Final Results
Morgan Sindall PLC
22 February 2006
MORGAN SINDALL plc
('Morgan Sindall' or 'the Group')
Preliminary Results for the year ended 31 December 2005
Morgan Sindall today announces record preliminary results for the year to 31
December 2005.
2005 2004
Revenue £1,296.7m £1,219.3m + 6%
Profit before tax £41.7m £33.8m + 23%
Basic earnings per share 70.74p 57.61p + 23%
Diluted earnings per share 68.83p 56.54p + 22%
Total dividend per share 25.00p 18.50p + 35%
Group Highlights
• Affordable Housing and Fit Out divisions underpin another strong
performance from the Group
• Overall margin increased to 3.2% (2004: 2.8%)
• Profit before tax includes £1.4m (2004: £2.5m) joint venture
revaluation gain on change to IFRS
• Forward order book increased to £2.80bn (2004: £2.26bn)
• Cash at bank £72.0m (2004: £73.4m)
Divisional Highlights
Fit Out
• Record operating profit £16.4m (2004: £11.2m) with margin rising to
5.1% (2004: 4.5%)
• Geographic expansion in Birmingham and Manchester delivering results
• Forward order book increased to £134m (2004: £98m)
Construction
• Operating profit increased to £3.2m (2004: £1.3m) with margin
doubled to 1%
• Order book £504m (2004: £197m)
• 2 NHS LIFT contracts secured in period
Infrastructure Services
• Reduced operating profit of £6.0m (2004: £7.8m) on anticipated
reduced revenue of £248m (2004: £332m)
• Margin maintained
• Record forward order book of £824m (2004: £626m)
Affordable Housing
• Record performance with operating profit of £18.7m (2004: £13.4m)
with margin rising to 4.8% (2004: 3.7%)
• Strong position in market with particular expertise in mixed tenure
schemes
• Order book of £1.34bn over next ten years (2004: £1.34bn)
John Morgan, Executive Chairman, commented:
'We entered 2005 in good shape. We are now in even better shape and are excited
by our prospects for the coming year.'
22 February 2006
ENQUIRIES:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
College Hill Tel: 020 7457 2020
Alex Walters
Matthew Smallwood
Preliminary Statement
We are pleased to announce another set of record results. In 2005 profit before
tax increased by 23% to £41.7m (2004: £33.8m) on revenue that increased by 6% to
£1.30bn (2004: £1.22bn). Earnings per share increased by 23% to 70.7p (2004:
57.6p). Accordingly the Board recommends an increase in the final dividend to
18.0p (2004: 13.3p) giving a total for the year of 25.0p (2004: 18.5p).
This strong performance was achieved through our strategy of creating and
developing leading positions in our chosen market sectors. In particular, Fit
Out and Affordable Housing grew strongly through the year while Construction
also made good progress. Meanwhile, the profit margin was maintained by
Infrastructure Services despite its expected reduction in workload. Our overall
margin increased to 3.2% (2004: 2.8%) as we continued our focus on margin
improvement. Cash balances have been maintained at a time when the Group
continues to invest resources in the growth of the Affordable Housing division.
Outlook
Morgan Sindall has begun 2006 in an excellent position. The order book now
stands at £2.80bn against £2.26bn last year and we anticipate further strong
growth in the fit out and affordable housing markets in particular.
In 2006 Fit Out will further develop its geographic coverage; its larger scale
office fit out projects; and its work in the hotel, retail, leisure and
entertainment sectors. The Construction division will continue its focus on the
health and education sectors where significant investment continues to be made
by the Government. Infrastructure Services' workload in the utilities sector
will increase as a result of a number of large contracts secured during 2005,
although we expect the civil engineering market to remain subdued. Finally, the
outlook for Affordable Housing remains very positive with strong market growth
expected to continue in the medium term.
Overall, we are very excited by the Group's outlook and prospects and look
forward to reporting on further developments as the year progresses.
