Preliminary Results
Morgan Sindall PLC
20 February 2007
Morgan Sindall Plc
('Morgan Sindall' or 'the Group')
Preliminary results for the year ended 31 December 2006
Morgan Sindall plc, the construction group that operates within four divisions;
Fit Out, Construction, Infrastructure Services and Affordable Housing today
announces record preliminary results
2006 2005
Revenue £1,497m £1,297m + 15%
Operating profit £46.2m £39.9m + 16%
Profit before tax £47.6m £41.7m + 14%
Cash balance £95.4m £72.0m + 33%
Order book £3.3bn £2.8bn + 19%
Earnings per share 78.2p 70.7p + 11%
Final dividend per share 20.0p 18.0p + 11%
Group Highlights
• Strategy delivering long-term sustainable growth
• Growth continues to be driven by Fit Out and Affordable Housing
• Infrastructure Services secures £800m of new contracts
• Group's forward order book at a healthy £3.3bn in favourable market
conditions
• Group's margins maintained at 3.2% with strong cash generation
Divisional Highlights
Fit Out
• Record result with operating profit up 38% to £22.6m (2005 £16.4m)
reflecting increased revenue and margin
• Buoyed by strong market conditions, particularly in Financial and
Professional Services in London and the Technology sector in the
Thames Valley
• Specific focus on larger jobs
• Similar market conditions expected to prevail in 2007 with forward
order book of £187m (2005: £134m)
Construction
• Improved operating profit to £3.4m (2005 £3.2m)
• Success in winning new frameworks
• £491m forward order book for 2007: exciting prospects in health and
emergency services
Infrastructure Services
• Significantly increased revenue, however operating profit of £5.1m
impacted by restructuring and mobilisation of new contracts
• Strong underlying market evidenced by good order flow
• Forward order book of £1.2bn against £824m a year ago
• Anticipating strong growth in 2007
Affordable Housing
• Increased margin with record operating profit of £24.0m (2005 £18.7m)
• Government's Decent Homes programme underpins performance
• Continued success in mixed tenure developments
• Future growth to be driven by larger, more complex regeneration
schemes in the medium term
• 2007 order book of £1.4bn
John Morgan, Executive Chairman, commented:
'2006 has predominantly been driven by the excellent performance of both Fit Out
and Affordable Housing. At the same time we have had success at Construction
and in building the order book in Infrastructure Services. We are confident
that the foundations have been laid for 2007 to be another successful year.'
20 February 2007
ENQUIRIES:
College Hill Tel: 020 7457 2020
Kate Pope
Matthew Smallwood
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
Preliminary Statement
In 2006 Morgan Sindall continued to make excellent progress. Profit before tax
increased by 14% to £47.6m (2005: £41.7m) on revenue that increased by 15% to
£1.5bn (2005: £1.3bn). Earnings per share increased by 11% to 78.2p (2005:
70.7p). Accordingly the Board recommends an increase in the final dividend to
20.0p (2005: 18.0p) giving a total dividend for the year of 28.0p (2005: 25.0p).
Our strategy remains the same. It is to develop a leading position in each of
our chosen market sectors. Our Fit Out and Affordable Housing divisions
demonstrate the value of this approach. Both had very successful years as a
result of their strong market positions and favourable trading conditions.
Construction continued with its strategy of focussing on key sectors and
framework contracts, and delivered an improved result. Infrastructure Services
secured a significant amount of new civil engineering and utilities work, which
should result in increased revenue and profit moving forward although
restructuring of the division and the mobilisation of new contracts during 2006
impacted its profit for the year.
Overall our margins have remained steady at 3.2% (2005: 3.2%) while cash
generation was particularly strong. The Group ended 2006 with net cash of £95m
(2005: £72m).
Board changes
Jack Lovell will retire from the Board as a non-executive director at the
forthcoming AGM in April. Jack, one of the founding directors of the Group, has
made a significant contribution to its development over the past 30 years and we
are extremely grateful for his input and guidance throughout that time.
Outlook
Morgan Sindall has made an encouraging start to 2007 with further exciting
opportunities being secured by all our divisions. The forward order book at the
start of the year stood at £3.3bn against £2.8bn last year and we are seeing
favourable market conditions across all of our chosen sectors.
