Results for the Full Year ended 31 December 2015

RNS Number : 8162P

Morgan Sindall Group PLC

23 February 2016

 

23 February 2016

MORGAN SINDALL GROUP PLC

('Morgan Sindall' or 'Group')

The Construction & Regeneration Group

RESULTS FOR THE FULL YEAR (FY) ENDED 31 DECEMBER 2015

	FY 2015	FY 2014	% Change
Revenue	£2,385m	£2,220m	+7%
Operating profit - adjusted1	£38.8m	£28.9m	+34%
Profit before tax - adjusted1	£34.3m	£25.2m	+36%
Earnings per share - adjusted1	63.0p	46.7p	+35%
Year end net cash	£58m	£56m
Average (net debt)	(£53m)	(£9m)
Total dividend per share	29.0p	27.0p	+7%
Operating (loss)/profit - reported	(£10.3m)	£26.5m
(Loss)/profit before tax - reported	(£14.8m)	£22.8m
Basic (loss)/earnings per share - reported	(22.6p)	42.3p
1 'Adjusted' is defined as before intangible amortisation (£2.2m), exceptional operating items (£46.9m) and (in the case of earnings per share) deferred tax credit £1.7m (FY 2014: before intangible amortisation (£2.4m))

Group highlights:

·     Group adjusted operating profit up 34%

·     Divisional performances:

o  Very strong result from Fit Out, with operating profit up 60% to £24.0m (FY 2014: £15.0m) and a margin of 4%

o  Significant contribution from Urban Regeneration, with profit up to £12.9m (FY 2014: £10.0m) supporting the Group's long-term regeneration strategy

o  Affordable Housing adjusted operating profit up 43%, driven by reduced losses in the response maintenance activities. Division well-placed to benefit in 2016 from previous investment in its regeneration mixed-tenure partnership housing activities

o  Improved second half performance from Construction & Infrastructure, with progress made in completing older construction contracts in London and the South. Adjusted operating profit of £3.8m (FY 2014: £3.5m)

·     Year end net cash of £58m. Average net debt of £53m, reflecting continued planned investment in Urban Regeneration and the regeneration mixed-tenure activities of Affordable Housing

·     Increase of £7.5m in non-cash exceptional charge in the second half to £46.9m, recognising an additional impairment of amounts recoverable on the two old construction contracts identified in 2013, one of which has now reached commercial settlement

·     Total dividend of 29.0p per share, an increase of 7% (FY 2014: 27.0p) reflecting current performance and confidence in future prospects

Commenting on today's results, Chief Executive, John Morgan said:

"We are pleased with the year end result which is evidence of the strategic and operational progress made across the Group during the year and this, together with a positive outlook going into 2016, has enabled us to raise the final dividend.

Fit Out has performed very strongly, with record revenue levels coupled with significant margin growth, whilst Urban Regeneration has again delivered a strong profit performance thereby reinforcing our long-term strategic investment in our regeneration activities. Margins in Construction & Infrastructure have remained low as expected, however the second half of the year has seen an improvement in its performance as a result of the considerable progress made in closing out its older and lower margin construction contracts in London and the South, and which then puts the division on a stronger footing going forward.      

Looking ahead to 2016, the positive momentum across the Group is expected to continue.  A strong level of performance from Fit Out is anticipated, together with further strategic progress in Urban Regeneration and profit growth in Affordable Housing, driven by its mixed-tenure regeneration activities. With a further steady recovery in the performance of Construction & Infrastructure also expected, the Group is in a strong position to deliver on its expectations."

Enquiries

Morgan Sindall Group John Morgan Steve Crummett Brunswick Jonathan Glass Alison Kay

Tel: [phone] Tel: [phone]

Presentation

·      There will be an analyst and investor presentation at Jefferies Hoare Govett, Vintners Place, 68 Upper Thames Street, London EC4V 3BJ at 09.00.  Coffee and registration will be from 08.45

·      A copy of these results is available at www.morgansindall.com

·      Today's presentation will be available via live webcast from 09.00 at www.morgansindall.com. A recording will also be available via playback in the afternoon.

Note to Editors

Morgan Sindall Group

Morgan Sindall Group plc is a leading UK Construction & Regeneration group with a turnover of c£2.4bn, employing around 5,800 employees and operating in the public, regulated and private sectors.  It reports through five divisions of Construction & Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and Investments. 

Group Strategy

Morgan Sindall Group's strategy is focused on two distinct but complementary business activities: Construction and Regeneration.

Construction activities comprise the following operations:

·      Construction & Infrastructure: Focused on the commercial, defence, education, energy, healthcare, industrial, leisure, retail, transport and water markets

·      Fit Out: Focused mainly on the fit out of office space with opportunities in commercial, central and local government offices, further education and retail banking

·      'Property Services' reported within Affordable Housing:  Focused on response maintenance activities provided to the social housing, insurance and general commercial sectors

Regeneration activities comprise the following operations: 

·      'Partnership Housing' reported within Affordable Housing: Focused on working in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sale and for social/affordable rent, 'design & build' house contracting and planned maintenance

·      Urban Regeneration:  Focused on transforming the urban landscape through partnership working and the development of multi-phase sites and mixed-use regeneration

·      Investments: Focused on strategic partnerships to develop under-utilised property assets and provide the Group with construction and regeneration opportunities

Basis of Preparation

The term 'adjusted' excludes the impact of intangible amortisation of £2.2m and exceptional operating items of £46.9m (FY 2014: intangible amortisation of £2.4m)

Group Operating Review

Revenue for the year was up 7% on the prior year at £2,385m, driven by strong revenue growth in Fit Out of 20% and supported by growth in Construction & Infrastructure, up 5% and in the strategically important mixed-tenure regeneration housing activities in Affordable Housing, with revenue up 29%.

The Group's committed order book^* as at 31 December 2015 was £2.8bn, an increase of 6% compared to the prior year end with Fit Out (order book up 41%), Construction & Infrastructure (order book up 4%) and Affordable Housing (order book up 4%) all contributing to the increase. Importantly, the general quality of the current order book is reflective of the more favourable procurement conditions across most markets served.  

The regeneration & development pipeline^** was £3.2bn, a small decrease of 2% on the previous year end as schemes have been developed and sold. The Group continues to pursue regeneration opportunities which will contribute to the pipeline in 2016 and beyond.

Adjusted operating profit of £38.8m was up 34% on the prior year, with adjusted operating margin up 30 bps to 1.6% (FY 2014: 1.3%).

Fit Out delivered a very strong profit and margin performance, benefiting from the high level of general fit out activity and the more attractive tendering opportunities and terms available in its market. Its operating margin of 4.0%, on record revenue of £607m enabled Fit Out to report an increase in operating profit, up 60% to £24.0m (FY 2014: £15.0m). Urban Regeneration made significant progress with many of its regeneration developments and delivered an operating profit of £12.9m (FY 2014: £10.0m) and a return on average capital employed¹ of 15%. Affordable Housing also made good progress, focusing on its regeneration mixed-tenure housing portfolio which will support future sales going into 2016. The Affordable Housing division grew its profit by 43%, up to £8.6m (FY 2014: £6.0m) due to the continued improvement in the performance of its Property Services (response maintenance) activities which reduced its loss to £1.0m, from a £3.5m loss in the prior year. 

Construction & Infrastructure showed improvement in the second half of the year, delivering a full year operating profit of £3.8m (FY 2014: £3.5m) compared to profit of £0.3m at the half year.   Overall performance was impacted by lower returns from its construction activities in London and the South and its lower margin older construction contracts, however significant progress has been made in completing these contracts in the second half of the year. These are being replaced in the construction order book with generally higher quality work.

The net finance expense increased to £4.5m (FY 2014: £3.7m) primarily due to higher net interest on a higher level of average net debt and this resulted in an adjusted profit before tax of £34.3m (FY 2014: £25.2m).