Operating and Financial Review
Operating Review
It should be noted that all figures and their comparatives are presented on the
basis of applying International Financial Reporting Standards ('IFRS').
In 2005 profit before tax increased by 23% to £41.7m (2004: £33.8m) on revenue
that increased by 6% to £1.30bn (2004: £1.22bn). Earnings per share increased
by 23% to 70.7p (2004: 57.6p). Accordingly the Board recommends an increase in
the final dividend to 18.0p (2004: 13.3p) giving a total for the year of 25.0p
(2004: 18.5p).
Cash at the year end was maintained at £72.0m (2004: £73.4m) with the average
cash balance during the year at a level higher than the previous year. This
reflects investment in work in progress by the Affordable Housing division
offset by working capital improvements elsewhere in the Group.
The forward order book increased to £2.80bn (2004: £2.26bn) reflecting growth,
in particular, in the Infrastructure Services and Construction divisions.
Divisional performance
Fit Out
The Fit Out division provides fit out, refurbishment and furniture services to
the commercial property, hotel, retail, leisure and entertainment sectors. It
operates through four businesses, namely Overbury, Morgan Lovell, Vivid
Interiors and Backbone Furniture. Overbury (£269m revenue) is the largest
business and is focused solely on the commercial property sector where its blue
chip client base employs its own professional teams of architects and project
managers. This contrasts with Morgan Lovell (£42m revenue) whose focus is also
on the commercial property sector but through the provision of both design and
build services. Morgan Lovell's approach involves working more closely with the
client on the development of the design solution as well as delivery of the
project. Its clients tend to be small and medium size enterprises and its
typical project would be smaller than that delivered by Overbury. Vivid
Interiors (£11m revenue) was established in 2002 and works in the hotel, retail,
leisure and entertainment sectors. Backbone Furniture (£1m revenue) provides
innovative commercial furniture solutions. The division's offices cover London,
the South East, the Midlands and the North of England.
In 2005 Fit Out had an excellent year with operating profit of £16.4m (2004:
£11.2m) on revenue of £323m (2004: £252m) achieving an operating margin of 5.1%
(2004: 4.5%) which is above average historic levels of 4.5%.
The division's growth in 2005 was due to further market penetration by Overbury
as well as steady improvement in the commercial property market. The geographic
expansion started at the end of 2004 continues to be successful with the offices
in Manchester and Birmingham making a positive contribution.
The division starts the year with a forward order book which has increased to
£134m (2004: £98m). Its priorities for 2006 are further geographic expansion,
developing its larger project capability and the growth of Vivid Interiors.
Construction
Construction's business, Bluestone, has national coverage in England and Wales
and operates through seven regions and a network of 25 local offices. It has
the capability to deliver projects up to £20m in value. It focuses on the
health, education and light industrial sectors and primarily delivers through
negotiated and framework contracts. This has helped it to move away from and
reduce the inherent risks associated with competitively tendered contracts. In
addition it provides smaller scale repeat works to a number of key clients
across the country.
Bluestone's focus continues to underpin a steady improvement in the division's
performance. In 2005 Bluestone increased its operating profit significantly to
£3.2m (2004: £1.3m) on revenue of £336m (2004: £271m) with the operating margin
doubling to 1.0% (2004: 0.5%).
During the year the division secured two further NHS LIFTs ('Local Improvement
Finance Trust') in South East Hampshire and Doncaster bringing the total to
four. NHS LIFTs are partnerships between the public and private sectors with
the aim of delivering primary health and social care facilities in defined areas
for a period of typically 25 years. The division also made progress in securing
further workload in its chosen sectors, which now comprise around two thirds of
its total revenue. It has also increased the amount of work delivered through
key client, negotiated and framework contracts, which is now around 50% of total
revenue compared to half that four years ago.