In the coming year Fit Out will be seeking to further expand its larger projects
capability and Affordable Housing will be targeting more complex regeneration
schemes. Construction will continue with its focus on key sectors and framework
contracts while Infrastructure Services' priority will be on successfully
mobilising and delivering the work secured in 2006, as well as securing further
opportunities.
Overall we are very pleased with the progress made in 2006 and, given the
current strength of our divisions and the healthy market sectors in which they
operate, we expect to make further progress over the coming year.
Divisional performance
Fit Out
2006 2005
Revenue £426m £323m
Operating profit £22.6m £16.4m
Margin 5.3% 5.1%
Order book £187m £134m
Fit Out provides fit out and refurbishment services to the commercial property
market. It operates through four businesses, namely Overbury, Morgan Lovell,
Vivid Interiors and Backbone Furniture. It is a national business operating in
both the public and private sectors.
Against the backdrop of a buoyant commercial property sector Fit Out grew
strongly and increased its market share in 2006. Revenue increased by 32% to
£426m (2005: £323m) and the division delivered a record operating profit of
£22.6m (2005: £16.4m) which was an increase of 38% on the previous year. The
margin also strengthened to 5.3% (2005: 5.1%).
The division's geographic expansion continued with an increasing number of large
contracts being undertaken outside London. The division also strengthened its
presence in the hotel, retail, leisure and entertainment sectors thereby
extending the division's offering beyond the commercial offices sector.
The division starts 2007 with a forward order book of £187m (2005: £134m). The
continued strength of the fit out market has been an important contributor to
the past success of this division and our expectation is that similar market
conditions will continue in 2007.
Construction
2006 2005
Revenue £343m £336m
Operating profit £3.4m £3.2m
Margin 1.0% 1.0%
Order book £491m £504m
Bluestone operates through a network of 25 offices throughout England and Wales
serving the health, education, commercial and light industrial sectors,
delivering contracts principally through negotiated and framework arrangements.
The division made progress in 2006 in a generally favourable market. Operating
profit increased to £3.4m (2005: £3.2m) on revenue of £343m (2005: £336m). The
margin was maintained at 1.0%.
During 2006 the division was successful in securing a number of new framework
arrangements including those with South East Centres of Excellence and Dorset
County Council. In addition it was appointed construction partner for the Bury,
Glossop and Tameside NHS LIFT project which is anticipated to commence in the
first half of 2007.
Bluestone enters 2007 with a forward order book of £491m (2005: £504m). The
division also has a number of potential contracts driven by investment led
projects in the health and emergency services sectors which we expect will
underpin modest growth of this division in 2007.
Infrastructure Services
2006 2005
Revenue £324m £248m
Operating profit £5.1m £6.0m
Margin 1.6% 2.4%
Order book £1.2bn £824m
Infrastructure Services' business, Morgan Est, provides civil engineering and
utilities services to the water, gas, electricity and transport sectors across
the UK.
In 2006 the division delivered an operating profit of £5.1m (2005: £6.0m) on
revenue of £324m (2005: £248m). The margin was impacted by a restructuring of
the business during the year and also by mobilisation costs on a number of
recently won contracts.
In March the division acquired from M J Gleeson plc its non-track rail business
for £23m. This business, which specialises in station refurbishment and
underground works, has performed well and contributed an operating profit of
£1.0m on revenue of £21m.
In 2006 the division secured £800m of new orders which have contributed to a
significant increase in its forward order book starting the year at a record
£1.2bn (2005: £824m). This forward order book includes key projects such as the
A876 Upper Forth Crossing at Kincardine and Belfast sewer tunnels, M1 widening
at junctions 25 to 28, as well as frameworks with United Utilities, which runs
the gas mains system on behalf of Northern Gas Networks, and E.ON UK's power
distribution business Central Networks, which have helped to lengthen the order
book.
Overall the market outlook for infrastructure projects is much improved. The
recently secured contracts are continuing to mobilise and we anticipate strong
growth for this division in 2007.