Exceptional operating items of £46.9m have been charged in the year relating to the impairment of trade and other receivables on two old construction contracts identified in 2013, both of which were transferred as part of the acquisition of the design and project services division of Amec in 2007.

At the half year an impairment of £39.4m was made against these items. Commercial resolution has been achieved on one of these contracts, whilst on the other the Board has assessed its options to recover amounts, looking at a range of potential likely outcomes from pursuing both legal and/or commercial settlement routes. Based upon this assessment and taking into account the risks and costs associated with pursuing legal remedies, the exceptional item for the year has been increased by £7.5m to £46.9m and is non-cash in nature.

After charging this exceptional operating item, the statutory loss before tax was £14.8m, compared to a statutory profit before tax in the prior year of £22.8m. As a result, there is a tax credit for the year of £4.8m, which is broadly in line with the UK statutory rate after adjusting for the impact of tax on joint ventures and for the deferred tax effect of the future reduction in the UK statutory rate.

The adjusted earnings per share of 63.0p was 35% up on the prior year (FY 2014: 46.7p). The fully diluted adjusted earnings per share of 62.2p was also up 35% on the prior year (FY 2014: 46.0p).  The statutory fully diluted earnings per share was a loss of 22.3p (FY 2014: earnings per share of 41.6p).

Prior to any growth investment in the regeneration activities of Urban Regeneration and Affordable Housing, there was an operating cash inflow of £35.8m in the period.  After deducting such growth investment of £30.7m, there was an operating cash inflow of £5.1m (FY 2014: £2.4m) and a free cash outflow of £0.9m (FY 2014: outflow of £6.7m).

At the year end, the Group had net cash of £58m (FY 2014: £56m), which included £13m of non-recourse debt (FY 2014: £17m). The average daily net debt for the period increased to £53m (FY 2014: £9m), of which £18m (FY 2014: £16m) was non-recourse debt. This planned increase in average net debt was as a result of the ongoing investment programme in the regeneration activities of Urban Regeneration and Affordable Housing and remains comfortably within the Group's banking facilities of £175m.  Average net debt is expected to increase to between £60m - £70m in 2016 as a result of a continuation of this investment programme.

The total dividend for the year has been increased by 7.4% to 29.0p per share (FY 2014: 27.0p), which includes a proposed increase in the final dividend of 13.3% to 17.0p per share (FY 2014: 15.0p), reflecting the improved result in the year and the Board's confidence in the future prospects of the Group.

¹ As defined below in the business review for Urban Regeneration

Outlook

Looking ahead to 2016, the positive momentum across the Group is expected to continue.  A strong level of performance from Fit Out is anticipated, together with further strategic progress in Urban Regeneration and profit growth in Affordable Housing, driven by its mixed-tenure regeneration activities. With a further steady recovery in the performance of Construction & Infrastructure also expected, the Group is in a strong position to deliver on its expectations.

Business Review

The following Business Review is given on an adjusted basis, unless otherwise stated.

Headline results by business segment

	Revenue		Operating Profit		Operating Margin
	£m	change	£m	change	%	change
Construction & Infrastructure	1,232	+5%	3.8	+9%	0.3%	-
Fit Out	607	+20%	24.0	+60%	4.0%	+100bps
Affordable Housing	426	+1%	8.6	+43%	2.0%	+60bps
Urban Regeneration	110	-3%	12.9	+29%	11.7%	n/a
Investments	13	n/a	(1.5)	n/a	n/a	n/a
Central/Elims	(3)		(9.0)
Total	2,385	+7%	38.8	+34%	1.6%	+30bps

Order book and regeneration & development pipeline

The Group's committed order book^* at 31 December 2015 was £2,826m, an increase of 6% from the previous year end.  The divisional split is shown below.

Order book	FY 2015	FY 2014	Change
	£m	£m	%
Construction & Infrastructure	1,595	1,537	+4%
Fit Out	341	241	+41%
Affordable Housing	703	673	+4%
Urban Regeneration	218	197	+11%
Investments	17	19	-11%
Inter-divisional elims	(48)	(9)
Group committed order book	2,826	2,658	+6%

^* "Committed order book" comprises the secured order book and framework order book.  The secured order book represents the Group's share of future revenue that will be derived from signed contracts or letters of intent.  The framework order book represents the Group's expected share of revenue from the frameworks on which the Group has been appointed.  This excludes prospects where confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.

In addition, the Group's regeneration & development pipeline^** was £3,159m, a decrease of 2% on the previous year end.

Regeneration & development pipeline	FY 2015 £m	FY 2014 £m	Change %
Affordable Housing	782	770	+2%
Urban Regeneration	2,181	2,215	-2%
Investments	196	242	-19%
Group regeneration & development pipeline	3,159	3,227	-2%

^** "Regeneration & development pipeline" represents the Group's share of the gross development value of secured schemes including the development value of open market housing schemes. 

Construction & Infrastructure
	FY 2015	FY 2014	Change
	£m	£m	%
Revenue	1,232	1,172	+5%
Operating profit - adjusted	3.8	3.5	+9%
Operating margin - adjusted	0.3%	0.3%	-

Divisional revenue of £1,232m was up 5% on the prior year (FY 2014: £1,172m). Split by type of activity, Construction (including Design) accounted for 55% of divisional revenue at £682m, which was up 7% compared to the prior year, whilst Infrastructure was 45% of divisional revenue at £550m, up 3% on the prior year.

Operating margin for the year was 0.3% (FY 2014: 0.3%), giving an operating profit of £3.8m (FY 2014: £3.5m). This compares to an operating profit of £0.3m at the half year, thereby reflecting an improved performance in the second half. Whilst the Infrastructure business has performed reasonably consistently across the year, delivery pressures and cost escalations in a number of older contracts in the Construction activities in London and the South impacted overall profitability and margin, particularly in the first half as previously announced. A significant proportion of these have subsequently been completed and closed out during the second half, resulting in the progressively improved financial performance through the period.  

The committed order book for the division at the period end was £1,595m, up 4% since the start of the year.  Within this, the Construction order book of £746m was up 25%, whilst Infrastructure at £849m was down 10%. Of the Construction order book, 89% by value has been derived through negotiated/framework/two-stage bidding procurement processes, with only 11% from competitive tender processes.  By comparison, as at the year end of 2012, only 33% of the Construction order book by value at that time was work derived through negotiated/framework/two-stage bidding procurement processes, thereby reflecting the significant positive shift in the quality of the order book since that time. 

The key markets served by the division were Transport (Highways, Aviation and Rail) accounting for 32% of divisional revenue, with Education contributing a significant 28% and Water providing 9%.

Within Infrastructure in the Highways sector, the division holds a position on the Collaborative Delivery Framework with Highways England for schemes valued between £100m and £450m and new project starts include the £290m A6 Manchester Airport Relief Road in joint venture, providing c10kms of dual carriageway and improving connectivity across the region. In the Aviation business, the division is one of four partners delivering a £1.5bn programme of upgrades and improvements at Heathrow Airport over the next five years and is currently working on the £16m Sierra Taxiway rehabilitation project. In Rail, as part of its £113m position on the £250m Edinburgh-Glasgow Improvement Programme (EGIP) alliance for Network Rail, the division lowered and laid a new slab track at the £17m Winchburgh Tunnel project, thereby enabling electrification of the line.

In other markets, specialist teams in Energy are working at Sellafield to provide a range of essential infrastructure asset services through a joint venture strategic alliance, whilst in Water, the division continues to support Welsh Water and Yorkshire Water within the AMP6 five-year frameworks to improve efficiency and develop long-term solutions to meet future challenges. Tunnelling also remains a key activity, with the division working on a number of the UK's most complex infrastructure projects with a highlight being the award, in joint venture, of the £300m - £500m West section of Thames Water's Thames Tideway Tunnel, the largest infrastructure project ever undertaken by the UK water industry. 

