Half Yearly Report

RNS Number : 1196X

Morgan Sindall PLC

10 August 2009

 



10th August 2009

MORGAN SINDALL plc

('Morgan Sindall' or 'the Group')

Half yearly financial report for the six months to 30 June 2009

Morgan Sindall plc, the construction and regeneration group, today announces half year results.

	2009	2008
Revenue	£1.14bn	£1.24bn	-8%
Adjusted profit before tax¹	£23.9m	£33.1m	-28%
Profit before tax	£20.5m	£28.6m	-28%
Cash balance	£89m	£98m	-10%
Adjusted basic earnings per share¹	42.6p	60.9p	-30%
Basic earnings per share	34.6p	50.1p	-31%
Interim dividend per share	12.0p	12.0p	n/c

¹ Adjusted for amortisation of intangible assets

Group Highlights

• Solid results, in line with management's expectations, despite challenging market conditions

• Improved performance and contribution from Construction and Infrastructure Services divisions, bringing further balance to the Group 

• Financially robust, with strong net cash position and renewed banking facilities

• Well positioned to benefit from opportunities the market will present

John Morgan, Executive Chairman, commented:

'While the construction industry will face challenging trading conditions in the short term, we are in good shape and will emerge from the downturn a much stronger business.  Operationally and financially we are well set to take advantage of the opportunities for further growth that will arise in our chosen markets.

'We are confident of meeting our expectations for 2009.'

Divisional highlights

Fit Out

• Resilient performance in extremely challenging market conditions

• Operating profit of £7.4m (2008: £11.5m) on revenue of £160m (2008: £205m)

• Margin at 4.6% (2008: 5.6%)

• Broad sector spread, with robust demand from telecoms, technology and pharmaceutical sectors

• Order book up on start of the year at £150m (2008: £220m)

• Tentative signs of improving market in the short term with delayed projects being re-tendered and growth of large contract tender pipeline  

  Construction

• Market remained reasonably robust, supported by strong public sector spend, particularly in education and health 

• Record operating profit of £5.7m (2008: £4.1m) on revenue of £378m (2008: £418m)

• Margin up to 1.5% (2008: 1.2%, prior to one-off costs relating to 2007 acquisition), driven by success of Perfect Delivery quality programme

• Division benefitting from increased scale and ability to deliver larger, more complex projects

• Healthy work flow from long term frameworks

• Order book at £696m (2008: £828m) with positive short term market outlook

Infrastructure Services

• Healthy market conditions driven by investment in water, energy, rail and air transport sectors

• Record operating profit of £9.3m (2008: £7.6m) on revenue of £419m (2008: £395m)

• Margin at 2.2% (2008: 2.3%, prior to one-off costs relating to 2007 acquisition)

• Order book at £1.4bn (2008: £1.8bn) and expected to rise during the second half of the year

• Positive market outlook with a number of significant infrastructure projects currently being tendered

Affordable Housing

• Sound performance in social new build and refurbishment offset by continuing subdued conditions in the open market

• Reservation rates in open market housing up 50% on corresponding period last year, although remain cautious on outlook

• Operating profit of £7.1m (2008: £8.8m) on revenue of £178m (2008: £176m)

• Margin at 4.0% (2008: 5.0%), reflecting conditions in open market sector  

• Launch of response maintenance business, to complement refurbishment activity

• Order book at £1.3bn (2008: £1.4bn)

• Outlook for social housing and refurbishment continues to be positive; sector remains a Government priority and additional funding from the Homes and Communities Agency recently announced

Urban Regeneration

• Division continues to secure major, long term schemes despite market conditions remaining challenging

• Revenue of £5m (2008: £45m) due to fall in demand for commercial property

• Operating loss of £1.1m (2008: profit of £5.6m) 

• Focus on adding further schemes and repositioning existing ones for medium term market recovery 

• Number of public sector opportunities in the short term

• Share of forward development pipeline improved to £1.6bn (2008: £1.1bn)

• Market expected to remain subdued into 2010, although mixed use development remains a major opportunity in the long term

Investments

• Division reported separately for the first time; comprises Group's PFI/PPP activities

• Strategy of selecting projects that match our competitive strengths in construction

• 12 projects across health, infrastructure, emergency services, affordable housing and leisure sectors plus portfolio of doctors' practices

• Relatively young portfolio with £19m committed investment, £36m directors' valuation

• Four projects at preferred bidder and shortlisted on further two projects

• Healthy pipeline of opportunities, Building Schools for the Future, social housing PFIs, Express LIFT and Hub Scotland

ENQUIRIES:
Morgan Sindall plc	Tel: [phone]
John Morgan, Executive Chairman
Paul Smith, Chief Executive
David Mulligan, Finance Director
Blythe Weigh Communications	Tel: [phone]
Tim Blythe	Mobile: [phone]
Paul Weigh	Mobile: [phone]

Morgan Sindall will hold its half yearly financial report presentation for analysts and institutional investors at 9.30am on 10 August 2009 at Kent House, 14-17 Market Place, London W1W 8AJ.

A copy of the presentation will be available from 10.30am at www.morgansindall.com/investors.

  Half yearly financial report for the six months to 30 June 2009

Half year report 

We are pleased to announce our results for the six months to 30 June 2009. Profit before tax and amortisation of intangible assets was £23.9m (2008: £33.1m) on revenue of £1.14bn (2008: £1.24bn). Adjusted earnings per share before amortisation were 42.6p (2008: 60.9p).

Profit before tax for the period (after amortisation of intangible assets) was £20.5m (2008: £28.6m). The Board has declared a maintained interim dividend of 12.0p (2008: 12.0p).

The Group is well placed to face the challenges currently presented by the construction and regeneration markets in which we operate. The acquisition we made in 2007 significantly enhanced the scope and scale of our Construction and Infrastructure Services divisions, providing us with stronger market positions from which we continue to realise benefits. The Group now has a much broader range of skills giving us the opportunity to secure larger and more complex projects and providing greater stability to our workloads. We have also broadened our sector spread across the construction market, which is providing the Group with increased resilience against the fall in demand for construction services the market is currently experiencing.