Affordable Housing
2006 2005
Revenue £404m £390m
Operating profit £24.0m £18.7m
Margin 5.9% 4.8%
Order book £1.4bn £1.3bn
The Affordable Housing division operates through Lovell, a leading provider of
affordable housing and refurbishment services. The division delivers new build
social housing and new build open market affordable housing as well as the
refurbishment of social housing under framework arrangements. Its particular
expertise is mixed tenure urban regeneration schemes, which combine both its new
build and refurbishment skills and bring together private and public ownership
in a single development.
The division achieved a record operating profit in 2006 of £24.0m (2005: £18.7m)
on revenue of £404m (2005: £390m). During the year the division secured major
new schemes at Beswick and Garston-under-Bridge and was appointed preferred
bidder for a £200m PFI housing scheme in Manchester, which is expected to
commence in mid-2007. The Decent Homes programme also continues to account for a
significant proportion of the division's workload. The margin increased to 5.9%
(2005: 4.8%) as a result of a more favourable work mix.
Lovell starts 2007 with an order book of £1.4bn (2005: £1.3bn). While the
Decent Homes programme is expected to continue through to at least 2012, the
division anticipates growth in the medium term to be primarily driven by larger,
more complex urban regeneration schemes. Lovell's work mix is therefore
expected to move towards these larger schemes over the coming years.
Financial review
Revenue and operating profit
Revenue increased by 15% to £1.5bn (2005: £1.3bn), driven by growth in all
operating divisions. Fit Out's revenue increased by 32% to £426m; Construction
by 2% to £343m; Infrastructure Services by 31% to £324m; Affordable Housing by
4% to £404m.
Group operating profit increased by 16% to £46.2m (2005: £39.9m). This
improvement was due to strong growth at Affordable Housing and Fit Out with
modest progress also made by Construction, offset by a reduction in operating
profit at Infrastructure Services. Fit Out increased its operating profit by
38% to £22.6m (2005: £16.4m), Affordable Housing by 29% to £24.0m (2005: £18.7m)
and Construction by 4% to £3.4m (2005: £3.2m). Infrastructure Services'
operating profit reduced slightly to £5.1m (2005: £6.0m). The cost of Group
Activities was £8.1m (2005: £4.8m) reflecting principally increased costs of
share based payments, Information Technology and investment related activity.
The share of results of joint ventures was a loss of £0.8m (2005: profit of
£0.4m).
Profit before and after tax
Profit before tax of £47.6m was 14% ahead of last year's £41.7m. This includes
net interest of £1.4m (2005: £1.8m). Profit after tax was £32.8m (2005: £29.6m).
The tax charge was £14.8m (2005: £12.1m) giving an effective tax rate of 31%
(2005: 29%).
Earnings per share and dividends
Basic earnings per share increased by 11% to 78.2p (2005: 70.7p). The final
dividend is proposed at 20.0p (2005: 18.0p) giving a total dividend for the year
of 28.0p which is 12% higher than last year (2005: 25.0p). Earnings cover the
dividend 2.8 times (2005: 2.8 times). The proposed dividend will be paid on 2
May 2007 to shareholders on the register at 10 April 2007.
Equity and capital structure
Equity increased to £141.9m (2005: £116.6m). The number of shares in issue at
31 December 2006 was 42,520,090 (2005: 42,315,970). The increase of 204,120
shares was due to the exercise of options under employee share option schemes.
There were no other new issues during the year.
Cash flow and treasury
Net cash from operating activities was £47.9m (2005: £14.5m) as a result of
increased profitability and improvements in working capital. The net payment to
acquire a subsidiary was £18.2m (2005:nil), capital expenditure was £3.2m (2005:
£4.7m) and payments to increase our interests in joint ventures were £0.9m
(2005: £6.2m), reflecting ongoing investment in the business. After payments
for tax, dividends and servicing of finance the net increase in cash and cash
equivalents was £23.4m resulting in a year end balance of £95.4m. It is
anticipated that these resources will be used for the continued growth of the
Group's businesses.