Within Construction and split by region, the construction activities in Scotland and the North have continued to perform well compared to prior year with East and South West delivering good progress. As a result of the ongoing poor performance in London and the South East, their construction activities have been down-scaled in the year, with new business activity being limited to mainly frameworks or bidding opportunities involving either Investments or Urban Regeneration.

Education within construction continues to be a significant market, where the division received national acclaim for the delivery of The Enterprise Centre, a pioneering building at the University of East Anglia that boasts record-breaking sustainability credentials. In Commercial construction, as part of the new £100m Longbridge town centre, the division completed a significant tranche of commercial buildings ahead of programme as part of a £30m contract, whilst in Defence, the division is working alongside two other contractors on BAE Systems' £300m eight-year development programme which includes a mix of new build projects and refurbishment of existing facilities that will transform the company's submarine building capabilities.

Exceptional operating items of £46.9m have been charged in the year relating to the impairment of trade and other receivables on two old construction contracts, both of which were transferred as part of the acquisition of the design and project services division of Amec in 2007. Commercial resolution has been achieved on one of these contracts.

Looking ahead to 2016, the focus will remain on improving the quality of earnings through selective bidding, disciplined management of overheads and a rigorous approach to working capital.  Whilst Infrastructure is expected to broadly maintain its steady performance, Construction is expected to continue with a gradual reversion back to more normalised construction margins progressively throughout the year and benefit from its higher quality forward order book.

Fit Out
	FY 2015	FY 2014	Change
	£m	£m	%
Revenue	607	507	+20%
Operating profit - adjusted	24.0	15.0	+60%
Operating margin - adjusted	4.0%	3.0%	+100bps

Fit Out delivered a very strong performance in the period, with revenue of £607m (FY 2014: £507m) up 20% and operating margin increasing to 4.0% resulting in operating profit of £24.0m (FY 2014: £15.0m), up 60%. 

Whilst bidding across the market has remained competitive, the division has benefited from the high level of general fit out activity and the more attractive tendering opportunities and terms available.  Focused on improving the quality of its earnings, the 100bps margin increase in the year from 3.0% to 4.0% reflects the benefit of operational efficiencies in contract delivery and overhead management. Further investment in technology solutions available to on-site teams, enabling improved contract delivery and quality, has also supported the drive for enhanced operational efficiency across the division. 

Split by type of work, 82% of revenue was traditional fit out work (FY 2014: 79%), compared to 18% 'design and build' (FY 2014: 21%). 73% of revenue related to fitting out existing space (32% refurbishment of occupied premises) and 27% new office fit out.

Split by region, London continues to be the most significant geographical market, accounting for 67% (FY 2014: 67%) of revenue at £407m. Key activity drivers include increased occupier confidence and the competition for talent amongst corporates.  Significant appointments include the fit out of ING's new UK commercial banking premises and Aon's new offices in the iconic Leadenhall building in the City,  whilst the division also delivered major fit out contracts across many sectors including work for Microsoft and The All England Tennis Club.  

There has also been increased activity across all regions outside of London, with revenue up to £200m (FY 2014: £167m) maintaining its proportion at 33% of overall divisional revenue in the year. Of note, the division delivered the high-specification fit out for the new Portsmouth-based racing headquarters of Land Rover BAR, the British challenger for the 35th America's Cup.  In Scotland, demonstrating the division's national reach, work undertaken to transform PwC's office in Edinburgh has been recognised by the British Council for Offices with the award of its national 'Fit Out of Workplace' accolade.

The commercial office sector remains Fit Out's core market, providing 83% of revenue (£504m), an increase in proportion from 74% in 2014. Higher education contributes 7% of revenue with retail banking at 4% and government and local authority work also targeted. 

Amongst its projects in Higher Education, the division completed an 11-month refurbishment and fit out programme for the University of Liverpool, and good progress is being made with a highly complex year-long refurbishment for Coventry University, transforming a 100,000 sq ft building into highly-specialised teaching and research facilities.

The committed order book as at 31 December 2015 was £341m, up 41% from the prior year position. Of this, £257m relates to revenue secured for 2016 and £84m to revenue secured for 2017 and beyond.  The 12 month forward order book of £257m is 9% up on the prior year's 12 month forward order book and is the usual measure for the division, which ordinarily has a shorter-term visibility of its order book. It is highly encouraging, therefore, to have secured orders beyond twelve months at the level of £84m for 2017 and beyond.

Looking ahead, it is anticipated that the division will continue to trade strongly. A number of major pre-let commercial office schemes are progressing through London's development pipeline with anticipated completions in 2017 and the division will focus on targeting these opportunities.  With its current order book, strong client relationships, national reach and operational delivery capability, the division is well positioned to capitalise on opportunities across all its end markets throughout the country.  

Affordable Housing
	FY 2015	FY 2014	Change
	£m	£m	%
Revenue	426	423	+1%
Operating profit - adjusted	8.6	6.0	+43%
Operating margin - adjusted	2.0%	1.4%	+60bps

Affordable Housing's activities are divided into two main categories:  Partnership Housing (86% of revenue) which refers to the division's mixed-tenure regeneration housing partnership schemes, 'design & build' house contracting and planned maintenance; and Property Services (14% of revenue) which includes the response maintenance activities. 

Although divisional revenue was broadly level with prior year at £426m (FY 2014: £423m), operating profit improved substantially, up 43% to £8.6m (FY 2014: £6.0m). The improved profitability was primarily due to a significantly better performance in Property Services, with a loss of £1.0m compared to a prior year loss of £3.5m

In summary, split by activity:

	Revenue £m	Change %	Operating profit £m	Capital employed £m	No. of units
Mixed-tenure Design & build contracting Planned maintenance Partnership Housing	148 128 90 366	+29% -8% -17% +1%	9.6	113	913 1,014 1,927
Property Services	60	-2%	(1.0)	5
Affordable Housing	426	+1%	8.6	118

In Partnership Housing, overall revenue was £366m, up 1% from prior year (FY 2014: £362m) and an operating profit of £9.6m, a margin of 2.6% (FY 2014: profit of £9.5m). Capital employed at the year end was £113m, up by £31m over the year driven by investment in new mixed-tenure schemes. Of the total capital employed, £29m relates to historical shared equity loans and investment properties.

The mixed-tenure activities in Partnership Housing are the key strategic focus for the division and the driver of future growth and profits, with revenue up 29% to £148m (FY 2014: £115m). Across the open market sales and the social housing element of mixed-tenure, 913 units were completed at an average sales price of £162k.

The division made good progress on its existing portfolio of mixed-tenure development schemes. During the year, 15 new show homes were opened across a number of locations and with an additional 15 anticipated in 2016, the division is expected to be operating across a record number of active site locations by the end of 2016.

Of particular note during the year was the securing of an 800 unit opportunity at the Mill at Canton, Cardiff, to provide 358 open market and 442 PRS, discounted rent and social rent homes, whilst additionally, working on Investments' project to regenerate the Moat Lane area of Towcester, successful progress was made with the development of 78 open market homes and nine homes for social rent, also complimenting Construction & Infrastructure's civil building scheme in Towcester.

'Design & Build' housing contracting revenue decreased 8% to £128m (FY 2014: £139m). With the market remaining highly competitive, margins have been under pressure and so the division has maintained its selective and disciplined bidding approach whilst focusing on delivery of existing contracts.  An example of the opportunities secured was the award of a series of contracts totalling £67m to create over 750 new council homes as part of West Lothian Council's new-build social housing programme. 

