits increasing from both. 'The recent acquisitions will further strengthen our Construction and Infrastructure Services division, and create a UK-wide leading urban regeneration business. The businesses are being fully integrated and we are confident that they will be earnings enhancing in this financial year.' ENQUIRIES: Morgan Sindall plc Tel: 020 7307 9200 John Morgan, Executive Chairman Paul Smith, Chief Executive David Mulligan, Finance Director Blythe Weigh Tel: 020 7138 3204 Tim Blythe Mobile: 07816 924626 Paul Weigh Mobile: 07989 129658 Chairman and Chief Executive's Statement We are pleased to announce record results for the six months to 30 June 2007. Profit before tax has been increased by 18% to £25.2m (2006: £21.3m) from revenue of £836m (2006: £674m). Earnings per share grew by 16% to 41.1p (2006: 35.4p). At the end of July the Group completed the acquisition of two businesses from Amec plc; Amec Developments (ADL) and Amec Design and Project Services (DPS). Accordingly, to reflect the increased prospects of the Group, the interim dividend has been increased by 25% to 10.0p (2006: 8.0p). The increased performance was driven by improvements in profitability across all divisions. Fit Out grew its revenue and profit, reflecting the continued strength of the commercial property market. The Construction division saw an increase in revenue and profit against a backdrop of buoyant market conditions. The expanding civil engineering market enabled Infrastructure Services to grow its revenue strongly and to improve its overall level of profitability. Finally, Affordable Housing again increased its profit margin over the same period in the previous year through its continued focus on mixed tenure developments. Net cash at 30 June 2007 was £62m (2006: £20m) with the average level of cash during the six months to the end of June improving on the same period last year. DIVISIONAL REVIEWS Fit Out Fit Out produced a strong performance during the first half of 2007 with profit increasing by 21% to £12.4m (2006: £10.2m) on revenue of £225m (2006: £182m). The office fit out market remains very healthy, particularly in the financial and professional services sectors. Margins were at 5.5% (2006: 5.6%). The order book increased from the start of the year to stand at £206m (2006: £165m), which supports our view that the current strength of the market will continue into next year. Construction Construction's revenue grew in the first half of 2007 to £199m (2006: £162m) with profit rising to £2.2m (2006: £1.6m). Since the period end, the division was successful in securing two projects under the Bury, Tameside and Glossop NHS LIFT scheme bringing the division's interests in the NHS LIFT programme to a total of five schemes. In addition the division achieved financial close on the Dorset Emergency Services and Police Initiative (DESPI) PFI, which enhances the division's presence in the emergency service sector. The order book at the end of June, which has been adjusted to include £398m relating to DPS' construction activities, was £891m (2006: £487m). It has further increased since 30 June 2007 by £65m through the two schemes referred to above. Infrastructure Services Infrastructure Services also delivered impressive revenue growth of 54% to £220m (2006: £143m) with profit being increased to £4.0m (2006: £2.7m). Following its success in winning new orders last year, the division continued to secure key projects in the first half of 2007 such as the £38m ring main project for Thames Water. The forward order book at the end of June, which has been adjusted to include £187m relating to DPS' civil engineering activities, was £1.5bn (2006: £1.3bn). As projects mature, we expect the performance of this division to continue its improvement, with the division returning to previous margin levels during 2008. Affordable Housing Affordable Housing increased its profit by 13% to £11.5m (2006: £10.2m) on revenue of £192m (2006: £186m). The margin has improved compared to the same period last year, due to the continued focus on mixed tenure opportunities. Notably the division secured its first social housing PFI in March at Miles Platting in Manchester. The project will be worth £200m to Lovell over the next 12 years from the refurbishment of 1,600 existing social houses as well as the building of 1,200 new homes for open market sale. The forward order book was £1.5bn at the end of June (2006: £1.3bn), demonstrating the division's excellent long term prospects. Development This newly created division, trading as Muse Developments, follows the acquisition of ADL and focuses on mixed use regeneration. The business has interests in over 30 schemes and has a development pipeline of £3.7bn in its own schemes and those with its