Consolidated income statement (unaudited)
For the year ended 31 December 2006
Notes 2006 2005
£'000s £'000s
Continuing operations
Revenue 1 1,496,844 1,296,708
Cost of sales (1,331,423) (1,154,118)
Gross profit 165,421 142,590
Administrative expenses (118,401) (103,109)
Share of results of joint ventures (796) 425
Operating profit 1 46,224 39,906
Investment revenues 3,807 3,661
Finance costs (2,421) (1,867)
Profit before tax 47,610 41,700
Tax 2 (14,797) (12,125)
Profit for the year from continuing operations
attributable to equity holders of the parent company 32,813 29,575
Earnings per share
From continuing operations
Basic 4 78.2p 70.7p
Diluted 4 76.3p 68.8p
There are no discontinued activities in either the current or preceding year.
Consolidated balance sheet (unaudited)
At 31 December 2006
2006 2005
£'000s £'000s
Non current assets
Property, plant and equipment 16,623 16,403
Goodwill 72,705 56,729
Interests in joint ventures 5,200 10,881
Investments 103 103
Deferred tax 3,584 2,485
98,215 86,601
Current assets
Inventories 86,805 87,571
Trade and other receivables 280,945 235,056
Cash and cash equivalents 95,433 72,018
463,183 394,645
Total assets 561,398 481,246
Current liabilities
Trade and other payables (406,795) (352,156)
Current tax liabilities (6,403) (6,295)
Obligations under finance leases (1,314) (766)
(414,512) (359,217)
Net current assets 48,671 35,428
Non current liabilities
Retirement benefit obligation (2,534) (3,351)
Obligations under finance leases (2,457) (2,059)
(4,991) (5,410)
Total liabilities (419,503) (364,627)
Net assets 141,895 116,619
Equity
Share capital 2,126 2,116
Share premium account 26,169 26,014
Capital redemption reserve 623 623
Own shares (3,387) (1,775)
Hedging reserve (795) (2,238)
Retained earnings 117,159 (91,879)
Total equity 141,895 116,619
Consolidated statement of recognised income and expense (unaudited)
For year ended 31 December 2006
2006 2005
£'000s £'000s
Actuarial gains/(losses) on defined benefit liabilities 700 (1,284)
Income tax credit in respect of share options taken directly to 930 -
equity
Deferred tax on retirement benefit obligations (282) 312
Movement on hedged items on cash flow hedges 1,443 (2,238)
Net income/(expense) recognised directly in equity 2,791 (3,210)
Profit for the year from continuing operations 32,813 29,575
Total recognised income and expense for the year attributable to
equity shareholders 35,604 26,365
Consolidated cash flow statement (unaudited)
For the year ended 31 December 2006
Notes 2006 2005
£'000s £'000s
Net cash from operating activities 5 47,909 14,477
Investing activities
Interest received 3,775 3,686
Dividends received from joint ventures 7,225 336
Proceeds on disposal of property, plant and equipment 1,112 1,433
Purchases of property, plant and equipment (3,216) (4,680)
Payments to acquire interest in joint ventures (896) (6,190)
Acquisition of subsidiary (23,035) -
Net cash acquired on acquisition of subsidiary 4,809 -
Net cash used in investing activities (10,226) (5,415)
Financing activities
Payments to acquire own shares (1,612) (782)
Dividends paid (10,914) (8,459)
Repayments of obligations under finance leases (1,787) (1,354)
Repayment of loan notes (120) (240)
Proceeds on issue of share capital 165 344
Net cash used in financing activities (14,268) (10,491)
Net increase/(decrease) in cash and cash equivalents 23,415 (1,429)
Cash and cash equivalents at beginning of year 72,018 73,447
Cash and cash equivalents at end of year
Bank balances and cash 95,433 72,018
Notes (unaudited)
For the year ended 31 December 2006
1. Business segments
For management purposes, the Group is organised into four operating divisions:
Fit Out, Construction, Infrastructure Services and Affordable Housing. 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:
2006 2005
Operating Operating profit/
Revenue profit/(loss) Revenue (loss)
£'000s £'000s £'000s £'000s
Fit Out 425,629 22,599 322,618 16,398
Construction 343,316 3,358 335,750 3,214
Infrastructure Services 323,735 5,098 247,938 5,974
Affordable Housing 404,164 24,013 390,402 18,682
Group Activities - (8,048) - (4,787)
1,496,844 47,020 1,296,708 39,481
Share of results of joint ventures (796) 425
Operating profit 46,224 39,906
Investment revenues 3,807 3,661
Finance costs (2,421) (1,867)
Profit before tax 47,610 41,700
Tax (14,797) (12,125)
Profit for the year from
continuing operations 32,813 29,575
All the Group's operations are carried out in the United Kingdom and the Channel
Islands.