Planned maintenance revenue reduced to £90m (FY 2014: £108m), however at slightly improved margins. Particular success has been achieved through long-term frameworks, with 29 new positions and work valued at £82m secured, including the appointment by Chevin Housing Association to deliver its £20m two-year whole house improvement programme. 

Within Partnership Housing, the current level of active sites and anticipated future outlets, together with a 2% increase in its regeneration and development pipeline at the year end to £782m (FY 2014: £770m) and the 7% increase in its committed order book to £341m (FY 2014: £318m) provide support to the growth opportunity ahead.  

Property Services incorporates the response maintenance activities and delivered revenue of £60m (FY 2014: £61m) and an operating loss of £1.0m, much improved on the prior year operating loss of £3.5m and remains on track to deliver a minimum of break-even in 2016.

The improved performance has been delivered through improved efficiencies from contract and overhead management, together with new work won on improved terms.  The newly-developed works and asset management system became operational in the year and on the back of this capability, the business secured the appointment to provide a combined asset management service to King Street Housing Society across its 800-home portfolio in Cambridge. In addition, Metropolitan Housing Trust awarded the division a £3m contract to provide combined maintenance services across mid-east England whilst also on the business development front, the division has started working with Urban Regeneration and Investments to develop a property maintenance service for buildings developed by the divisions, further extending the Group's integrated capability.

The committed order book for Property Services was up 2% to £361m (FY 2014: £355m).

Looking forward to 2016, overall divisional performance of Affordable Housing is expected to benefit from the ongoing investment programme in Partnership Housing which will drive growth and from continued improvement in the financial performance of Property Services.

Urban Regeneration
	FY 2015	FY 2014	Change
	£m	£m	%
Average capital employed1 (last 12 months)	76.2	49.9
Capital employed1 at year end	76.6	49.4
Revenue	110	113	-3%
Operating profit - adjusted	12.9	10.0	+29%

Urban Regeneration increased its operating profit to £12.9m (FY 2014: £10.0m), generated from its development portfolio as schemes mature and supported by significant investment in the year in current schemes and future development opportunities.

Capital employed¹ at the year end was £76.6m, up £27.2m from the prior year end.  This is calculated after deducting non-recourse debt of £12.8m and deferred consideration on the purchase of interests in its joint venture with the Canal & River Trust of £14.0m.  Average capital employed¹ for the last 12 month period ('LTM') was £76.2m, with the overall LTM Return On Average Capital Employed² of 15%.

Indicative of the diversity and scale of the developments within its regeneration portfolio, there were a number of contributors to the overall performance of the division, which included a total of 745 (FY 2014: 347) residential sales completions.

Specifically during the year, residential completions were achieved on 14 projects including: two phases of Brentford Lock West (a joint venture with the Canal & River Trust); further residential sales from the Vimto Gardens development (part of English Cities Fund's (ECf) Salford Central regeneration scheme - a joint venture with Legal & General and the Homes and Communities Agency); the completion and sale of all 184 residential units in the North and South tower apartment blocks in the Chatham Place, Reading development; the sale of remaining units in phase two of ECf's Rathbone Market scheme in Canning Town; the completion and sale of residential units on the Wapping Wharf, Bristol development (a joint venture with a local developer); and the development and sale of land in Hucknall, Nottinghamshire.

Additionally, ECf secured funding from Legal & General for its 90 unit 'bespoke' PRS development at Salford and the division let and forward funded (with AXA) a 50,000 sq ft John Lewis distribution facility in Leeds.

There are a number of key highlights in the division's forward development programme:

·     Through ECf, discussions with the London Borough of Newham are progressing to further extend the £300m residential-led Rathbone Market, Canning Town scheme. Over the past six years, the division has transformed the area into a desirable residential location with the new phase providing an additional 280 apartments by 2020. 

·     Within one of the Mayor of London's new Housing Zones, the division is seeking planning permission to deliver up to 500 new waterside homes at Hale Wharf, Tottenham through its partnership with the Canal & River Trust. 

·     In addition, a mixed-tenure residential-led scheme will help revitalise the Bow Bridge Estate in East London through an agreement with registered social landlord, Poplar Housing and Regeneration Community Association.

During the year the division also secured 'preferred developer' status on six new projects which will further strengthen its forward development pipeline.

Major development milestones include securing 10 planning consents on schemes with a total development value of £320m.  A significant achievement is receiving consent for London Borough of Lambeth's 'Your New Town Hall' project in Brixton, delivering a modern civic office, 194 new homes and regenerating the listed town hall and civic spaces.

Approximately £400m of construction activity is underway on sites across the country with the division procuring work from external contractors and also, where appropriate, from Group divisions.   Construction & Infrastructure has commenced on-site on the fully-funded £107m Marischal Square development in Aberdeen which will create a vibrant new mixed-use quarter for the city and Affordable Housing has started construction of the first phase of 48 homes in Larkhall, South Lanarkshire. Other major starts include the second phase of Stockport town centre's new gateway development and the first stage in the redevelopment of South Shields town centre as part of the division's £100m 365 Master Plan.

The regeneration and development pipeline as at the period end was £2.2bn and from this pipeline, the division is expected to continue delivering strong returns as schemes develop and as further working capital is invested through 2016.

¹ Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax and inter-company financing). At the period end, non-recourse debt was £12.8m (FY 2014: £16.9m) and deferred consideration was £14.0m (FY 2014: £13.6m).  LTM average non-recourse debt was £18.6m (FY 2014: £16.9m) and LTM average deferred consideration was £13.8m (FY 2014: £15.7m).

² Return On Average Capital Employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (average capital employed).  Interest and fees on non-recourse debt was £1.4m (FY 2014: £1.2m) and the unwind of discount on deferred consideration was £0.4m (FY 2014: £0.5m).

Investments
	FY 2015	FY 2014	Change
	£m	£m	%
Average capital employed1 (last 12 months)	17.8	17.3
Capital employed1 at year end	16.6	20.2
Operating (loss)/profit - adjusted	(1.5)	0.9	n/a

The strategic rationale for Investments is to unlock prime long-term construction and regeneration opportunities for other divisions and create value from investments for the Group. During the year, approximately £160m of construction work was secured primarily for Construction & Infrastructure but also for Affordable Housing.  

The division delivered an operating loss for the year of £1.5m. Capital employed at the period end was £16.6m, down £3.6m on the prior year end position. The reduction in the period was primarily due to achieving practical completion on the Towcester mixed-use Regeneration and Civic Accommodation project. LTM average capital employed was £17.8m.

In regeneration, the division has focused on creating new opportunities and delivering projects within its two local asset backed vehicles (LABVs).  Within the £350m+ 20-year Bournemouth Town Centre LABV, a 50/50 joint venture public-private partnership with Bournemouth Borough Council, the division has handed over the new £12m Citrus Building, built by Construction & Infrastructure, and with three projects delivered within the programme, planning applications are being prepared for a further three residential developments.  

The first project within the £1bn 15-year Slough Borough Council LABV, the £16m community development 'The Curve' is scheduled for completion by Construction & Infrastructure in early 2016 and Affordable Housing has started work on a 73-home residential development.  In Towcester, Investments, Construction & Infrastructure and Affordable Housing are working in collaboration to deliver South Northamptonshire Council's £36m Moat Lane regeneration and civil accommodation scheme.  A new civic centre has been handed over and commercial and residential elements are on site.

Within other sectors, the division has combined its healthcare planning and development expertise in a new joint venture, Health Innovation Partners, to help providers generate income and identify innovative efficiency solutions. The joint venture has been appointed by Burton Hospitals NHS Foundation Trust to deliver efficiency savings and infrastructure projects over the next decade. Within the division's HB Villages joint venture, in partnership with supported living provider HB Villages, 14 new schemes are under construction with four handed over during the year, whilst in Scotland through the hub West Scotland joint venture, financial close has been reached on 11 projects, of which seven are healthcare and education facilities.