There have been some encouraging signs of improvement in the outlook for certain of our businesses, although overall, market conditions remain challenging and we continue to place an increased emphasis on cash and working capital management, cost reductions and supply chain improvements in each of our divisions.  Following a record six months in the second half of 2008 Fit Out has, as expected, faced a tougher market in the first half of this year.  There are, however, tentative signs of short term market improvement, with the pipeline of contracts we expect to tender in the second half of the year increasing significantly over the value tendered in the first six months of the year. The Construction division's market has been robust, underpinned by public spending, particularly in health and education, and the division has been successful in securing a number of major projects in recent weeks. Infrastructure Services continues to benefit from investment in the water, energy, rail and air transport sectors and is currently bidding for a number of significant infrastructure projects. Affordable Housing has benefitted from sustained demand for new build social housing and refurbishment services and has continued to secure a number of major projects in these sectors. Reservation rates for open market housing have improved by around 50% over the corresponding period last year, although house prices remain flat. With commercial property demand remaining weak, Urban Regeneration's market is subdued although the division has been successful in the first half of the year in securing two major regeneration schemes, which will provide growth for the division over the medium term.  

For the first time we disclose separately the results for our Investments division, which provides the project finance and investment management expertise for our PPP/PFI activities and investment portfolio. Further details of its activities are provided later in this report. The division has been successful in the first half of 2009 in achieving financial close on the Wigan Life Centre PFI valued at £187m and being appointed preferred bidder on the Tayside Acute Adult Mental Health Developments PPP. It continues to see a healthy pipeline of PPP/PFI opportunities.

The Group remains financially strong with net cash at 30 June 2009 of £89m (2008: £98m) and with average cash during the six months to 30 June 2009 of £21m (2008: £95m). Average cash levels have since improved to £26m at the end of July following milestones being achieved on two key projects in June and this upward trend in average cash is expected to continue through the second half of the year. In addition the Group recently renewed its £75m of committed bank facilities through to mid 2012.

The performance of each of the operating divisions for the six months to 30 June 2009 is set out below. Divisional operating profits are profit from operations stated before the amortisation of intangible assets.

  Fit Out

Fit Out produced a strong performance during the first half of 2009 given the extremely challenging market conditions it is currently facing. The division delivered an operating profit of £7.4m (2008: £11.5m) with an operating margin at 4.6% (2008: 5.6%) on revenue of £160m (2008: £205m). Although revenue fell by around a quarter, as expected, we estimate that the overall market fell by a greater extent, so it is our view that the division increased its market share and performed comparatively well in tough market conditions.

The division continues to benefit from its broad sector spread. Demand from the telecoms, technology and pharmaceutical sectors has been particularly strong while demand from financial services has, as expected, softened. The division has secured notable contracts during the first half of 2009 including £8m of projects under a framework for the BBC and a £7m fit out for Shire Pharmaceuticals in conjunction with its sister division, Construction, who are delivering the base build.  In addition, the division completed its largest project to date, the 350,000 sq. ft. fit out of new offices for a major UK bank.  

The order book at 30 June 2009 was £150m, an improvement on the start of the year, although down on the same stage last year (2008: £220m), which reflects the increasingly challenging market conditions the division has faced over the past six months.  There are, however, tentative signs of market improvement in the short term with the value of major projects we expect to tender in the second half of the year increasing to £220m, compared with a total value of £74m of tenders for the first half of the year. In addition, a number of previously delayed projects are being re-tendered, albeit in some cases with a reduced scope of work. These factors seem to indicate improving market conditions in the short term with a healthier pipeline of projects for 2010.

Construction

The Construction division delivered a record operating profit of £5.7m (2008: £4.1m) on revenue down on the same period last year of £378m (2008: £418m). The operating margin was 1.5% (2008: 1.2% prior to one-off costs relating to the 2007 acquisition) reflecting further progress in its Perfect Delivery quality programme. Overall the market has remained reasonably robust underpinned by public sector demand for education and health facilities.

The division has secured a number of notable contracts during the first half of the year demonstrating its enhanced design and construction capabilities and project expertise in sectors such as education, prisons, rail, defence and commercial. These include a factory for Airbus at Broughton valued at £71m, the third phase of works at HMP Perth valued at £20m and in the education sector projects at Reading University (£49m), University of Brighton (£18m) and two projects under the Liverpool Building Schools for the Future programme (£37m). The strength of workloads flowing from long term framework contracts remains important with frameworks continuing to deliver a healthy stream of projects. During the first half the division was appointed as one of 11 contractors to the Construction Framework South West, a four-year framework expected to deliver £500m of construction activity. This complements a similar framework secured in the south east of England, the Improvement & Efficiency South East ('IESE') framework delivering projects valued at around £20m per annum. Investment related business also remains important with the division working in close partnership with its sister division, Investments, to secure the Wigan Life Centre PFI, with the division delivering the construction of the centre valued at £50m. The quality of the division's delivery was also publicly recognised with the award of Best School Contractor at the British Council for School Environments Industry Awards 2009.

The division's order book at the end of June 2009 was £696m (2008: £828m), down in comparison to the start of the year. In addition to its order book the division has recently been appointed as preferred bidder on the £100m Tayside Acute Adult Mental Health Developments PPP. The division continues to see a healthy pipeline of opportunities with the outlook remaining positive in the short term, given the strength of public sector demand, although we remain cautious about prospects for 2011 and beyond. 

  Infrastructure Services

Infrastructure Services produced an improved performance with a record operating profit of £9.3m (2008: £7.6m) on revenue of £419m (2008: £395m).  The operating margin was 2.2% (2008: 2.3% prior to one-off costs relating to the 2007 acquisition). The infrastructure services market remains buoyant, supported by investment in the water, energy, rail and air transport sectors.

The division has been successful during the period in securing its first AMP5 utilities framework for Severn Trent in the water sector, valued at £250m over five years, with an option to extend the framework for a further five years. In the transport sector the division completed the Woolwich Arsenal extension to the Docklands Light Railway, which opened in January, and commenced construction work on the £209m A1 Dishforth to Barton southern section upgrade project in joint venture for the Highways Agency. The division continues to build its reputation for the delivery of complex projects in the water, energy and transport sectors.

