Interim Results
Morgan Sindall PLC
07 August 2006
Morgan Sindall plc
('Morgan Sindall' or 'the Group')
Interim results for the six months to 30 June 2006
Morgan Sindall plc, the construction group, today announces interim results for
the six months to 30 June 2006.
Six months to Six months to
30 June 2006 30 June 2005 % increase
£m £m
Revenue 674 615 +9%
Operating profit 21.0 17.4 +21%
Profit before tax 21.3 18.2 +17%
Earnings per share 35.42p 29.72p +19%
Interim dividend per share 8.00p 7.00p +14%
Key points
• Record interim results driven by performance of Fit Out and Affordable
Housing
• Further margin improvement in Construction
• Infrastructure Services secures £600m of orders
• Group order book stands at record high of £3.4bn
Divisional highlights
Fit Out
• Strong growth with profit up 29% to £10.2m (2005: £7.9m) and record
margin of 5.6% achieved
• Performance driven by financial and professional services sectors in
London and telecoms and technology sectors in the M4 corridor
• Order book increased to £165m
Construction
• Continued focus on health, education, light industrial and commercial
property sectors
• Profit up to £1.6m (2005: £1.3m) on revenue of £162m (2005: £164m)
• Order book maintained
Infrastructure Services
• Profit of £2.7m (2005: £2.8m) on revenue of £143m (2005: £118m)
• Non-track rail business acquired in March contributes £0.3m profit on
revenue of £9m
• £600m of new orders secured with the benefits to be seen in 2007
• Division reorganised with associated one off costs of £0.75m
Affordable Housing
• Record profit of £10.2m (2005: £7.7m) on revenue of £186m (2005:
£180m)
• Margin improvement driven by success in mixed tenure developments
• Order book of £1.4bn
John Morgan, Executive Chairman, said:
'The Group's order book stands at a record £3.4bn and all the market sectors in
which we operate are attractive at present. This offers exciting opportunities
and provides a positive outlook for the Group'
7 August 2006
Enquiries:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
College Hill Tel: 020 7457 2020
Alex Walters
Matthew Smallwood
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Chairman and Chief Executive's Statement
We are pleased to announce another set of record results for the six months to
30 June 2006. Profit before tax rose by 17% to £21.3m (2005: £18.2m) from
revenue of £674m (2005: £615m). Earnings per share grew by 19% to 35.42p (2005:
29.72p). Accordingly the interim dividend has been increased by 14% to 8.00p
(2005: 7.00p).
The performance of the business was driven primarily by Fit Out and Affordable
Housing. The commercial property market continued to strengthen which enabled
the Fit Out division to further grow its revenue and profit, while the
Affordable Housing division increased both its profit and profit margin over the
same period last year. The Construction division delivered revenue in line with
the prior year with a modest improvement in margin. Infrastructure Services'
margin has been impacted by a divisional reorganisation. However, the division
has secured £600m of new projects during the first half which bodes well for the
future.
Cash at 30 June 2006 was £20m (2005: £35m) reflecting the acquisition in March
of Gleeson MCL and the anticipated further investment in work in progress at
Affordable Housing.
DIVISIONAL REVIEWS
Fit Out
Fit Out grew significantly during the first half of 2006 with profit increasing
by 29% to £10.2m (2005: £7.9m) on revenue of £182m (2005: £152m). The office fit
out market continued to expand in the period primarily driven by the financial
and professional services sectors in London as well as the telecoms and
technology sectors in the M4 corridor. The margin reached a record level of
5.6% (2005: 5.2%). The order book currently stands at £165m, which has
lengthened to over 5 months. This reflects the current strength of the fit out
market which is anticipated to continue into 2007.
Construction
Construction continues to focus on the core sectors of health, education, light
industrial and commercial property with revenue broadly in line with the prior
year at £162m (2005: £164m) but with profit rising to £1.6m (2005: £1.3m). The
division made further progress in increasing the balance of its work coming from
framework and key client relationships and from its chosen sectors. The order
book is £487m which is comparable with the positions at the end of June and
December 2005. Overall we anticipate modest growth of the division as it
continues to be highly selective in the work it targets.