partners. We anticipate that mixed use development will play an increasingly important role in urban regeneration. ACQUISITION On the 27 July 2007, the Group completed the acquisition of two businesses from Amec plc: ADL, a mixed use urban regeneration business, and the assets and certain contracts relating to DPS, a nationwide construction and engineering business. ADL (now renamed Muse Developments) is a mixed use urban regeneration business which has a prominent position in securing and delivering flagship schemes across the UK. It develops partnerships in longer term, large development schemes which are multi phased and typically have durations of between 5 and 15 years. Muse Developments is involved in more than 30 mixed use development projects with a total build in excess of 20 million square feet. Fifteen of these projects are currently under construction such as the £80m St Paul's Square project in Liverpool. DPS is a construction and civil engineering business that was formed in January 2006 from the integration of Amec Design and Management and Amec Construction Services to combine pre-construction design and project management skills with the delivery of the construction projects. A new management team was appointed at that time. DPS operates nationwide from 5 key locations across the UK, employs approximately 2,800 people and specialises in medium to large size contracts. Its main markets are in the education, health, defence, retail, industrial, transport and nuclear sectors. The rationale for the acquisition is to create a leading UK-wide urban regeneration business, to significantly enhance our construction offering, and to develop Infrastructure Services' market leading position. In addition, the acquisition helps the Group to significantly increase its scale and capability at a time when clients are seeking larger and more sophisticated businesses to meet their needs. Muse Developments will operate as a standalone division but will seek joint opportunities with Affordable Housing's urban regeneration activities. DPS's current operations will be integrated with Morgan Sindall's existing Construction division (Bluestone) and Infrastructure Services division (Morgan Est). The integrated Construction division has been rebranded Morgan Ashurst. The provisional consideration paid was £34m including an amount of £5m for the benefit of a restrictive covenant relating to Muse Developments. The Group is assuming net liabilities of £21m giving goodwill of £50m, subject to the final agreement of the acquisition balance sheet. The provisional net cash outflow was £14m as the net liabilities noted above include cash balances of £20m. Consequently the proforma Group cash balance reflecting the acquisition at June would have been £48m. As previously announced the acquisition is expected to enhance earnings in Morgan Sindall's current financial year and materially enhance earnings in the next financial year. OUTLOOK The Group's overall forward order book now stands at £4.1bn (2006: £3.4bn), including the impact of the acquisition which added £585m in future workload. Excluding the acquisition this represents a 7% increase from the start of the year. The outlook for the Group is very encouraging, with all of Morgan Sindall's chosen markets growing. In addition, the acquisition significantly strengthens the Group's construction capabilities and adds an exciting new dimension to our skills in the regeneration sector. It has provided new opportunities and further enhances the positive outlook for the Group. John Morgan Paul Smith Executive Chairman Chief Executive 6 August 2007 MORGAN SINDALL PLC Interim results for the six months to 30 June 2007 Consolidated Income Statement for the six months to 30 June 2007 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Continuing operations Revenue (note 2) 836,062 673,506 1,496,844 Cost of sales (744,113) (595,371) (1,331,423) ----------- ---------- ------------ Gross profit 91,949 78,135 165,421 Administrative expenses (67,846) (57,011) (118,401) Share of results of joint ventures (433) (118) (796) ----------- ---------- ------------ Operating profit 23,670 21,006 46,224 Investment revenues 3,040 1,317 3,807 Finance costs (1,555) (1,048) (2,421) ----------- ---------- ------------ Profit before tax 25,155 21,275 47,610 Tax (note 3) (7,879) (6,382) (14,797) ----------- ---------- ------------ Profit for the period from continuing operations attributable to equity holders of the parent company 17,276 14,893 32,813 ----------- ---------- ------------ Earnings per share From continuing operations Basic (note 5) 41.1p 35.4p 78.2p ----------- ---------- ------------ Diluted (note 5) 40.1p 34.2p 76.3p ----------- ---------- ------------ There are no discontinued