¹ Capital employed = total assets (excluding goodwill, intangibles, corporation tax credit and cash) less total liabilities.

Note:  Total capital employed at the year end of £16.6m is invested in a number of schemes including £4.9m in HB Villages (a joint venture focused on care and supported living), £5.0m in regeneration projects (including £3.6m in LABVs), £3.0m in PFI-type investments and £1.5m in the Wellspring Partnership, which is delivering public sector healthcare and education projects in Scotland and £2.2m in sundry other schemes.

Other Financial Information

1. Net finance expense.  Net finance expense was £4.5m, a £0.8m increase versus FY 2014 which is broken down as follows:

	FY 2015	FY 2014	Change %
	£m	£m	%
Net interest charge on net debt	(2.9)	(1.6)	-81%
Amortisation of bank fees & non-utilisation fees	(2.0)	(1.9)	-5%
Interest from JVs	0.9	0.8	+13%
Other	(0.5)	(1.0)	+50%
Total net finance expense	(4.5)	(3.7)	-22%

2. Tax.  A tax credit of £4.8m is shown for the year (2014: charge of £4.8m).

	FY 2015	FY 2014
	£m	£m
(Loss)/profit before tax	(14.8)	22.8
Less: share of net profit in taxed joint ventures#	(9.6)	(6.3)
(Loss)/profit before tax excluding joint ventures	(24.4)	16.5
Statutory tax rate	20.25%	21.5%
Current tax credit/(charge) at statutory rate	4.9	(3.5)
Tax on joint venture profits#	(1.7)	(1.1)
Profit on sale of joint ventures not giving rise to tax liabilities	-	0.4
Effect of tax rate change on deferred tax	1.7	-
Other adjustments	(0.1)	(0.6)
Tax credit/(charge)	4.8	(4.8)
# certain of the Group's joint ventures are partnerships where profits are taxed within the Group rather than the joint venture

3. Net working capital.  'Net Working Capital' is defined as 'Inventories plus Trade & Other Receivables, less Trade & Other Payables, adjusted to exclude deferred consideration payable, accrued interest and capitalised arrangement fees.

	FY 2015	FY 2014	Change £m
	£m	£m
Inventories	246.7	202.2	+44.5
Trade & Other Receivables	399.4	440.9	-41.5
Trade & Other Payables	(678.0)	(698.3)	+20.3
Net Working Capital - adjusted	(31.9)	(55.2)	+23.3
Exceptional operating items	(46.9)	-	-46.9
Net working capital - reported	(78.8)	(55.2)	-23.6

4. Inventory. Inventories increased by £44.5m in the year and can be analysed by division as follows:

Increase in Inventory	£m
Regeneration
Urban Regeneration   Affordable Housing	25.4 18.8
Construction   Construction & Infrastructure	44.2 0.3
Total increase in Inventory in year	44.5

5. Growth investment in Regeneration activities. As above, an incremental £44.2m was invested in inventory in Regeneration activities in 2015. 

The average annual increase in Inventory investment for the preceding five years 2010-2014 inclusive in the Regeneration activities of Urban Regeneration and Affordable Housing ('the five year average') was £13.5m. 

The excess of the current year increase of £44.2m over the five year average of £13.5m is assumed to be incremental growth investment in the Regeneration activities. For illustration purposes in the operating cash flow below, the excess of £30.7m is shown separately as 'Growth investment in Regeneration'.

	£m
Increase in 2015 Regeneration inventory   Less: five year average	44.2 (13.5)
Growth investment in Regeneration	30.7

6. Cash flow.  Operating cash flow before Growth Investment in Regeneration was an inflow of £35.8m (FY 2014: £30.1m).  Operating cash flow after Growth Investment in Regeneration was an inflow of £5.1m (FY 2014: £2.4m). Free cash flow was an outflow of £0.9m (FY 2014: £6.7m). 

	FY 2015	FY 2014
	£m	£m
Operating profit - adjusted	38.8	28.9
Depreciation	5.5	4.8
Share option expense	2.0	0.7
Movement in fair value of shared equity loans	(1.4)	(1.8)
Gains on disposal of joint ventures	-	(1.9)
Share of net profit of joint ventures	(9.6)	(6.3)
Gain on disposal of PPE	(0.3)	(0.2)
Impairment of investments	-	1.0
Other operating items*	0.7	(5.7)
Change in working capital (excluding Growth Investment in Regeneration inventory)	7.4	15.9
Net capital expenditure (including repayment of finance leases)	(8.9)	(6.8)
Dividends and interest received from joint ventures	1.6	1.5
Operating cash flow (before Growth Investment in Regeneration)	35.8	30.1
Growth Investment in Regeneration (note 5 above)	(30.7)	(27.7)
Operating cash flow (after Growth Investment in Regeneration)	5.1	2.4
Income taxes paid	(1.7)	(4.4)
Net interest paid (non-joint venture)	(4.3)	(4.7)
Free cash flow	(0.9)	(6.7)

7. Net cash.  Net cash at the end of the period was £57.9m, as a result of a net cash inflow of £2.2m from 1 January 2015.

	£m
Net cash as at 1 January 2015	55.7
Free cash flow (as above)	(0.9)
Dividends	(11.8)
Other	14.9
Net cash as at 31 December 2015	57.9

'Other' includes repayment of loans by JVs (£13.6m) and proceeds form issue of new shares/exercise of share options (£1.3m)

8. Capital employed by strategic activity.

An analysis of the negative capital employed in the Construction activities shows a decrease of £29.1m since the previous year, split as follows:

Capital employed1 in Construction	FY 2015 £m	FY 2014 £m	Change £m
Construction & Infrastructure	(121.9)	(102.7)	-19.22
Fit Out	(47.6)	(41.6)	-6.0
Affordable Housing - Property Services	4.9	8.8	-3.9
	(164.6)	(135.5)	-29.1

An analysis of capital employed in the Regeneration activities shows an increase of £54.4m since the previous year, split as follows:

Capital employed in Regeneration	FY 2015 £m	FY 2014 £m	Change £m
Affordable Housing - Partnership Housing1	113.0	82.2	+30.8
Urban Regeneration3	76.6	49.4	+27.2
Investments1	16.6	20.2	-3.6
	206.2	151.8	+54.4

1  Total assets (excluding goodwill, intangibles, inter-company financing and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts)

2  includes the impact of the exceptional operating item of £46.9m

3  Definition as per the Urban Regeneration section in the Business Review

9. Dividends.  The Board of Directors has proposed a final dividend of 17.0p per share (FY 2014: 15.0p), up 13.3% on the prior year, resulting in a total dividend for the year of 29.0p per share, up 7.4% (FY 2014: 27.0p).

Cautionary forward-looking statement

These results contain forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from any future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document. The Group accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Consolidated income statement

For the year ended 31 December 2015

		2015			2014
		Before	Exceptional
		exceptional items	operating items note 3	Total	Total
	Notes	£m	£m	£m	£m
Revenue		2,384.7	-	2,384.7	2,219.8
Cost of sales		(2,171.5)	(46.9)	(2,218.4)	(2,038.8)
Gross profit		213.2	(46.9)	166.3	181.0
Administrative expenses		(184.0)	-	(184.0)	(160.3)
Share of net profit of joint ventures		9.6	-	9.6	6.3
Other gains and losses		-	-	-	1.9
Operating (loss)/profit before amortisation of intangible assets		38.8	(46.9)	(8.1)	28.9
Amortisation of intangible assets		(2.2)	-	(2.2)	(2.4)
Operating (loss)/profit		36.6	(46.9)	(10.3)	26.5
Finance income		1.2	-	1.2	1.0
Finance costs		(5.7)	-	(5.7)	(4.7)
(Loss)/profit before tax		32.1	(46.9)	(14.8)	22.8
Tax	4	(4.7)	9.5	4.8	(4.8)
(Loss)/profit for the year		27.4	(37.4)	(10.0)	18.0
Attributable to:
Owners of the Company		27.5	(37.4)	(9.9)	18.1
Non-controlling interests		(0.1)	-	(0.1)	(0.1)
(Loss)/profit for the year		27.4	(37.4)	(10.0)	18.0
(Loss)/earnings per share
Basic	6			(22.6p)	42.3p
Diluted	6			(22.3p)	41.6p

There were no discontinued operations in either the current or comparative periods.