Infrastructure Services
Infrastructure Services delivered a profit of £2.7m (2005: £2.8m) on revenue of
£143m (2005: £118m). The result includes three months' performance of the rail
business which was acquired in March for £23m. This business has performed well
since being acquired, delivering £0.3m profit on £9m revenue. The business is
focused on non-track rail work and is already working closely with the
division's tunnelling business. The division was highly successful in securing
£600m of new orders in the first half of the year. Following the appointment of
a new managing director, the division has undergone a reorganisation to ensure
that it can effectively deliver this increased workload. The one off costs of
this reorganisation, all incurred in the first half, were £0.75m.
The forward order book currently stands at a record £1.3bn (2005: £911m),
supporting our view that the performance of this division will improve in the
medium term.
Affordable Housing
Affordable Housing increased its profit by 32% to £10.2m (2005: £7.7m) on
revenue of £186m (2005: £180m). The improvement in margin was driven by further
focusing on mixed tenure opportunities which lend themselves to Lovell's breadth
of expertise in open market, new build and refurbishment of affordable houses.
The division's revenue will be weighted towards the second half of this year.
The forward order book currently stands at £1.4bn, demonstrating the division's
excellent long term prospects.
OUTLOOK
The Group's overall forward order book now stands at a record £3.4bn. Our
market leading businesses in Fit Out and Affordable Housing are continuing to
perform strongly in markets that are expected to remain healthy in the medium
term. Construction will benefit from public spend in health and education while
Infrastructure Services' market is expected to strengthen in 2007. In short,
all the market sectors in which we operate are attractive at present. This
offers exciting opportunities and provides a positive outlook for the Group.
John Morgan Paul Smith
Executive Chairman Chief Executive
7 August 2006
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Consolidated Income Statement
for the six months to 30 June 2006
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2006 30 June 2005 31 December 2005
£'000s £'000s £'000s
Revenue
Continuing operations 664,887 615,154 1,296,708
Acquisitions 8,619 - -
Revenue (note 2) 673,506 615,154 1,296,708
Cost of sales (595,371) (546,284) (1,154,118)
Gross profit 78,135 68,870 142,590
Administrative expenses (57,011) (51,588) (103,109)
Share of results of joint ventures (118) 122 425
Operating profit
Continuing operations 20,739 17,404 39,906
Acquisitions 267 - -
Operating profit (note 2) 21,006 17,404 39,906
Investment revenues 1,317 1,744 3,661
Finance costs (1,048) (943) (1,867)
Profit before tax 21,275 18,205 41,700
Tax (note 3) (6,382) (5,795) (12,125)
Profit for the period attributable to equity
holders of the parent company 14,893 12,410 29,575
Earnings per share
From continuing operations
Basic (note 5) 35.42p 29.72p 70.74p
Diluted (note 5) 34.23p 28.95p 68.83p
There are no discontinued activities in either the current or preceding year.
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Consolidated Balance Sheet
at 30 June 2006
Unaudited Unaudited Audited
30 June 2006 30 June 2005 31 December 2005
£'000s £'000s £'000s
Non current assets
Goodwill 72,204 56,666 56,729
Property, plant and equipment 16,009 15,710 16,403
Interest in joint ventures 4,060 8,770 10,881
Investments 103 103 103
Deferred tax 3,211 1,448 2,485
95,587 82,697 86,601
Current assets
Inventories 101,525 89,573 87,571
Trade and other receivables 290,877 242,953 235,056
Cash and cash equivalents 20,460 34,902 72,018
412,862 367,428 394,645
Total assets 508,449 450,125 481,246
Current liabilities
Trade and other payables (371,211) (336,955) (352,156)
Current tax liabilities (6,084) (5,601) (6,295)
Obligations under finance leases (754) (947) (766)
(378,049) (343,503) (359,217)
Net current assets 34,813 23,925 35,428
Non current liabilities
Retirement benefit obligation (2,977) (2,010) (3,351)
Obligations under finance leases (1,682) (1,814) (2,059)
(4,659) (3,824) (5,410)
Total liabilities (382,708) (347,327) (364,627)
Net assets 125,741 102,798 116,619
Equity
Share capital 2,118 2,111 2,116
Share premium account 26,132 25,828 26,014
Capital redemption reserve 623 623 623
Own shares (1,775) (1,775) (1,775)
Equity reserve 2,166 112 1,052
Hedging reserve (1,901) (1,814) (2,238)
Retained earnings 98,378 77,713 90,827