activities in either the current or prior period. MORGAN SINDALL PLC Interim results for the six months to 30 June 2007 Consolidated Balance Sheet at 30 June 2007 (unaudited) Unaudited Unaudited Audited 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Fixed assets Goodwill 72,705 72,204 72,705 Property, plant and equipment 18,770 16,009 16,623 Interest in joint ventures 10,790 4,060 5,200 Investments 103 103 103 Deferred tax 3,593 3,211 3,584 ----------- ---------- ------------ 105,961 95,587 98,215 ----------- ---------- ------------ Current assets Inventories 92,532 101,525 86,805 Trade and other receivables 360,862 290,877 280,945 Cash and cash equivalents 62,368 20,460 95,433 ----------- ---------- ------------ 515,762 412,862 463,183 ----------- ---------- ------------ Total assets 621,723 508,449 561,398 ----------- ---------- ------------ Current liabilities Trade and other payables (453,572) (371,211) (406,795) Current tax liabilities (6,631) (6,084) (6,403) Obligations under finance leases (1,500) (754) (1,314) ----------- ---------- ------------ (461,703) (378,049) (414,512) ----------- ---------- ------------ Net current assets 54,059 34,813 48,671 ----------- ---------- ------------ Non current liabilities Retirement benefit obligation (note 6) (2,813) (2,977) (2,534) Obligations under finance leases (3,142) (1,682) (2,457) ----------- ---------- ------------ (5,955) (4,659) (4,991) ----------- ---------- ------------ Total liabilities (467,658) (382,708) (419,503) ----------- ---------- ------------ Net assets 154,065 125,741 141,895 ----------- ---------- ------------ Equity Share capital 2,130 2,118 2,126 Share premium account 26,177 26,132 26,169 Capital redemption reserve 623 623 623 Own shares (4,665) (1,775) (3,387) Hedging reserve 2,874 (1,901) (795) Retained earnings 126,926 100,544 117,159 ----------- ---------- ------------ Total equity 154,065 125,741 141,895 ----------- ---------- ------------ MORGAN SINDALL PLC Interim results for the six months to 30 June 2007 Consolidated Cash Flow Statement for the six months to 30 June 2007 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Net cash from operating activities (note 7) (19,357) (31,861) 47,909 ----------- --------- ----------- Investing activities Interest received 2,927 1,229 3,775 Dividends received from joint ventures - 7,225 7,225 Proceeds on disposal of property, plant and equipment 136 202 1,112 Purchases of property, plant and equipment (3,629) (1,866) (3,216) Payments to acquire interest in joint ventures (2,353) (185) (896) Acquisition of subsidiary - (18,223) (23,035) Net cash acquired on acquisition of subsidiary - - 4,809 ----------- --------- ----------- Net cash used in investing activities (2,919) (11,618) (10,226) ----------- --------- ----------- Financing activities Payments to acquire own shares (1,278) - (1,612) Dividends paid (8,398) (7,549) (10,914) Repayments of obligations under finance leases (1,125) (530) (1,787) Repayment of loan notes - (120) (120) Proceeds on issue of share capital 12 120 165 ----------- --------- ----------- Net cash used in financing activities (10,789) (8,079) (14,268) ----------- --------- ----------- Net (decrease)/increase in cash and cash equivalents (33,065) (51,558) 23,415 Cash and cash equivalents at beginning of period 95,433 72,018 72,018 ----------- --------- ----------- Cash and cash equivalents at end of period Bank balances and cash 62,368 20,460 95,433 ----------- --------- ----------- MORGAN SINDALL PLC Interim results for the six months to 30 June 2007 Consolidated Statement of Recognised Income and Expense for the six months to 30 June 2007 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Recognition of share based payments 1,153 411 959 Tax on share based payments - 703 2,004 Actuarial (losses)/gains on defined benefit pension scheme (279) 319 700 Deferred tax on defined benefit liabilities taken directly to equity 29 (112) (282) Movement on hedged items on cash flow hedges 3,669 337 1,443 Change in deferred tax rate on items taken directly to reserves (14) - - ---------- --------- ----------- Net income recognised directly in equity 4,558 1,658 4,824 Profit for the period from continuing operations 17,276 14,893 32,813 ---------- --------- ----------- Total recognised income and expense for the period attributable to equity shareholders 21,834 16,551 37,637 ---------- --------- ----------- Consolidated Statement of Changes in Equity for the six months to 30 June 2007 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Balance at start of period 141,895 116,619 116,619 Profit for period 17,276 14,893 32,813 Recognition of share based payments 1,153 411 959 Tax on share based payments - 703 2,004 Dividend declared and paid - - (3,365) Prior