The order book at the end of June was £1.4bn (2008: £1.8bn) consistent with the start of the year.  The division is particularly focused at this current time on bidding for a selection of major opportunities including a number of tunnelling projects as well as other AMP5 frameworks in the water sector. Consequently we are confident that the order book will rise over the second half of the year.

Affordable Housing

Affordable Housing produced a sound performance achieving an operating profit of £7.1m (2008: £8.8m) on revenue in line with the previous year of £178m (2008: £176m). As expected the operating margin softened to 4.0% (2008: 5.0%) reflecting the difficult market conditions for open market housing. Demand for refurbishment and new build social housing remains healthy and although open market house sales remain subdued, reservation rates over the first half of 2009 have improved by around 50% over those achieved during the same period last year. The division has addressed the challenges in open market housing by bulk selling stock to housing associations and by the introduction of shared equity arrangements.

The division continues to secure key refurbishment and new build social housing projects including a four-year, £20m housing improvement project for 3,000 homes for Wellingborough Homes in Northamptonshire, a four-year £24m refurbishment programme for Three Oaks Homes in Leicestershire and a place on the £150m development framework for Syniad Consortium, which is delivering new affordable, energy efficient homes across north, south and mid Wales. The division is extending the service provided to its clients with the introduction of a response maintenance business, branded Lovell Respond, to deliver a response maintenance service alongside its existing refurbishment expertise.

The division's order book has been held in comparison to the start of the year at £1.3bn (2008: £1.4bn). Despite tentative signs of improvement, we remain cautious about the medium term outlook for open market housing. However, we expect demand for refurbishment and new build social housing, which accounted for around 90% of the division's revenue in the first half of 2009, to remain robust, driven by the imbalance between the demand and supply of social housing provision in the UK. We expect longer term opportunities to present themselves with the next round of social housing PFIs, which was announced recently.

Urban Regeneration

Urban Regeneration made an operating loss over the first half of the year of £1.1m (2008: profit of £5.6m) on revenue of £5m (2008: £45m). The decline in revenue is due to a fall in demand for commercial property in the period although there was some improvement in the sales of residential properties in a number of its joint venture mixed use projects.  

The division has been successful in securing two major regeneration schemes in the first half of the year. The first of these is the £220m redevelopment of the north part of central Blackpool. This scheme includes the development of offices, a supermarket and hotels and the creation of shops, cafes and restaurants. Construction work is expected to begin in 2011. The second scheme is the £300m regeneration of Doncaster's Waterdale area to create a civic and cultural quarter. Construction of the first phase of this development is expected to commence towards the end of this year. In addition, the division is revisiting existing agreements and revising the phasing of developments to ensure each scheme is ideally placed for when the market improves.

The division continues to work with its partners on a number of public sector opportunities in the short term. Commercial property prices seem to be stabilising but we expect the market to remain subdued in the near term with a slow recovery as occupier confidence returns.  Given the strength of the Group balance sheet, we are well placed to take advantage of any opportunities that present themselves to add to the portfolio of existing developments.  The division's share of the development pipeline has improved to £1.6bn (2008: £1.1bn) with progress being made in improving the portfolio of longer term opportunities.  

Investments

The Investments division is reported separately for the first time this year as a result of the disclosure requirements of IFRS 8 'Operating Segments'.  The division's results were previously reported within Group Activities.  The division comprises the Group's project finance activities (predominantly in PFI/PPP) and includes the cost of bidding for investment opportunities as well as the management of existing investments.  Its strategy is to target and invest in projects where the Group has expertise and a competitive advantage in terms of construction delivery through one of its operating divisions.

The division manages the Group's interests in six NHS LIFTs, a portfolio of doctors' practices, two PFI road investments (A92 in Scotland and the Newport Southern Distributor Road), two emergency services investments (Dorset Emergency Services Partnership Initiative and Lancashire Fire), a social housing PFI (Miles Platting, Manchester) and the recently secured Wigan Life Centre, a leisure, health, learning and information complex.

In total the division has invested £10m in equity and subordinated debt with a further £9m of committed investment, with underlying gross assets created and under construction of more than £600m. The directors' valuation of the investment portfolio is £36m using discount rates of 7.0-9.5%. Further details of the portfolio valuation approach will be disclosed within this year's annual report and accounts.

During the period the division incurred an operating loss of £2.0m (2008: loss of £1.4m) and its share of operating profits of equity accounted joint ventures was £nil (2008: £0.6m). The division was successful in the first half in achieving financial close on the £187m Wigan Life Centre, in joint venture with Hochtief PPP Solutions (UK). This has a construction value of £50m for our Construction division. In addition the division was appointed preferred bidder on Tayside Acute Adult Mental Health Developments PPP (£100m construction value).  

The pipeline of opportunities remains healthy, with two further projects at preferred bidder stage and with the division shortlisted on a further two projects. In addition, there are opportunities increasing in size and scale from the Building Schools for the Future programme, the next round of social housing PFIs, Express LIFT and Hub Scotland being considered.  With further development opportunities within the existing NHS LIFT portfolio the outlook for Investments remains positive.

Financial review 

Revenue for the six months to 30 June 2009 was £1.14bn (2008: £1.24bn), a fall of 8% on the same period last year, which is primarily due to lower levels of activity at Fit Out, Construction and Urban Regeneration. Group profit from operations prior to the amortisation of intangible assets was £23.6m (2008: £30.8m) reflecting lower levels of profitability at Urban Regeneration, Fit Out and Affordable Housing, slightly higher spending on bidding activity at Investments, offset by improvements in profitability at Construction and Infrastructure Services and lower spending on the cost of Group Activities.