In December 2004 the division acquired the trade of three offices from Benson
Limited. This acquisition is now fully integrated and has been earnings
enhancing in 2005.
Bluestone starts 2006 with a forward order book of £504m compared to £197m a
year ago. The order book has strengthened significantly due to the securing of
further framework and investment led opportunities. The focus for the division
continues to be on margin improvement and on developing its offering to its
chosen sectors.
Infrastructure Services
Infrastructure Services operates through Morgan Est and is a leading provider of
civil engineering and utilities solutions to the water, gas, electricity and
transport sectors. The division is based in Rugby and has offices providing
services across the United Kingdom aligned with its client and project
commitments.
In 2005 the division delivered an operating profit of £6.0m (2004: £7.8m) on an
anticipated reduced revenue of £248m (2004: £332m). Margin has been maintained
at 2.4% which is consistent with historic levels of 2.0% to 2.5%.
During 2005 the division has commenced major utility framework contracts,
including a water and electricity contract with United Utilities in the North
West (anticipated to be worth £450m over five years) and a gas utility contract
with National Grid in the Midlands (anticipated to be worth £320m over eight
years).
The division begins the year with a record forward order book of £824m (2004:
£626m) and has secured two major civil engineering contracts at King's Cross for
Metronet and at Croydon for National Grid. Despite a subdued civil engineering
market the outlook for the division is improving and it is anticipated that this
year's performance will be broadly similar to that achieved in 2005, but
improving thereafter when the benefits of recent contract wins are fully
realised.
Affordable Housing
The Affordable Housing division operates through Lovell and is the UK's leading
provider of affordable housing. The division delivers new build social housing,
new build open market housing and refurbishment for complex regeneration schemes
by working closely with local authorities, arms length management organisations
and housing associations. Lovell's particular expertise is in mixed tenure
developments which combine new homes for public ownership as well as open market
properties for sale and may also include refurbishment of existing properties
within a development.
The division achieved another record result in 2005 with an operating profit of
£18.7m (2004: £13.4m) on an increased revenue of £390m (2004: £364m). The
division has again performed strongly in a market that continues to expand,
driven by the Government's affordable housing priorities. In particular Lovell
has seen significant expansion of its refurbishment operations, which now
account for around half its revenue. Refurbishments are typically large schemes
encompassing improvements to kitchens, bathrooms, building exteriors and public
areas.
Lovell begins 2006 with a forward order book of £1.34bn stretching out over the
next 10 years. The Government's Decent Homes Standard programme is expected to
continue beyond the target date of 2010 and the shortage of affordable housing
continues to grow, which provides a very positive outlook for the division.
Financial review
Revenue and operating profit
Revenue increased by 6% to £1.30bn (2004: £1.22bn). The increase was due to Fit
Out up 28% to £323m, Construction up 24% to £336m and Affordable Housing up 7%
to £390m. This growth is offset by a reduction in revenue of 25% at
Infrastructure Services to £248m.
Group operating profit was up 21% to £39.9m (2004: £32.9m). This improvement
was due to strong growth at Affordable Housing and Fit Out with progress also
made by Construction, offset by an anticipated reduction in profit at
Infrastructure Services. Fit Out increased its operating profit by 46% to
£16.4m (2004: £11.2m) and Affordable Housing by 39% to £18.7m (2004: £13.4m).
Construction more than doubled its operating profit taking it to £3.2m (2004:
£1.3m). Infrastructure Services' operating profit reduced in line with revenue
to £6.0m (2004: £7.8m). The cost of Group activities was £4.8m (2004: £3.7m)
reflecting growth in headcount and operating costs. The share of results of
joint ventures was £0.4m (2004: £2.8m).
Profit before and after tax
Profit before tax of £41.7m was 23% ahead of last year's £33.8m. This includes
net interest of £1.8m (2004: £0.8m) reflecting a strong average cash performance
during the year.