year final dividend paid (8,398) (7,549) (7,549) Actuarial (losses)/gains on defined benefit pension scheme (279) 319 700 Deferred tax on defined benefit liabilities taken 29 (112) (282) directly to equity Own shares purchased (1,278) - (1,612) Options exercised 12 120 165 Movement on hedged items on cash flow hedges 3,669 337 1,443 Change in deferred tax rate on items taken direct to reserves (14) - - ---------- --------- ----------- Balance at end of period 154,065 125,741 141,895 ---------- --------- ----------- MORGAN SINDALL PLC Interim results for the six months to 30 June 2007 Notes to the interim report (unaudited) 1. Principal accounting policies Basis of accounting This set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards ('IFRS'). The same accounting policies and methods of computation are followed in the interim financial statements as in the 31 December 2006 report and accounts with the exception that IFRS 7 and IFRIC 9 and 10 have been adopted where applicable to the Group. At the date of authorisation of these financial statements IFRS 8 and IFRIC 11 and 12, which have not been applied in these financial statements, were in issue but not yet effective. The directors anticipate that the adoption of these standards and interpretations in future years will have no material impact on the financial statements of the Group. 2. Analysis of revenue and profit from business segments Unaudited Unaudited Six months to Six months to 30 June 2007 30 June 2006 Revenue Profit/(loss) Revenue Profit/ (loss) £'000s £'000s £'000s £'000s Fit Out 225,055 12,356 182,159 10,210 Construction 198,962 2,201 161,677 1,550 Infrastructure Services 220,453 3,995 143,127 2,692 Affordable Housing 191,592 11,541 186,467 10,189 Group activities - (5,990) 76 (3,517) --------- -------- -------- --------- 836,062 24,103 673,506 21,124 --------- -------- Share of results of joint ventures (433) (118) -------- --------- Operating profit 23,670 21,006 -------- --------- Investment income 3,040 1,317 Finance costs (1,555) (1,048) -------- --------- Profit before tax 25,155 21,275 Tax (7,879) (6,382) -------- --------- Profit for the period from continuing operations 17,276 14,893 -------- --------- 3. Tax Unaudited Six months to 30 June 2007 2006 £'000s £'000s Current tax: UK corporation tax 7,798 6,517 -------- --------- 7,798 6,517 Deferred tax: Current year 81 (135) -------- --------- 7,879 6,382 -------- --------- Corporation tax for the interim period is charged at 31% (2006: 30%), being the estimated effective corporation tax rate for the full financial year. 4. Dividends Unaudited Six months to 30 June 2007 2006 £'000s £'000s Final dividend for year ended 31 December 2006 of 20.00p (2005: 18.00p) per share 8,398 7,549 -------- -------- Proposed interim dividend for the period to 30 June 2007 of 10.00p (2006: 8.00p) per share 4,261 3,389 -------- -------- The proposed interim dividend was approved by the Board on 2 August 2007 and has not been included as a liability at 30 June 2007. The interim dividend of 10.00p (2006: 8.00p) per share will be paid on 14 September 2007 to shareholders on the register at 17 August 2007. The ex-dividend date will be 15 August 2007. 5. Earnings per share There are no discontinued operations in either the current or prior period. The calculation of the basic and diluted earnings per share is based on the following data: Unaudited Six months to 30 June 2007 2006 Earnings £'000s £'000s Earnings for the purposes of basic and dilutive earnings per share being net profit attributable to equity holders of the parent company 17,276 14,893 -------- -------- Unaudited Six months to 30 June 2007 2006 Number of shares '000s '000s Weighted average number of ordinary shares for the purposes of basic earnings per share 42,003 42,042 -------- -------- Effect of dilutive potential ordinary shares: Share options 867 1,145 LTIP shares - 265 Executive Remuneration Plan 179 57 -------- -------- Weighted average number of ordinary shares for the purposes of dilutive earnings per share 43,049 43,509 -------- -------- 6. Retirement benefit schemes The Group operates a pension plan which operates mainly on defined contribution principles. However, there is a small section of defined benefit liabilities full details of which are disclosed in the Group's annual report and accounts. For the purposes of understanding these interim financial statements, details of the approximate valuation of the scheme at 30 June 2007 are given below. The defined benefit obligation as at 30 June 2007 is estimated by updating the valuation of liabilities included in the annual report and accounts for the year ended 31 December 2006. There have not been any significant fluctuations for one-time events since the 31 December 