Consolidated statement of comprehensive income

For the year ended 31 December 2015

	2015	2014
	£m	£m
(Loss)/profit for the year	(10.0)	18.0
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain arising on defined benefit obligation	(0.1)	0.1
Deferred tax on retirement benefit obligation	(0.1)	(0.2)
	(0.2)	(0.1)
Items that may be reclassified subsequently to profit or loss:
Movement on cash flow hedges in equity accounted joint ventures	-	(0.2)
Foreign exchange movement on translation of overseas operation	(0.4)	(0.2)
Other movement on cash flow hedges	0.2	-
	(0.2)	(0.4)
Other comprehensive expense	(0.4)	(0.5)
Total comprehensive (expense)/income	(10.4)	17.5
Attributable to:
Owners of the Company	(10.3)	17.6
Non-controlling interests	(0.1)	(0.1)
Total comprehensive (expense)/income	(10.4)	17.5

Consolidated balance sheet

At 31 December 2015

		2015	2014
	Notes	£m	£m
Assets
Goodwill and other intangible assets		217.3	218.1
Property, plant and equipment		20.8	19.2
Investment property		8.8	9.5
Investments in joint ventures		50.3	55.0
Other investments		-	0.3
Shared equity loan receivables	7	20.3	20.4
Retirement benefit asset		1.4	0.8
Non-current assets		318.9	323.3
Inventories		246.7	202.2
Trade and other receivables	8	353.6	442.4
Cash and cash equivalents	9	115.7	87.6
Current assets		716.0	732.2
Total assets		1,034.9	1,055.5
Liabilities
Trade and other payables	11	(674.5)	(690.1)
Current tax liabilities		(3.5)	(5.2)
Finance lease liabilities		(1.6)	(1.6)
Borrowings	9	(12.8)	-
Provisions		(0.1)	(1.2)
Current liabilities		(692.5)	(698.1)
Net current assets		23.5	34.1
Trade and other payables		(17.8)	(22.0)
Finance lease liabilities		(1.8)	(2.5)
Borrowings	9	(45.0)	(31.9)
Deferred tax liabilities		(11.9)	(16.5)
Provisions		(16.9)	(16.6)
Non-current liabilities		(93.4)	(89.5)
Total liabilities		(785.9)	(787.6)
Net assets		249.0	267.9
Equity
Share capital		2.2	2.2
Share premium account		32.0	30.9
Other reserves		(1.0)	(0.8)
Retained earnings		216.5	236.2
Equity attributable to owners of the Company		249.7	268.5
Non-controlling interests		(0.7)	(0.6)
Total equity		249.0	267.9

Consolidated cash flow statement

For the year ended 31 December 2015

		2015	2014
	Notes	£m	£m
Operating activities
Operating (loss)/profit		(10.3)	26.5
Adjusted for:
Amortisation of intangible assets		2.2	2.4
Share of net profit of equity accounted joint ventures		(9.6)	(6.3)
Depreciation		5.5	4.8
Share option expense		2.0	0.7
Profit on disposal of interests in joint ventures		-	(1.9)
Gain on disposal of property, plant and equipment		(0.3)	(0.2)
Movement in fair value of shared equity loan receivables		(1.4)	(1.8)
Non-cash impairment of investments		-	1.0
Non-cash exceptional operating items		46.9	-
Additional pension contributions		(0.7)	(0.7)
Disposals of investment properties		0.7	0.5
Repayment of shared equity loan receivables		1.5	1.1
Decrease in provisions		(0.8)	(6.6)
Operating cash inflow before movements in working capital		35.7	19.5
Increase in inventories		(44.5)	(41.2)
Decrease/(increase) in receivables		41.5	(55.7)
(Decrease)/increase in payables		(20.3)	85.1
Movements in working capital		(23.3)	(11.8)
Cash inflow from operations		12.4	7.7
Income taxes paid		(1.7)	(4.4)
Net cash inflow from operating activities		10.7	3.3
Investing activities
Interest received		1.3	0.9
Dividend from joint ventures		0.7	0.8
Proceeds on disposal of property, plant and equipment		0.6	0.4
Purchases of property, plant and equipment		(6.2)	(5.7)
Purchases of intangible fixed assets		(1.4)	-
Net decrease/(increase) in loans with joint ventures		13.6	(0.9)
Proceeds on disposal of interests in joint ventures		-	5.9
Payment for the acquisition of subsidiaries, joint ventures and other businesses		-	(5.1)
Proceeds on disposal of other investments		-	0.3
Net cash inflow/(outflow) from investing activities		8.6	(3.4)
Financing activities
Interest paid		(4.7)	(4.9)
Dividends paid	5	(11.8)	(11.5)
Repayments of obligations under finance leases		(1.9)	(1.5)
Proceeds from borrowings	9	25.9	8.8
Proceeds on issue of share capital		1.1	4.0
Proceeds on exercise of share options		0.2	-
Net cash inflow/(outflow) from financing activities		8.8	(5.1)
Net increase/(decrease) in cash and cash equivalents		28.1	(5.2)
Cash and cash equivalents at the beginning of the year		87.6	92.8
Cash and cash equivalents at the end of the year	9	115.7	87.6

Consolidated statement of changes in equity

For the year ended 31 December 2015

	Share capital	Share premium account	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
1 January 2014	2.2	26.9	(0.4)	228.8	257.5	(0.5)	257.0
Total comprehensive income	-	-	(0.4)	18.0	17.6	(0.1)	17.5
Share option expense	-	-	-	0.7	0.7	-	0.7
Tax relating to share option expense	-	-	-	0.2	0.2	-	0.2
Issue of shares at a premium	-	4.0	-	-	4.0	-	4.0
Dividends paid	-	-	-	(11.5)	(11.5)	-	(11.5)
1 January 2015	2.2	30.9	(0.8)	236.2	268.5	(0.6)	267.9
Total comprehensive income	-	-	(0.2)	(10.1)	(10.3)	(0.1)	(10.4)
Share option expense	-	-	-	2.0	2.0	-	2.0
Issue of shares at a premium	-	1.1	-	-	1.1	-	1.1
Exercise of share options	-	-	-	0.2	0.2	-	0.2
Dividends paid	-	-	-	(11.8)	(11.8)	-	(11.8)
31 December 2015	2.2	32.0	(1.0)	216.5	249.7	(0.7)	249.0

Other reserves

Other reserves include:

·      Capital redemption reserve of £0.6m (2014: £0.6m) which was created on the redemption of preference shares in 2003.

·      Hedging reserve of (£0.6m) (2014: (£0.8m)) arising under cash flow hedge accounting. Movements on the effective portion of hedges are recognised through the hedging reserve, whilst any ineffectiveness is taken to the income statement.  Cumulative movements recognised through the hedging reserve are recycled through the income statement on disposal of the associated joint ventures.

·      Translation reserve of (£1.0m) (2014: (£0.6m)) arising on the translation of overseas operations into the Group's functional currency.