Net finance income was £0.3m (2008: £2.3m) reflecting both a lower level of average cash over the first half of the year of £21m (2008: £95m) compared to the same period last year and significantly lower interest rates earned on those balances. Profit before tax and amortisation of intangible assets was £23.9m (2008: £33.1m). The income tax expense was £5.9m (2008: £7.5m) as a consequence of the lower level of profitability in this period. Profit after tax was £14.6m (2008: £21.1m) with an increased shareholders' equity of £196m (2008: £177m).  

Cash at 30 June 2009 was £89m (2008: £98m). Net cash outflow from operating activities was £15.2m (2008: outflow of £103.3m) reflecting a smaller increase in working capital for the six month period to 30 June 2009 compared with the same period last year.  The overall net decrease in cash during the period was £31.6m (2008: decrease of £120.6m).  In addition to its cash resources the Group has renewed its £75m of committed bank facilities through to mid 2012. 

Outlook

The Group's forward order book currently stands at £3.6bn, broadly consistent with the start of the year and we are confident it will grow during the second half.  Morgan Sindall continues to extend its construction capabilities and to deliver increasingly complex projects, across a broadening range of sectors within the construction and regeneration markets. This sector spread coupled with the strength of its financial position, with positive cash balances and £75m of committed bank facilities through to mid 2012, means the Group is well positioned and we remain on track to meet our expectations for this year. Our strategy remains one of building market leadership in each of our chosen market sectors and we expect the current market to present opportunities for us to make further progress towards fulfilling this goal. 

Related party transactions

Related party transactions for the period are disclosed in note 8 to the financial statements following this report.

Principal risks and uncertainties

The directors consider that the principal risks which may have a material impact on the Group's performance in the remaining six months of the year, as explained in more detail in the 2008 annual report and accounts, continue to be as follows:

Developing talent - the risk that the Group will not have the talented people required to continue improving the quality of its delivery, to grow its businesses or to develop sustained financial performance.

Operating safety - the risk to the Group's employees and subcontractors and the public, as well as the Group's reputation, through failing to maintain a high standard of health and safety across its operations.

Market risks - the need to retain flexibility and respond quickly to changing market conditions, especially in the current economic climate.

Regulatory risks - operating in a constantly changing regulatory environment, the risk of damaging the Group's reputation and ability to win work, as well the risk of financial penalties, through non-compliance with regulation.

Contract risks - the need to maintain rigorous review of contract selection and contractual terms as well as monitoring operational and financial performance during the life of the contract.

Acquisition risks - the risk to the Group that acquisition due diligence fails to identify matters affecting the value of the target and the need for a stringent integration process.

Counterparty and liquidity risk - monitoring and review of current and potential clients and suppliers, and ensuring that the Group has sufficient liquidity to meet its liabilities as they fall due.

Forward looking statements

This half year report 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 using information available up until the day that they approved this half yearly financial report. Forward looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks.

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated income statement
for the six months to 30 June 2009 (unaudited)

	Notes	Unaudited six months to 30 June 2009 £m	Unaudited six months to 30 June 2008 £m	Year ended 31 December 2008 £m
Continuing operations
Revenue	1	1,140.6	1,238.5	2,548.1
Cost of sales		(1,031.5)	(1,115.3)	(2,297.8)
Gross profit		109.1	123.2	250.3
Other administrative expenses		(85.7)	(95.9)	(185.8)
Amortisation of intangible assets	1	(3.4)	(4.5)	(9.1)
Total administrative expenses		(89.1)	(100.4)	(194.9)
Share of net profit of equity accounted joint ventures	1	0.2	3.5	2.6
Profit from operations	1	20.2	26.3	58.0
Finance income		1.6	4.5	9.4
Finance expense		(1.3)	(2.2)	(5.1)
Net finance income	1	0.3	2.3	4.3
Profit before income tax expense	1	20.5	28.6	62.3
Income tax expense	2	(5.9)	(7.5)	(17.5)
Profit for the period attributable to equity holders of the parent company		14.6	21.1	44.8

Earnings per share
From continuing operations
Basic	4	34.6p	50.1p	106.3p
Diluted	4	34.2p	49.4p	105.1p

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

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated balance sheet
at 30 June 2009 (unaudited)

	Unaudited 30 June 2009 £m	Unaudited 30 June 2008 £m	31 December 2008 £m
Non current assets
Property, plant and equipment	30.9	26.4	32.7
Goodwill	184.4	183.3	183.3
Other intangible assets	20.0	28.0	23.4
Investments in equity accounted joint ventures	54.0	46.7	53.0
Investments	0.1	0.1	0.1
Deferred tax assets	2.7	5.5	2.7
	292.1	290.0	295.2
Current assets
Inventories	166.4	176.4	171.3
Amounts due from construction contract customers	256.8	277.3	189.2
Trade and other receivables	201.8	267.2	209.0
Cash and cash equivalents	88.7	98.3	120.3
	713.7	819.2	689.8
Total assets	1,005.8	1,109.2	985.0
Current liabilities
Trade and other payables	(678.8)	(828.9)	(675.2)
Amounts received in advance on construction contracts	(77.3)	(66.7)	(78.3)
Current tax liabilities	(22.4)	(7.4)	(8.5)
Finance lease liabilities	(1.8)	(3.6)	(1.9)
	(780.3)	(906.6)	(763.9)
Net current liabilities	(66.6)	(87.4)	(74.1)
Non current liabilities
Trade and other payables	(0.1)	(3.5)	(0.1)
Retirement benefit obligation	(2.8)	(2.6)	(3.0)
Finance lease liabilities	(7.2)	(1.4)	(7.4)
Provisions	(19.6)	(18.3)	(18.3)
	(29.7)	(25.8)	(28.8)
Total liabilities	(810.0)	(932.4)	(792.7)
Net assets	195.8	176.8	192.3
Equity
Share capital	2.2	2.2	2.2
Share premium account	26.6	26.5	26.6
Capital redemption reserve	0.6	0.6	0.6
Own shares	(6.0)	(7.2)	(6.4)
Hedging reserve	(2.0)	0.1	(2.3)
Retained earnings	174.4	154.6	171.6
Total equity	195.8	176.8	192.3

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated statement of cash flows
for the six months to 30 June 2009 (unaudited)