Profit after tax was £29.6m (2004: £24.0m). The tax charge was £12.1m (2004:
£9.7m) giving an effective tax rate of 29%.
Earnings per share and dividends
Basic earnings per share have increased by 23% to 70.7p (2004: 57.6p). The
final dividend is proposed at 18.0p (2004: 13.3p) giving a total dividend for
the year of 25.0p up 35% on last year (2004: 18.5p). Earnings cover the
dividend 2.8 times (2004: 3.1 times).
Equity and capital structure
Equity has increased to £116.6m (2004: £98.2m). The number of shares in issue
at 31 December 2005 was 42.3m. The increase of 169,000 shares is due to the
exercise of options under employee share option schemes. There were no other
new issues during the year.
At 31 December 2005 the directors held interests over 18% of the shares of the
Company and further details will be disclosed in the report of the directors in
the 2005 report and accounts.
Cash flow and treasury
Net cash from operating activities was £14.5m (2004: £70.3m). Capital
expenditure was £4.7m (2004: £4.3m) and payments to acquire interests in joint
ventures were £6.2m (2004: nil) reflecting ongoing investment in the business.
After payments for tax, dividends and servicing of finance the net decrease in
cash and cash equivalents was £1.4m resulting in a year end balance of £72.0m.
It is anticipated that these resources will be made available for the continued
growth of the Group's businesses, particularly Affordable Housing.
In addition to its cash resources the Group has a £25m three year revolving
facility available until June 2006 and a £30m overdraft facility with its main
clearing bankers, which is reviewed annually. Banking facilities are subject to
normal financial covenants, all of which have been met in the year.
The Group has established treasury policies setting out clear guidelines as to
the use of counterparties and the maximum period of borrowings and deposits.
Deposits are for periods of no longer than three months and are at rates
prevailing on the day of the transaction. The Group has no exposure to foreign
exchange risk because its operations are based solely in the United Kingdom.
Although the Group does not use derivatives, some of our joint venture
businesses use interest rate swaps to hedge floating interest rate exposures.
These arrangements meet the hedging rules under International Accounting
Standard 39 and hence the Group's share of the movement on these derivatives is
accounted for as a movement on reserves. The hedging reserve at 31 December
2005 was £2.2m. Overall, the Group considers that its exposure to interest rate
movements is appropriately managed.
Consolidated income statement (unaudited)
For the year ended 31 December 2005
Notes 2005 2004
£'000s £'000s
Continuing operations
Revenue 1 1,296,708 1,219,297
Cost of sales (1,154,118) (1,095,932)
Gross profit 142,590 123,365
Administrative expenses (103,109) (93,227)
Share of results of joint ventures 425 2,810
Operating profit 1 39,906 32,948
Investment revenues 3,661 3,235
Finance costs (1,867) (2,413)
Profit before tax 41,700 33,770
Tax 2 (12,125) (9,736)
Profit for the year from continuing operations attributable
to equity holders of the parent company 29,575 24,034
Earnings per share
From continuing operations
Basic 4 70.74p 57.61p
Diluted 4 68.83p 56.54p
There are no discontinued activities in either the current or preceding year.