Retained earnings

Retained earnings include shares that are held as 'treasury shares' and represent the cost to Morgan Sindall Group plc of shares purchased in the market and held by the Morgan Sindall Employee Benefit Trust (the 'Trust') to satisfy options under the Group's share incentive schemes. The number of shares held by the Trust at 31 December 2015 was 466,425 (2014: 545,767) with a cost of £3.5m (2014: £4.1m).

                               Notes to the consolidated financial statements

                               For the year ended 31 December 2015

1 Basis of preparation

General information

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2015 or 2014 but is derived from those accounts.  A copy of the statutory accounts for 2014 was delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's annual general meeting.  The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) of the Companies Act 2006.

This preliminary announcement has been prepared solely to assist shareholders in assessing the strategies of the Board and in gauging their potential to succeed. It should not be relied on by any other party or for other purposes.  Forward looking statements have been made by the directors in good faith based on the information available to them up to the time of their approval of this preliminary announcement.  Such statements should be treated with caution due to the inherent uncertainties, including both economic and business factors, underlying any such forward looking information.

While the financial information included in this preliminary announcement was prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.

In accordance with the Companies Act 2006, the Company will make the annual report and accounts for the year ended 31 December 2015 that comply with IFRS available on the Company's website on or about 24 March 2016.  If a shareholder has requested to continue to receive a hard copy of the annual report and accounts it will be posted on or about 23 March 2016.  A copy will be delivered to the Registrar of Companies following the Company's annual general meeting.

             Basis of preparation

The Group's activities and the key risks facing its future development, performance and position are set out in this preliminary announcement and in its annual report and accounts for the year ended 31 December 2015.

             Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

Changes in accounting policies

There have been no significant changes to accounting policies, presentation or methods of preparation since the financial statements for the year ended 31 December 2014 and the year ended 31 December 2015.

2 Business segments

For management purposes, the Group is organised into five operating divisions: Construction & Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and Investments.  The divisions' activities are as follows:

·    Construction & Infrastructure: offers design, construction and infrastructure services working on projects, and in frameworks and strategic alliances of all sizes across a broad range of markets including commercial, defence, education, energy, healthcare, industrial, leisure, retail, transport and water. The division's professional services business offers multi-disciplinary engineering and design consultancy services.

·    Fit Out: Overbury specialises in fit out and refurbishment projects, operating through multiple procurement routes. Morgan Lovell specialises in office design and build, providing an end-to-end service which includes workplace consultancy and furniture solutions.

·    Affordable Housing: Partnership Housing specialises in the delivery of mixed-tenure developments, building and developing homes for open market sale and for social/affordable rent; new build house contracting and planned maintenance. Property Services includes the division's response maintenance activities offering facilities management and planned and responsive repairs to social housing providers and public buildings.

·    Urban Regeneration: works with landowners and public sector partners to unlock value from under-developed assets to bring about sustainable regeneration and urban renewal through the delivery of new mixed-use communities.  Typically creates commercial, retail, residential, leisure and public realm facilities.

·    Investments: creates long-term strategic partnerships to realise the potential of under-utilised property assets, promotes sustained economic growth through regeneration and drives cost efficiencies through innovative and integrated estate management solutions. The division covers a wide range of markets including asset backed, education, healthcare and social care, residential, student accommodation, leisure and infrastructure.

Group Activities represents costs and income arising from corporate activities which cannot be meaningfully allocated to the operating segments. These include costs such as treasury management, corporate tax coordination, insurance management, company secretarial services, interest revenue and interest expense. The divisions are the basis on which the Group reports its segmental information as presented below:

2015
	Construction & Infrastructure		Fit Out	Affordable Housing		Urban Regeneration		Investments	Group Activities		Eliminations		Total
	£m		£m	£m		£m		£m	£m		£m		£m
External revenue	1,230.5		606.2	424.5		110.4		13.1	-		-		2,384.7
Inter-segment revenue	1.9		0.4	1.3		-		-	-		(3.6)		-
Total revenue	1,232.4		606.6	425.8		110.4		13.1	-		(3.6)		2,384.7
Operating profit/(loss) before amortisation of intangible assets and exceptional operating items	3.8		24.0	8.6		12.9		(1.5)	(9.0)		-		38.8
Amortisation of intangible assets	-		-	(0.6)		(1.6)		-	-		-		(2.2)
Exceptional operating items	(46.9)		-	-		-		-	-		-		(46.9)
Operating profit/(loss)	(43.1)		24.0	8.0		11.3		(1.5)	(9.0)		-		(10.3)
2014
	Construction & Infrastructure	Fit Out			Affordable Housing		Urban Regeneration	Investments	Group Activities	Eliminations		Total
	£m	£m			£m		£m	£m	£m	£m		£m
External revenue	1,159.0	503.6			419.6		112.7	24.9	-	-		2,219.8
Inter-segment revenue	12.7	3.3			3.0		-	-	-	(19.0)		-
Total revenue	1,171.7	506.9			422.6		112.7	24.9	-	(19.0)		2,219.8
Operating profit/(loss) before amortisation of intangible assets and exceptional operating items	3.5	15.0			6.0		10.0	0.9	(6.5)	-		28.9
Amortisation of intangible assets	-	-			(0.6)		(1.8)	-	-	-		(2.4)
Operating profit/(loss)	3.5	15.0			5.4		8.2	0.9	(6.5)	-		26.5

During the year ended 31 December 2015 and the year ended 31 December 2014, inter-segment sales were charged at prevailing market prices and significantly all of the Group's operations were carried out in the UK.

3 Exceptional operating items

		2015	2014
		£m	£m
Impairment of trade and other receivables in relation to two old construction contracts		46.9	-

The exceptional operating item relates to the impairment of trade and other receivables on two construction contracts identified in 2013, both of which were transferred as part of the acquisition of the design and project services division of Amec in 2007.  Both contracts have the Secretary of State for Defence as the overall employing party. One contract relates to the design and construction of a floating jetty, the other to the design and construction of living accommodation and infrastructure, both around the Faslane Naval Base in West Scotland.

Commercial resolution has been achieved on one of these contracts, whilst on the other the Board has assessed its options to recover amounts, looking at a range of potential likely outcomes from pursuing legal and/or commercial settlement routes. Based upon this assessment and taking into account the risks and costs associated with pursuing legal remedies, the exceptional item of £46.9m has been charged.   The exceptional item is non-cash in nature.

4 Tax

		2015	2014
		£m	£m
Current tax (credit)/expense:
Corporation tax		0.3	3.4
Adjustment in respect of prior years		(0.4)	0.9
		(0.1)	4.3
Deferred tax (credit)/expense:
Current year		(4.7)	0.8
Adjustment in respect of prior years		-	(0.3)
		(4.7)	0.5
Income tax (credit)/expense for the year		(4.8)	4.8

Corporation tax is calculated at 20.25% (2014: 21.5%) of the estimated assessable (loss)/profit for the year.

After exceptional items the Group has recognised a net loss for the year. This loss has resulted in tax losses carried forward. As the Group expects to generate profits in subsequent years capable of being offset against these carried forward tax losses, a deferred tax asset has been recognised in respect of the tax losses.  The table below reconciles the tax charge for the year to tax at the UK statutory rate:

		2015	2014
Current tax expense:		£m	£m
(Loss)/profit before tax		(14.8)	22.8
Less: post tax share of profits from joint ventures		(9.6)	(6.3)
		(24.4)	16.5
UK corporation tax rate		20.25%	21.50%
Income tax (credit)/expense at UK corporation tax rate		(4.9)	3.5
Tax effect of:
Gain on disposal of joint ventures not giving rise to a tax liability		-	(0.4)
Non-taxable income and expenses		0.2	(0.2)
Tax liability upon joint venture profits1		1.7	1.1
Adjustments in respect of prior years		(0.4)	0.6
Expected forthcoming change in tax rates upon deferred tax balance		(1.7)	-
Other		0.3	0.2
Income tax (credit)/expense for the year		(4.8)	4.8

¹ Certain of the Group's joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.