2. Tax
2006 2005
£'000s £'000s
Current tax:
UK corporation tax at standard rate of 30% (2005: 30%) 14,653 12,241
Adjustment in respect of prior years 517 140
15,170 12,381
Deferred tax:
Current year (72) (214)
Adjustment in respect of prior years (301) (42)
Income tax expense for the year 14,797 12,125
Notes continued (unaudited)
For the year ended 31 December 2006
2. Tax (continued)
The charge for the year can be reconciled to the profit per the income statement
as follows:
2006 2005
£'000s % £'000s %
Profit before tax 47,610 41,700
Income tax expense at standard rate 14,283 30.0 12,510 30.0
Tax effect of:
Share of results of joint ventures 239 0.5 (128) (0.3)
Expenses that are not deductible in determining 227 0.5
taxable profits
107 0.3
Movements not reflected in the income statement (168) (0.4) (462) (1.1)
Adjustments in respect of prior years 216 0.5 98 0.2
Income tax expense and effective tax rate for the year 14,797 31.1 12,125 29.1
The total amount of deferred tax assets that are not recognised in the financial
statements in relation to losses carried forward amount to £165,000 (2005:
£402,000) due to the uncertainty of the availability of future profits against
which the losses can be recovered.
3. Dividends
2006 2005
£'000s £'000s
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2005 of 18.00p
(2004: 13.25p) per share 7,549 5,551
Interim dividend for the year ended 31 December 2006 of 8.00p
(2005: 7.00p) per share 3,365 2,929
10,914 8,480
Proposed final dividend for the year ended 31 December 2006 of
20.00p (2005: 18.00p) per share 8,415 7,617
The proposed final dividend is subject to approval by shareholders at the annual
general meeting and has not been included as a liability in these financial
statements. The proposed dividend will be paid on 2 May 2007 to shareholders on
the register at 10 April 2007. The ex-dividend date will be 4 April 2007.
Notes continued (unaudited)
For the year ended 31 December 2006
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
2006 2005
£'000s £'000s
Earnings for the purposes of basic and dilutive earnings per share 32,813 29,575
being net profit attributable to equity holders of the parent
company
Number of shares
2006 2005
No. '000s No. '000s
Weighted average number of ordinary shares for the purposes of 41,949 41,810
basic earnings per share
Effect of dilutive potential ordinary shares:
Share options 877 893
Long Term Incentive Plan shares - 265
Conditional shares not vested 179 -
Weighted average number of ordinary shares for the purposes of 43,005 42,968
diluted earnings per share
Notes continued (unaudited)
For the year ended 31 December 2006
5. Reconciliation of operating profit to net cash from operating
activities
2006 2005
£'000s £'000s
Operating profit 46,224 39,906
Adjusted for:
Share of results of joint ventures 796 (425)
Depreciation of property, plant and equipment 4,904 4,505
Expense in respect of share options 959 589
Defined benefit pension payment (240) (240)
Defined benefit pension charge 123 82
Gain on disposal of property, plant and equipment (121) (919)
Operating cash flows before movements in working 52,645 43,498
capital
Decrease/(increase) in inventories 766 (26,754)
Increase in receivables (35,761) (31,969)
Increase in payables 46,461 43,118
Cash generated from operations 64,111 27,893
Income taxes paid (13,937) (11,658)
Interest paid (2,265) (1,758)
Net cash from operating activities 47,909 14,477
Additions to property, plant and equipment during the year amounting to £2.1m
and additions to leasehold property amounting to £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.
6. Accounting policies
This announcement is prepared on the basis of 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 2006 or 2005. The
financial statements for the year ended 31 December 2005 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 2006 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 2006 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 14
March 2007 and will be delivered to the Registrar of Companies following the
Company's annual general meeting.
This information is provided by RNS
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