Consolidated balance sheet (unaudited)
At 31 December 2005
2005 2004
£'000s £'000s
Non current assets
Property, plant and equipment 16,403 14,890
Goodwill 56,729 55,961
Interests in joint ventures 10,881 6,840
Investments 103 103
Deferred tax 2,485 1,512
86,601 79,306
Current assets
Inventories 87,571 60,817
Trade and other receivables 235,056 203,093
Cash and cash equivalents 72,018 73,447
394,645 337,357
Total assets 481,246 416,663
Current liabilities
Trade and other payables (352,156) (308,517)
Current tax liabilities (6,295) (5,572)
Obligations under finance leases (766) (483)
(359,217) (314,572)
Net current assets 35,428 22,785
Non current liabilities
Retirement benefit obligation (3,351) (2,225)
Obligations under finance leases (2,059) (1,707)
(5,410) (3,932)
Total liabilities (364,627) (318,504)
Net assets 116,619 98,159
Equity
Share capital 2,116 2,107
Share premium account 26,014 25,679
Capital redemption reserve 623 623
Own shares (1,775) (993)
Equity reserve 1,052 39
Hedging reserve (2,238) -
Retained earnings 90,827 70,704
Total equity 116,619 98,159
Consolidated statement of recognised income and expense (unaudited)
For year ended 31 December 2005
2005 2004
£'000s £'000s
Actuarial losses on defined pension schemes (1,284) (1,493)
Tax on items taken directly to equity 312 448
Transferred to the initial carrying amount of hedged items
on cash flow hedges (2,238) -
Net expense recognised directly in equity (3,210) (1,045)
Profit for the year from continuing operations 29,575 24,034
Total recognised income and expense for the year attributable to 26,365 22,989
equity shareholders
Consolidated cash flow statement (unaudited)
For the year ended 31 December 2005
Notes 2005 2004
£'000s £'000s
Net cash from operating activities 5 14,477 70,290
Investing activities
Interest received 3,686 3,217
Dividends received from joint ventures 336 335
Proceeds on disposal of property, plant and equipment 1,433 501
Purchases of property, plant and equipment (4,680) (4,296)
Payments to acquire interest in joint ventures (6,190) -
Acquisition of business - (3,409)
Net cash used in investing activities (5,415) (3,652)
Financing activities
Payments to acquire own shares (782) (48)
Dividends paid (8,459) (7,099)
Repayments of obligations under finance leases (1,354) (951)
Repayment of loan notes (240) -
Proceeds on issue of share capital 344 294
Net cash used in financing activities (10,491) (7,804)
Net (decrease)/increase in cash and cash equivalents (1,429) 58,834
Cash and cash equivalents at beginning of year 73,447 14,613
Cash and cash equivalents at end of year
Bank balances and cash 72,018 73,447
Notes (unaudited)
For the year ended 31 December 2005
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:
2005 2004
Revenue Operating Revenue Operating
profit/(loss) profit/(loss)
£'000s £'000s £'000s £'000s
Fit Out 322,618 16,398 251,594 11,238
Construction 335,750 3,214 271,113 1,301
Infrastructure Services 247,938 5,974 332,283 7,841
Affordable Housing 390,402 18,682 364,307 13,445
Group activities - (4,787) - (3,687)
1,296,708 39,481 1,219,297 30,138
Share of results of joint ventures 425 2,810
Operating profit 39,906 32,948
Investment revenues 3,661 3,235
Finance costs (1,867) (2,413)
Profit before tax 41,700 33,770
Tax (12,125) (9,736)
Profit for the year from 29,575 24,034
continuing operations
Other information:
2005 2004
Capital Depreciation Capital Depreciation
additions additions
£'000s £'000s £'000s £'000s
Fit Out 1,050 543 631 481
Construction 1,349 1,250 962 608
Infrastructure Services 3,096 1,841 2,089 1,682
Affordable Housing 408 338 126 374
Group activities 629 533 1,693 320
6,532 4,505 5,501 3,465
Balance sheet analysis of business segments:
2005 2004
Assets Liabilities Net Assets Liabilities Net assets
assets
£'000s £'000s £'000s £'000s £'000s £'000s
Fit Out 97,397 (78,937) 18,460 71,318 (58,825) 12,493
Construction 117,544 (83,228) 34,316 105,751 (74,087) 31,664
Infrastructure Services 118,124 (71,827) 46,297 122,584 (78,030) 44,554
Affordable Housing 149,697 (124,940) 24,757 126,682 (104,070) 22,612
Group activities 30,404 (37,615) (7,211) 31,368 (44,532) (13,164)
Group eliminations (31,920) 31,920 - (41,040) 41,040 -
481,246 (364,627) 116,619 416,663 (318,504) 98,159
All the Group's operations are carried out in the United Kingdom and the Channel
Islands
2. Tax
2005 2004
£'000s £'000s
Current tax:
UK corporation tax 12,241 9,822
Adjustment in respect of prior years 140 (302)
12,381 9,520
Deferred tax:
Current year (214) 216
Adjustment in respect of prior years (42) -
Income tax expense for the year 12,125 9,736
Corporation tax is calculated at 30% (2004: 30%) of the estimated assessable
profit for the year.