	Notes	Unaudited six months to 30 June 2009 £m	Unaudited six months to 30 June 2008 £m	Year ended 31 December 2008 £m
Net cash outflow from operating activities	6	(15.2)	(103.3)	(65.5)
Cash flows from investing activities
Interest received		1.8	4.6	9.2
Dividends received from joint ventures		2.0	-	-
Proceeds on disposal of property, plant and equipment		1.1	0.2	0.8
Purchases of property, plant and equipment		(2.4)	(4.1)	(8.4)
Payments to acquire interests in joint ventures		(2.5)	(2.8)	(12.4)
Payment for the acquisition of a subsidiary		(1.1)	-	-
Net cash outflow from investing activities		(1.1)	(2.1)	(10.8)
Cash flows from financing activities
Payments to acquire own shares		-	(1.7)	(0.9)
Dividends paid		(12.7)	(11.9)	(16.9)
Repayment of obligations under finance leases		(2.6)	(1.9)	(4.9)
Proceeds on issue of share capital		-	0.3	0.4
Net cash outflow from financing activities		(15.3)	(15.2)	(22.3)
Net decrease in cash and cash equivalents during the period		(31.6)	(120.6)	(98.6)
Cash and cash equivalents at beginning of the period		120.3	218.9	218.9
Cash and cash equivalents at end of the period Bank balances and cash		88.7	98.3	120.3

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated statement of comprehensive income
for the six months to 30 June 2009 (unaudited)

	Unaudited six months to 30 June 2009 £m	Unaudited six months to 30 June 2008 £m	Year ended 31 December 2008 £m
Profit for the period	14.6	21.1	44.8
Other comprehensive income/(expense):
Actuarial gains/(losses) arising on defined benefit obligation	-	0.5	(0.2)
Deferred tax on retirement benefit obligation recognised directly in equity	-	(0.1)	-
Movement on cash flow hedges in equity accounted joint ventures	0.3	2.3	(0.1)
Other comprehensive income/(expense) for the period, net of income tax	0.3	2.7	(0.3)
Total comprehensive income for the period attributable to equity holders of the parent company	14.9	23.8	44.5

Condensed consolidated statement of changes in equity
for the six months to 30 June 2009 (unaudited)

	Share capital	Share premium account	Capital redemption reserve	Reserve for own shares held	Cash flow hedging reserve	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2009	2.2	26.6	0.6	(6.4)	(2.3)	171.6	192.3
Total comprehensive income for the period:
Net profit	-	-	-	-	-	14.6	14.6
Other comprehensive income:
Movement on cash flow hedges in equity accounted joint ventures	-	-	-	-	0.3	-	0.3
Total comprehensive income for the period, net of income tax	-	-	-	-	0.3	14.6	14.9
Share-based payments	-	-	-	-	-	1.3	1.3
Exercise of share options	-	-	-	0.4	-	(0.4)	-
Dividends paid:
Final dividend for 2008	-	-	-	-	-	(12.7)	(12.7)
Balance at 30 June 2009	2.2	26.6	0.6	(6.0)	(2.0)	174.4	195.8

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated statement of changes in equity
for the six months to 30 June 2009 (unaudited) (continued)

	Share capital	Share premium account	Capital redemption reserve	Reserve for own shares held	Cash flow hedging reserve	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2008	2.1	26.3	0.6	(5.5)	(2.2)	144.4	165.7
Total comprehensive income for the period:
Net profit	-	-	-	-	-	21.1	21.1
Other comprehensive income:
Actuarial gains/(losses) arising on defined benefit obligation	-	-	-	-	-	0.5	0.5
Deferred tax on retirement benefit obligation recognised directly in equity	-	-	-	-	-	(0.1)	(0.1)
Movement on cash flow hedges in equity accounted joint ventures	-	-	-	-	2.3	-	2.3
Total comprehensive income for the period, net of income tax	-	-	-	-	2.3	21.5	23.8
Share-based payments	-	-	-	-	-	1.1	1.1
Issue of shares at a premium	0.1	0.2	-	-	-	-	0.3
Share award under long term incentive plan	-	-	-	-	-	(1.2)	(1.2)
Exercise of share options	-	-	-	-	-	0.4	0.4
Deferred tax asset/(liability) on share-based payments	-	-	-	-	-	0.3	0.3
Own shares acquired in the period	-	-	-	(1.7)	-	-	(1.7)
Dividends paid:
Final dividend for 2007	-	-	-	-	-	(11.9)	(11.9)
Balance at 30 June 2008	2.2	26.5	0.6	(7.2)	0.1	154.6	176.8

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Condensed consolidated statement of changes in equity
for the six months to 30 June 2009 (unaudited) (continued)

	Share capital	Share premium account	Capital redemption reserve	Reserve for own shares held	Cash flow hedging reserve	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2008	2.1	26.3	0.6	(5.5)	(2.2)	144.4	165.7
Total comprehensive income for the period:
Net profit	-	-	-	-	-	44.8	44.8
Other comprehensive income:
Actuarial gains/(losses) arising on defined benefit obligation	-	-	-	-	-	(0.2)	(0.2)
Movement on cash flow hedges in equity accounted joint ventures	-	-	-	-	(0.1)	-	(0.1)
Total comprehensive income for the period, net of income tax	-	-	-	-	(0.1)	44.6	44.5
Share-based payments	-	-	-	-	-	2.3	2.3
Issue of shares at a premium	-	0.3	-	-	-		0.3
Exercise of share options	0.1	-	-	1.9	-	(1.9)	0.1
Deferred tax asset/(liability) on share-based payments	-	-	-	-	-	(0.8)	(0.8)
Own shares acquired in the period	-	-	-	(2.8)	-	-	(2.8)
Dividends paid:
Final dividend for 2007	-	-	-	-	-	(11.9)	(11.9)
Interim dividend for 2008	-	-	-	-	-	(5.1)	(5.1)
Balance at 31 December 2008	2.2	26.6	0.6	(6.4)	(2.3)	171.6	192.3

  Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Notes to the condensed consolidated financial statements (unaudited)

Basis of preparation and accounting policies

Basis of preparation

The information for the year ended 31 December 2008 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

Morgan Sindall's activities and the key risks facing its future development, performance and position are set out in the half year report. The directors have reviewed the current and projected position of the Group and have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half yearly condensed consolidated financial statements.