2006 that would have a material impact on the calculations. The defined benefit plan assets have been updated to reflect their market value as at 30 June 2007. Differences between the expected return on assets and the actual return on assets have been recognised as an actuarial loss in the consolidated statement of recognised income and expense in accordance with the Group's accounting policy. Unaudited Audited Six months to 30 June to 31 December 2007 2006 2006 £'000s £'000s £'000s Fair value of the scheme assets 4,484 4,391 4,829 Present value of scheme liabilities (7,297) (7,368) (7,363) --------- -------- ---------- Deficit in the scheme (2,813) (2,977) (2,534) Related deferred taxation at 28.0% (2006: 30.0%) 788 893 759 --------- -------- ---------- Net pension liability (2,025) (2,084) (1,775) --------- -------- ---------- 7. Reconciliation of operating profit to net cash from operating activities Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000s £'000s £'000s Operating profit 23,670 21,006 46,224 Adjusted for: Share of results of joint ventures 433 118 796 Depreciation of property, plant and equipment 2,793 2,296 4,904 Expense in respect of share options 1,153 411 959 Defined benefit pension payment (120) (120) (240) Defined benefit pension charge 64 65 123 Loss/(gain) on disposal of property, plant and equipment 437 (4) (121) --------- -------- ----------- Operating cash flows before movements in working capital 28,430 23,772 52,645 (Increase)/decrease in inventories (5,727) (13,954) 766 (Increase)/decrease in receivables (79,823) (45,704) (35,761) Increase/(decrease) in payables 46,755 11,446 46,461 --------- -------- ----------- Cash (absorbed by)/generated from operations (10,365) (24,440) 64,111 Income taxes paid (7,570) (6,533) (13,937) Interest paid (1,422) (888) (2,265) --------- -------- ----------- Net cash from operating activities (19,357) (31,861) 47,909 --------- -------- ----------- Additions to plant, property and equipment during the year amounting to £1.4m 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. 8. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures are disclosed below: Trading transactions During the period, the Group increased entered into transactions with related parties. Transactions and amounts owed in the period are as follows: Provision of Amounts owed by goods and related parties services Six months ended 30 June 2007 £'000s £'000s Claymore Roads (Holdings) Limited - 209 Morgan-Vinci Limited - 115 Community Solutions for Primary Care (Holdings) Limited 5,012 477 Morgan Sindall Investments (3PD) Limited 1,715 135 The Compendium Group Limited 169 283 ------------ ----------- 6,896 1,219 ------------ ----------- Six months ended 30 June 2006 £'000s £'000s Claymore Roads (Holdings) Limited - 474 Morgan-Vinci Limited - 75 Community Solutions for Primary Care (Holdings) Limited 7,920 1,120 Morgan Sindall Investments (3PD) Limited - - The Compendium Group Limited 114 - ------------ ----------- 8,034 1,669 ------------ ----------- Year ended 31 December 2006 £'000s £'000s Claymore Roads (Holdings) Limited 13 820 Morgan-Vinci Limited 12 196 Community Solutions for Primary Care (Holdings) Limited 11,921 100 Morgan Sindall Investments (3PD) Limited 104 468 ------------ ----------- 12,050 1,584 ------------ ----------- 9. Post balance sheet event On 27 July 2007, Morgan Sindall plc acquired from Amec plc the entire share capital of AMEC Developments Limited ('ADL'), the urban regeneration business and the assets, business and certain contracts relating to the Design and Project Services division ('DPS'), save for certain excluded assets and liabilities. Morgan Sindall will conclude certain other contracts on behalf of A MEC, which are substantially complete, and resolve any outstanding contract obligations relating thereto. Morgan Sindall paid AMEC plc consideration of £34m for the two businesses. The combined net liabilities acquired were £21m, subject to adjustment. The consideration included an amount of £5m for the benefit of a restrictive covenant. The excess of consideration paid over net liabilities of £55m consists of the restrictive covenant payment of £5m and goodwill of £50m. An exercise to review the fair value of the assets acquired is underway, full details of which will be provided in the Morgan Sindall 2007 report and accounts. Anticipated costs relating to the transaction of £2m will be capitalised. 10. The results for the half years ended 30 June 2007 and 2006 and the balance sheets as at those dates have not been audited and do not constitute statutory accounts. The financial information for the year ended 31 December 2006 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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