Total equity 125,741 102,798 116,619
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Consolidated Cash Flow Statement
for the six months to 30 June 2006
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2006 30 June 2005 31 December 2005
£'000s £'000s £'000s
Net cash from operating activities (31,861) (27,781) 14,477
(note 6)
Investing activities
Interest received 1,229 1,754 3,686
Dividends received from joint ventures 7,225 - 336
Proceeds on disposal of property, plant and 202 75 1,433
equipment
Purchases of property, plant and equipment (1,866) (2,224) (4,680)
Payments to acquire interest in joint ventures (185) (3,619) (6,190)
Acquisition of subsidiary (note 8) (18,223) - -
Net cash used in investing activities (11,618) (4,014) (5,415)
Financing activities
Payments to acquire own shares - (782) (782)
Dividends paid (7,549) (5,530) (8,459)
Repayments of obligations under finance leases (530) (471) (1,354)
Repayment of loan notes (120) (120) (240)
Proceeds on issue of share capital 120 153 344
Net cash used in financing activities (8,079) (6,750) (10,491)
Net decrease in cash and cash equivalents (51,558) (38,545) (1,429)
Cash and cash equivalents at beginning of year 72,018 73,447 73,447
Cash and cash equivalents at end of period
Bank balances and cash 20,460 34,902 72,018
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Consolidated Statement of Recognised Income and Expense
for the six months to 30 June 2006
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2006 30 June 2005 31 December 2005
£'000s £'000s £'000s
Actuarial gains/(losses) on defined benefit pension 319 215 (1,284)
schemes
Tax on items taken directly to equity (112) (65) 312
Changes in fair value of cash flow hedging 337 (1,814) (2,238)
derivatives
Net income recognised directly in equity 544 (1,664) (3,210)
Profit for the period from continuing 14,893 12,410 29,575
operations
Total recognised income and expense for the period 15,437 10,746 26,365
attributable to equity shareholders
Consolidated Statement of Changes in Equity
for the six months to 30 June 2006
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2006 30 June 2005 31 December 2005
£'000s £'000s £'000s
Balance at start of period 116,619 98,159 98,159
Profit for period 14,893 12,410 29,575
Recognition of share based payments 411 73 589
Income tax on share based payments 703 - 424
Interim dividend declared and paid - - (2,929)
Prior year final dividend paid (7,549) (5,551) (5,551)
Actuarial gains/(losses) on defined benefit pension
scheme 319 215 (1,284)
Income taxes on pension scheme (112) (65) 312
Own shares purchased - (782) (782)
Options exercised 120 153 344
Changes in fair value of cash flow hedging 337 (1,814) (2,238)
derivatives
Balance at end of period 125,741 102,798 116,619
MORGAN SINDALL PLC
Interim results for the six months to 30 June 2006
Notes to the Interim Report
1. Principal accounting policies
Basis of accounting
The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') adopted for use in the
European Union and therefore comply with Article 4 of the EU IAS Regulation.
At the date of authorisation of these financial statements IFRS 7 and
IFRIC 7 to 10, 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.
The same accounting policies and methods of computation are followed in
the interim financial statements as in the 31 December 2005 report and accounts
with the exception that IFRS 6 and IFRIC 4 to 6 have been adopted where
applicable to the Group.
2. Analysis of revenue and profit from business segments
Unaudited Unaudited
Six months to Six months to
30 June 2006 30 June 2005
Operating Operating
profit/(loss) profit/(loss)
Revenue Revenue
£'000s £'000s £'000s £'000s
Fit Out 182,159 10,210 152,495 7,886
Construction 161,677 1,550 164,098 1,274
Infrastructure Services 143,127 2,692 118,171 2,753
Affordable Housing 186,467 10,189 180,390 7,723
Group activities 76 (3,517) - (2,354)
673,506 21,124 615,154 17,282
Share of results of joint ventures (118) 122
Operating profit 21,006 17,404
Investment income 1,317 1,744
Finance costs (1,048) (943)
Profit before tax 21,275 18,205
Tax (6,382) (5,795)
Profit for the period attributable to
equity holders of the parent company
14,893 12,410
3. Tax
Unaudited
Six months to 30 June
2006 2005
£'000s £'000s
Current tax:
UK corporation tax 6,517 5,795
6,517 5,795
Deferred tax:
Current year (135) -
6,382 5,795
Corporation tax for the interim period is charged at 30% (2005: 32%), being the
estimated effective corporation tax rate for the full financial year.