Accounting policies

The annual financial statements of Morgan Sindall plc are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The condensed consolidated financial statements included in this half yearly financial report have been prepared in accordance with International Accounting Standard ('IAS') 34 'Interim Financial Reporting', as adopted by the European Union.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as applied in the Group's latest annual report and accounts for the year ended 31 December 2008, except as described below.

Changes in accounting policy

In the current financial year, the Group has adopted IFRS 8 'Operating Segments', IFRS 2 'Share-based Payment' (amended), IAS 1 'Presentation of Financial Statements' (revised 2007) and IAS 23 (revised) 'Borrowing Costs'.

IFRS 8 requires operating segments to be identified on the same basis as that on which internal reports of the Group are regularly reviewed by the Chief Executive, who is the Group's chief operating decision maker, for the purpose of allocating resources to the segments and assessing their performance. The segmental information required by IAS 34 which is included in note 1 below is presented in accordance with IFRS 8 and comparatives have been restated accordingly. Adoption of IFRS 8 has led to the identification of an Investments segment alongside the previously identified Fit Out, Construction, Infrastructure Services, Affordable Housing, Urban Regeneration and Group Activities segments. Revenue is generated from each of these operating segments as follows:

• Fit Out: provision of office fit out and refurbishment services

• Construction: provision of construction services ranging from small works, repairs and maintenance to large scale complex projects across the airport, commercial, defence, education, healthcare, industrial, leisure and retail sectors. The construction segment also generates revenue through the provision of multi-disciplined design and project management

• Infrastructure Services: provision of integrated infrastructure services including the design and delivery of complex projects in the road, water, energy, air and rail sectors, tunnelling services, utility services and programme management consultancy

• Affordable Housing: development, construction and refurbishment of social and open market affordable housing

• Urban Regeneration: development of large scale mixed use urban regeneration projects with a view to letting and/or sale through partnership agreements

• Investments: provision of project finance and investment management expertise to the Group's PPP/PFI activities and investment portfolio 

• Group Activities: represents costs and income arising from corporate activities which cannot be allocated to the operating segments. These include costs for central finance activities such as treasury management, corporate tax coordination, insurance management, pension administration and other centrally coordinated activities such as Group environmental services and legal services

Operating assets and liabilities consist of cash, trade debtors/payables, amounts receivable/received in advance on construction activities, property, plant and equipment, intangible assets and goodwill, inventory and investments in joint ventures. Non-operating assets and liabilities include retirement benefit obligations, non current provisions and current/deferred tax balances.

IAS 1 (revised) which became effective for periods on or after 1 January 2009, requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented.

IAS 23 (revised) requires the capitalisation of borrowing costs directly attributable to the acquisition, construction or production of qualifying assets where capitalisation for those assets commenced on or after 1 January 2009. The Group's previous accounting policy was to expense such borrowing costs.  As the transitional provisions of the revised standard do not require its retrospective application, comparative figures in this half yearly report have not been restated.  The impact of adopting this standard is not considered to have a material impact on net earnings, earnings per share or net assets during the period.

The amendment to IFRS 2 'Share-based Payment' became effective on 1 January 2009 and has been adopted by the Group during the period. The amendment clarifies that the only vesting conditions are service conditions and performance conditions and that any other features, such as the requirement to make regular saving contributions under the Group's Save As You Earn scheme, are non-vesting conditions. The amendment also clarifies that when an employee can choose whether to meet a non-vesting condition and fails to do so, such a failure must be treated as a cancellation and therefore an acceleration of the share-based payment charge. The adoption of this amendment has not had a material impact on net earnings, earnings per share or net assets during the period.

The following new standards, amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2009 and have not been adopted early by the Group:

• IFRS 3 (revised) 'Business Combinations':  The main changes in the revised standard are that it requires costs directly attributable to an acquisition (except costs relating to the issue of debt or equity securities) to be expensed rather than included in the cost of acquisition and requires all consideration transferred in an acquisition (including contingent consideration) to be measured at fair value. The revised standard also permits an accounting policy choice, on an acquisition-by-acquisition basis, between accounting for a minority interest acquired in a business combination at fair value or the minority interest's proportionate share of the acquiree's net identifiable assets.  Expanded disclosures are also required.

As this standard can be applied prospectively, it will not have any impact on the Group in respect of business combinations effected up to and including 30 June 2009.  It will be effective for annual periods beginning on or after 1 July 2009

• IAS 27 'Consolidated and Separate Financial Statements':  Includes the requirement to account for changes in a parent's ownership interest in a subsidiary that does not result in a loss of control as an equity transaction. It also redefines 'minority interests' as 'non-controlling interests'.  It will be effective for annual periods beginning on or after 1 July 2009 but it is not currently relevant to the Group

• International Financial Reporting Interpretations Committee interpretation ('IFRIC') 17 'Distributions of non-cash assets to owners':  Effective for annual periods beginning on or after 1 July 2009 but it is not currently relevant to the Group

• IFRIC 18 'Transfers of assets from customers':  Effective for annual periods beginning on or after 1 July 2009 but it is not currently relevant to the Group

Seasonality

The Group's Fit Out, Construction, Infrastructure Services, Affordable Housing, Urban Regeneration and Investment activities are generally not subject to significant seasonal variation.

1.   Business segments

Information regarding the Group's operating segments is reported below. Amounts reported for the prior year have been restated to conform to the requirements of IFRS 8.