The charge for the year can be reconciled to the profit per the income statement
as follows:
2005 2004
£'000s % £'000s %
Profit before tax 41,700 33,770
Income tax expense at standard rate 12,510 30.0 10,131 30.0
Tax effect of:
Share of results of associates (128) (0.3) (843) (2.5)
Expenses that are not deductible in determining taxable 708 2.1
profits
107 0.3
Utilisation of tax losses not previously recognised (462) (1.1) - 0.0
Adjustments in respect of prior years 98 0.2 (260) (0.8)
Income tax expense and effective tax rate for the year 12,125 29.1 9,736 28.8
The total amount of deferred tax assets that are not recognised in the financial
statements in relation to losses carried forward amount to £402,000 (2004:
£706,000) due to the uncertainty of the availability of future profits against
which the losses can be recovered.
3. Dividends
2005 2004
£'000s £'000s
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2004 of 13.25p 5,551 4,824
(2003: 11.75p) per share.
Interim dividend for the year ended 31 December 2005 of 7.00p 2,929 2,188
(2004: 5.25p) per share.
8,480 7,012
Proposed final dividend for the year ended 31 December 2005 of 18.00p (2004: 7,617 5,551
13.25p) per share.
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 5 May 2006 to shareholders on
the register at 7 April 2006. The ex-dividend date is 5 April 2006.
4. Earnings per share
From continuing and discontinued operations
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
2005 2004
£'000s £'000s
Earnings for the purposes of basic and dilutive earnings per share being 29,575 24,034
net profit attributable to equity holders of the parent company
Number of shares
2005 2004
'000s '000s
Weighted average number of ordinary shares for the purposes of basic 41,810 41,718
earnings per share
Effect of dilutive potential ordinary shares:
Share options 893 597
Long Term Incentive Plan shares 265 191
Weighted average number of ordinary shares for the purposes of diluted 42,968 42,506
earnings per share
5. Reconciliation of operating profit to net cash from operating
activities
2005 2004
£'000s £'000s
Operating profit 39,906 32,948
Adjusted for:
Share of results of joint ventures (425) (2,810)
Depreciation of property, plant and equipment 4,505 3,465
Expense in respect of share options 589 33
Defined benefit pension payment (240) -
Defined benefit pension charge/(credit) 82 (4)
(Gain)/loss on disposal of property, plant and equipment (919) 20
Operating cash flows before movements in working capital 43,498 33,652
(Increase)/decrease in inventories (26,754) 4,594
Increase in receivables (31,969) (5,784)
Increase in payables 43,118 46,271
Cash generated from operations 27,893 78,733
Income taxes paid (11,658) (6,134)
Interest paid (1,758) (2,309)
Net cash from operating activities 14,477 70,290
Additions to plant, property and equipment during the year amounting to £1.3m
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 2005 interim report and the financial statements for the year ended 31
December 2005. While the financial information included in this preliminary
announcement has been computed in accordance with International Financial
Reporting Standards ('IFRS') including the restatement of the 2004 comparatives,
this announcement does not itself contain sufficient information to comply with
IFRS. The Company intends to publish full financial statements that comply with
IFRS.
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2005 or 2004. The
financial statements for the year ended 31 December 2004 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 2005 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 2005 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 2006 and will be delivered to the Registrar of Companies following the
Company's annual general meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
Monday, 20th May 2024
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