4. Dividends
Unaudited
Six months to 30 June
2006 2005
£'000s £'000s
Final dividend for the year ended 31 December 2005 7,549 5,551
of 18.00p (2004: 13.25p) per share
Interim dividend for the period to 30 June 2006 3,389 2,920
of 8.00p (2005: 7.00p) per share
The interim dividend was approved by the Board on 7 August 2006 and has not been
included as a liability at 30 June 2006.
The interim dividend of 8.00p (2005: 7.00p) per share will be paid on 29
September 2006 to shareholders on the register at 1 September 2006. The
ex-dividend date will be 31 August 2006.
5. 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:
Unaudited
Six months to 30 June
2006 2005
Earnings £'000s £'000s
Earnings for the purposes of basic and dilutive earnings per share being 14,893 12,410
net profit attributable to equity holders of the parent company
Unaudited
Six months to 30 June
2006 2005
Number of shares '000s '000s
Weighted average number of ordinary shares for the purposes of basic 42,042 41,756
earnings per share
Effect of dilutive potential ordinary shares:
Share options 1,145 920
LTIP shares 265 190
Executive Remuneration Plan 57 -
Weighted average number of ordinary shares for the purposes of diluted 43,509 42,866
earnings per share
6. Reconciliation of operating profit to net cash from operating
activities
Unaudited Audited
Six months to 30 June Year to
2006 2005 31 December 2005
£'000s £'000s £'000s
Operating profit 21,006 17,404 39,906
Adjusted for:
Share of results of joint ventures 118 (122) (425)
Depreciation of property, plant and equipment 2,296 1,982 4,505
Expense in respect of share options 411 73 589
Defined benefit pension payment (120) - (240)
Defined benefit pension charge 65 - 82
(Gain)/loss on disposal of property, plant and (4) 30 (919)
equipment
Operating cash flows before movements in working 23,772 19,367 43,498
capital
Increase in inventories (13,954) (28,756) (26,754)
Increase in receivables (45,704) (39,870) (31,969)
Increase in payables 11,446 28,142 43,118
Cash (absorbed by)/generated from operations (24,440) (21,117) 27,893
Income taxes paid (6,533) (5,766) (11,658)
Interest paid (888) (898) (1,758)
Net cash from operating activities (31,861) (27,781) 14,477
There were no additions to plant, property and equipment during the period that
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.
7. Retirement benefit schemes
The Group operates a plan on defined contribution principles which includes some
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 valuation of the scheme are given below.
Unaudited Audited
Six months to 30 June Year to
2006 2005 31 December 2005
£'000s £'000s £'000s
Fair value of the scheme assets 4,391 4,083 4,430
Present value of defined benefit obligations (7,368) (6,093) (7,781)
Deficit in the scheme (2,977) (2,010) (3,351)
Related deferred taxation at 30% 893 604 1,004
Net pension liability (2,084) (1,406) (2,347)
8. Acquisition of business
Primary Medical Property Limited
On 1 February 2006 the Group purchased the remaining 52.5% shareholding in
Primary Medical Property Limited from certain private individuals for £11.1m.
Subsequently, the Group agreed to dispose of 50% of its interest by way of
entering into a 50-50 owned joint venture agreement with a fund managed by
Barclays Private Equity.
Gleeson MCL Limited
On 24 March 2006 the Group acquired the entire issued share capital of Gleeson
MCL Limited. Consideration of £22.8m was satisfied by cash and there were costs
of approximately £0.2m which have been capitalised. Tangible net assets acquired
were £7.5m including cash of £4.6m and in addition provisional fair value
adjustments have been made recognising assets totalling £0.1m. The resultant
value of goodwill capitalised of £15.5m is provisional and will be subject to
any subsequent adjustments required to fair value of the net assets acquired.
9. The results for the half years ended 30 June 2006 and 2005 and the
balance sheets at those dates have not been audited and do not constitute
statutory accounts. The financial information for the year ended 31 December
2005 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 auditors' report on those accounts
was not qualified and did not contain statements under section 237(2) or (3) of
the Companies Act 1985.
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