5 Dividends

Amounts recognised as distributions to equity holders in the year:
	2015	2014
	£m	£m
Final dividend for the year ended 31 December 2014 of 15.0p per share	6.5	-
Final dividend for the year ended 31 December 2013 of 15.0p per share	-	6.4
Interim dividend for the year ended 31 December 2015 of 12.0p per share	5.3	-
Interim dividend for the year ended 31 December 2014 of 12.0p per share	-	5.1
	11.8	11.5

The proposed final dividend for the year ended 31 December 2015 of 17.0p per share is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

6 Earnings per share

		2015	2014
		£m	£m
(Loss)/profit attributable to the owners of the Company		(9.9)	18.1
Adjustments:
Exceptional operating items net of tax		37.4	-
Amortisation of intangible assets net of tax		1.8	1.9
Deferred tax credit arising due to change in UK corporation tax rates		(1.7)	-
Adjusted earnings		27.6	20.0
Basic weighted average ordinary shares (m)		43.8	42.8
Dilutive effect of share options and conditional shares not vested (m)		0.6	0.7
Diluted weighted average ordinary shares (m)		44.4	43.5
Basic (loss)/earnings per share		(22.6p)	42.3p
Diluted (loss)/earnings per share		(22.3p)	41.6p
Adjusted earnings per share		63.0p	46.7p
Diluted adjusted earnings per share		62.2p	46.0p

The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options and long-term incentive plan shares was based on quoted market prices for the year that the options were outstanding. The weighted average share price for the year was £7.66 (2014: £7.70).

A total of 1,174,560 share options that could potentially dilute earnings per share in the future were excluded from the above calculations because they were anti-dilutive at 31 December 2015 (2014: 268,056).

7 Shared equity loan receivables

		2015	2014
		£m	£m
1 January		20.4	19.7
Net change in fair value recognised in the income statement		1.4	1.8
Repayments		(1.5)	(1.1)
31 December		20.3	20.4

Basis of valuation and assumptions made

There is no directly observable fair value for individual loans arising from the sale of specific properties under the scheme, and therefore the Group has developed a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases, expected loan defaults and a discount factor which reflects the interest rate expected on an instrument of similar risk and duration in the market.  Details of the key assumptions made in this valuation are as follows:

		2015	2014
Assumption
Period over which shared equity loan receivables are discounted:
First Buy and Home Buy schemes		20 years	20 years
Other schemes		9 years	9 years
Nominal discount rate		6.6%	6.7%
Weighted average nominal annual property price increase		2.8%	3.2%
Forecast default rate		2.0%	2.0%
Number of loans under the shared equity scheme outstanding at the year end		669	709

Sensitivity analysis

At 31 December 2015, if the nominal discount rate had been 100bps higher at 7.6% and all other variables were held constant, the fair value of the shared equity loan receivables would decrease by £0.7m with a corresponding reduction in both the result for the period and equity (excluding the effects of tax).

At 31 December 2015, if the period over which the shared equity loan receivables (excluding those relating to the First Buy and Home Buy schemes) are discounted had been 10 years and all other variables were held constant, the fair value of the shared equity loan receivables would decrease by £0.7m with a corresponding reduction in both the result for the period and equity (excluding the effects of tax).

8 Trade and other receivables

		2015	2014
		£m	£m
Amounts due from construction contract customers		166.1	241.5
Trade receivables		170.0	176.7
Amounts owed by joint ventures		0.8	3.3
Prepayments		10.1	11.9
Other receivables		6.6	9.0
		353.6	442.4

9 Net cash

		2015	2014
		£m	£m
Cash and cash equivalents		115.7	87.6
Non-recourse project financing due in less than one year		(12.8)	-
Borrowings due between two and five years		(45.0)	(15.0)
Non-recourse project financing due after more than one year		-	(16.9)
Net cash		57.9	55.7

Borrowings of £45.0m (2014: £15.0m) were drawn down under the Group's committed bank loan facilities.  Additional project finance borrowings of £12.8m (2014: £16.9m) were drawn from separate facilities to fund specific projects.  These project finance borrowings are without recourse to the remainder of the Group's assets.

10 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.  All were on an arm's length basis.

Trading transactions

During the year, Group companies entered into transactions to provide construction and property development services with related parties, all of which were joint ventures, not members of the Group.  Transactions and amounts owed at the year end in relation to joint ventures are as follows:

		Provision of goods and services		Amounts owed by/(to) related parties
		2015	2014	2015	2014
Joint venture		£m	£m	£m	£m
Ashton Moss Developments Limited		-	-	(0.2)	(0.1)
Claymore Roads (Holdings) Limited		0.1	0.1	-	0.1
ECf (General Partner) Limited		1.9	2.4	-	-
HB Community Solutions Limited		1.7	1.9	-	-
HB Villages Development Limited		-	0.2	-	0.2
HB Villages Limited		1.2	0.3	0.4	0.3
HB Villages Tranche 2 Limited		-	0.2	-	0.2
hub West Scotland Projectco 1 Limited		0.2	0.1	-	-
Hull Esteem Consortium PSP Limited		-	4.1	-	-
Leyton Mount Development LLP		1.0	12.5	-	1.9
PSBP NW Holdco Limited		1.5	-	-	-
PSBP NW ProjectCo Limited		26.7	-	-	-
Slough Regeneration Partnership Community Projects LLP		12.1	6.6	-	0.1
St Andrews Brae Developments Limited		-	-	-	0.1
STRIDE LLP		-	-	0.3	-
The Bournemouth Development Company LLP		0.1	0.4	-	0.1
The Compendium Group Limited		5.8	7.0	-	-
Wapping Wharf (Alpha) LLP		0.2	0.2	-	0.1
WellSpring Partnership Limited		1.3	0.9	0.1	0.1
		53.8	36.9	0.6	3.1

		Amounts owed by/(to) related parties
		2015	2014
		£m	£m
Amounts owed by related parties (note 8)		0.8	3.3
Amounts owed to related parties (note 11)		(0.2)	(0.2)
		0.6	3.1

Remuneration of key management personnel

The Group considers key management personnel to be the members of the group management team, and sets out below in aggregate, remuneration for each of the categories specified in IAS 24 'Related Party Disclosures'.

		2015	2014
		£m	£m
Short-term employee benefits		7.5	4.6
Post-employment benefits		0.3	0.4
Termination benefits		-	0.5
Share option expense		1.2	0.4
		9.0	5.9

Directors' transactions

There have been no related party transactions with any director in the year or in the subsequent period to 23 February 2016.

Directors' material interests in contracts with the Company

No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent period to 23 February 2016.

11 Trade and other payables

		2015	2014
		£m	£m
Trade payables		161.5	167.7
Amounts due to construction contract customers		53.9	48.9
Amounts owed to joint ventures		0.2	0.2
Other tax and social security		33.2	17.0
Accrued expenses		396.2	429.2
Deferred income		4.5	8.6
Other payables		25.0	18.5
		674.5	690.1

Current and non-current other payables include £7.0m and £7.0m respectively (2014 £nil and £13.6m) related to the discounted deferred consideration due on the acquisition of an additional interest in ISIS Waterside Regeneration Partnership.

12 Contingent liabilities

Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating companies in the Group.  There are contingent liabilities in respect of surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.

13 Subsequent events

There were no subsequent events that affected the financial statements of the Group.

The responsibility statement below has been prepared in connection with the Company's annual report and accounts for the year ended 31 December 2015.  Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

1.     The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

2.     The strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and

3.     The annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

This responsibility statement was approved by the Board on 23 February 2016

and is signed on its behalf by:

John Morgan                           Steve Crummett

Chief Executive                       Finance Director

 

END

 

 

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