The following is an analysis of the Group's revenue and results by reportable segment in the six months ended 30 June 2009:

Unaudited for the six months to 30 June 2009

	Fit Out £m	Construction £m	Infra-structure Services £m	Affordable Housing £m	Urban Regen-eration £m	Invest-ments £m	Group Activities £m	Eliminations £m	Total £m
Revenue: external	159.6	377.9	419.1	178.1	5.4	0.5	-	-	1,140.6
Revenue: internal	-	10.9	17.3	-	-	-	-	(28.2)	-
Operating profit/(loss) before amortisation	7.4	5.7	9.3	7.1	(1.3)	(2.0)	(2.8)	-	23.4
Share of net profit of equity accounted joint ventures	-	-	-	-	0.2	-	-	-	0.2
Profit/(loss) from operations before amortisation	7.4	5.7	9.3	7.1	(1.1)	(2.0)	(2.8)	-	23.6
Amortisation of intangible assets	-	(0.6)	(0.2)	-	(2.6)	-	-	-	(3.4)
Profit/(loss) from operations	7.4	5.1	9.1	7.1	(3.7)	(2.0)	(2.8)	-	20.2
Net finance income									0.3
Profit before income tax expense									20.5

Inter-segment sales are charged at prevailing market prices.

            1.      Business segments (continued)

Unaudited for the six months to 30 June 2008 (restated)

	Fit Out £m	Construction £m	Infra-structure Services £m	Affordable Housing £m	Urban Regen-eration £m	Invest-ments £m	Group Activities £m	Eliminations £m	Total £m
Revenue: external	204.5	417.7	394.8	175.8	45.1	0.6	-	-	1,238.5
Revenue: internal	1.0	4.7	1.9	4.7	-	-	-	(12.3)	-
Operating profit/(loss) before amortisation	11.5	4.1	7.6	8.8	2.7	(1.4)	(6.0)	-	27.3
Share of net profit of equity accounted joint ventures	-	-	-	-	2.9	0.6	-	-	3.5
Profit/(loss) from operations before amortisation	11.5	4.1	7.6	8.8	5.6	(0.8)	(6.0)	-	30.8
Amortisation of intangible assets	-	(1.0)	(0.4)	-	(3.1)	-	-	-	(4.5)
Profit/(loss) from operations	11.5	3.1	7.2	8.8	2.5	(0.8)	(6.0)	-	26.3
Net finance income									2.3
Profit before income tax expense									28.6

Year ended 31 December 2008 (restated)

	Fit Out £m	Construction £m	Infra-structure Services £m	Affordable Housing £m	Urban Regen-eration £m	Invest-ments £m	Group Activities £m	Eliminations £m	Total £m
Revenue: external	473.7	813.1	799.2	377.2	83.6	1.3	-	-	2,548.1
Revenue: internal	1.1	13.1	28.8	5.1	-	-	-	(48.1)	-
Operating profit/(loss) before amortisation	25.8	9.5	14.4	21.0	6.5	(3.5)	(9.2)	-	64.5
Share of net profit of equity accounted joint ventures	-	-	-	-	1.3	1.3	-	-	2.6
Profit/(loss) from operations before amortisation	25.8	9.5	14.4	21.0	7.8	(2.2)	(9.2)	-	67.1
Amortisation of intangible assets	-	(2.1)	(0.8)	-	(6.2)	-	-	-	(9.1)
Profit/(loss) from operations	25.8	7.4	13.6	21.0	1.6	(2.2)	(9.2)	-	58.0
Net finance income									4.3
Profit before income tax expense									62.3

Inter-segment sales are charged at prevailing market prices.

2.    Income tax expense

    Income tax for the six month period is charged at 28.8% (2008: 30.0%), being the estimated annual effective tax rate expected for the full financial year, applied to the profit before income tax expense excluding the share of net profit/loss of equity accounted joint ventures for the six month period (which are stated net of income tax).

3.   Dividends

Amounts recognised as distributions to equity holders in the period:

	Unaudited Six months to 30 June		Year ended
	2009 £m	2008 £m	31 December 2008 £m
Final dividend for the year ended 31 December 2008     of 30.0p (2007: 28.0p) per share	12.7	11.9	11.9
Interim dividend for the year ended 31 December 2008 of 12.0p per share	-	-	5.1

Amounts proposed at the end of the period:

	Unaudited Six months to 30 June		Year ended
	2009 £m	2008 £m	31 December 2008 £m
Final dividend for the year ended 31 December 2008     of 30.0p (2007: 28.0p) per share	-	-	12.7
Interim dividend for the period to 30 June 2009     of 12.0p (2008: 12.0p) per share	5.2	5.2	-

The interim dividend was approved by the Board on 10 August 2009 and has not been included as a liability at 30 June 2009.

The interim dividend of 12.0p (2008: 12.0p) per share will be paid on 18 September 2009 to shareholders on the register at 28 August 2009. The ex-dividend date will be 26 August 2009.

  4.    Earnings per share

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

The calculation of the basic and diluted earnings per share is based on the following data:

	Unaudited six months to 30 June		Year ended
Earnings	2009 £m	2008 £m	31 December 2008 £m
Earnings before taxation	20.5	28.6	62.3
Deduct: taxation expense per the income statement	(5.9)	(7.5)	(17.5)
Earnings for the purpose of basic and dilutive earnings per share being net profit attributable to equity holders of the parent company	14.6	21.1	44.8
Add back: pre-tax amortisation expense	3.4	4.5	9.1
Earnings for the purposes of adjusted basic and dilutive earnings per share being net profit attributable to equity holders of the parent company adjusted for amortisation expense	18.0	25.6	53.9

	Unaudited six months to 30 June		Year ended
Number of shares	2009 No. '000s	2008 No. '000s	31 December 2008 No. '000s
Weighted average number of ordinary shares for the purposes of basic earnings per share	42,236	42,095	42,108
Effect of dilutive potential ordinary shares:
Share options	142	355	268
Conditional shares not vested	332	196	196
Weighted average number of ordinary shares for the purposes of diluted earnings per share	42,710	42,646	42,572

	Unaudited six months to 30 June		Year ended
	2009	2008	31 December 2008
Basic and diluted earnings per share:
Basic earnings per share	34.6p	50.1p	106.3p
Diluted earnings per share	34.2p	49.4p	105.1p
Basic and diluted earnings per share adjusted for amortisation expense:
Basic earnings per share	42.6p	60.9p	127.8p
Diluted earnings per share	42.1p	60.1p	126.4p

A total of 2,970,893 share options (June 2008: 1,145,961, December 2008: 1,171,003) that could potentially dilute earnings per share in the future were excluded from the above calculations because their exercise prices exceeded Morgan Sindall's average share price during the period. 

5.   Acquisition of subsidiary

On 31 March 2009, the Group acquired 100% of the issued ordinary share capital of BMS Property Care Limited (renamed Lovell Respond Limited) for cash consideration of £1.1m. The transaction has been accounted for using the purchase method of accounting. Goodwill of £1.1m has arisen on the transaction, and at 30 June 2009 certain fair value adjustments in relation to the acquisition are subject to finalisation.

6.   Cash flows from operating activities

	Unaudited six months to 30 June		Year ended
	2009 £m	2008 £m	31 December 2008 £m
Cash flows from operating activities
Profit from operations for the period	20.2	26.3	58.0
Adjusted for:
Amortisation of fixed life intangible assets	3.4	4.5	9.1
Share of net profit of equity accounted joint ventures	(0.2)	(3.5)	(2.6)
Depreciation of property, plant and equipment	5.0	3.5	8.1
Expense in respect of share options	1.3	0.3	2.3
Defined benefit plan payment	(0.3)	(0.3)	(0.7)
Defined benefit plan charge	0.1	0.1	0.2
Loss/(gain) on disposal of property, plant and equipment	0.2	(0.1)	(0.2)
Increase/(decrease) in provisions	1.3	(1.0)	(1.0)
Operating cash flows before movements in working capital	31.0	29.8	73.2
Decrease/(increase) in inventories	4.9	(47.6)	(41.2)
(Increase)/decrease in receivables	(60.0)	(97.2)	48.8
Increase/(decrease) in payables	2.0	24.7	(122.9)
Cash utilised in operations	(22.1)	(90.3)	(42.1)
Income taxes received/(paid)	8.0	(11.0)	(18.9)
Interest paid	(1.1)	(2.0)	(4.5)
Net cash outflow from operating activities	(15.2)	(103.3)	(65.5)

During the period, the Group acquired property, plant and equipment with an aggregate cost of £3.4m of which £1.0m was acquired by means of finance leases. Cash payments of £2.4m were made to purchase property, plant and equipment.

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.

  7.   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 bonds, guarantees and claims under contracting and other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.

On 17 April 2008 the Office of Fair Trading ('OFT') issued a Statement of Objections to the Company together with a number of construction companies in England in connection with its investigation into alleged infringements of UK Competition law in the sector. The Company has cooperated with the OFT's investigation under the OFT's leniency policy and, as a result, has been provisionally granted a reduction in any penalty which the OFT might ultimately impose. The outcome of the investigation is not yet known, however, and the directors remain unable to estimate the size of any potential liability and as a result no provision has been made in these condensed consolidated financial statements.

  8.   Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.  Transactions between the Group and its joint ventures which were at market prices are disclosed below, are unsecured and will be paid in cash.  Other than construction related performance guarantees given in the ordinary course of business, no guarantees have been given or received and there is no provision for impairment in respect of the amounts owed by related parties.

Trading transactions

During the period, Group companies entered into the following significant transactions with related parties.  Transactions and amounts owed in the period are as follows:

Six months to 30 June 2009	Provision of goods and services £m	Amounts owed by/(owing to) related parties £m
Community Solutions for Primary Care (Holdings) Limited	3.8	1.2
Morgan-Vinci Limited	0.1	-
Bluelight Holdings Limited	9.1	2.0
Renaissance Miles Platting Limited	0.1	0.1
Ashton Moss Developments Limited	-	(0.2)
Bromley Park Limited	-	(6.1)
Chatham Place (Building1) Limited	0.2	0.2
ECf (General Partner) Limited	0.6	-
Eurocentral Partnership Limited	0.2	0.3
Lewisham Gateway Developments Limited	-	0.1
Lingley Mere Business Park Development Company Limited	0.2	-
North Shore Development Partnership Limited	-	0.1
The Compendium Group Limited	0.8	0.2

Six months to 30 June 2008	Provision of goods and services £m	Amounts owed by/(owing to) related parties £m
Community Solutions for Primary Care (Holdings) Limited	26.3	5.4
Bluelight Holdings Limited	12.3	1.4
Chatham Place (Building 1) Limited	0.1	0.1
ECf (General Partner) Limited	0.7	-
Eurocentral Partnership Limited	0.7	0.2
Lingley Mere Business Park Development Company Limited	1.2	(4.5)

Year ended 31 December 2008	Provision of goods and services £m	Amounts owed by/(owing to) related parties £m
Claymore Roads (Holdings) Limited	0.1	0.1
Community Solutions for Primary Care (Holdings) Limited	41.0	2.2
Morgan-Vinci Limited	-	0.1
Bluelight Holdings Limited	20.3	1.3
Ashton Moss Developments Limited	-	(0.2)
Bromley Park Limited	-	(6.1)
Chatham Place (Building 1) Limited	0.3	0.1
ECf (General Partner) Limited	1.5	-
Eurocentral Partnership Limited	1.4	0.2
Lewisham Gateway Developments Limited	-	0.1
Lingley Mere Business Park Development Company Limited	2.3	(3.5)
Lingley Mere Business Park Development Company Limited	-	-
North Shore Development Partnership Limited	-	0.1
The Compendium Group Limited	2.2	-

Morgan Sindall plc

Half yearly financial report for the six months to 30 June 2009

Responsibility statement

The directors confirm that to the best of their knowledge:

• the condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'

  b.     the half year report includes a fair review of the information required by DTR 4.2.7R (indication of important    
         events during the first six months and description of principal risks and uncertainties for the remaining six 
         months of the year)

 c.       a fair review of related party transactions, as required by DTR 4.2.8R, is disclosed in note 8 to the condensed 
         consolidated financial statements

By order of the Board

Paul Smith                                 David Mulligan

Chief Executive                          Finance Director

10 August 2009

 

END

 

 

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