Interim Results
Morgan Sindall PLC
20 August 2002
MORGAN SINDALL PLC
('Morgan Sindall' or 'the Group')
Interim Results for the six months to 30 June 2002
Morgan Sindall plc, the construction brands group, today announces interim
results for the six months to 30 June 2002.
6 months to 30 6 months to 30 Year to
June 2002 June 2001 31 December 2001
Turnover £515m £407m £909m
Profit before taxation £5.87m £10.10m £20.77m
Earnings per ordinary share 9.48p 19.45p 36.03p
Dividend per ordinary share 4.25p 4.00p 14.00p
• Strong performances from affordable housing, fit out and infrastructure
services:
fit out increased market share and achieved record profits
affordable housing demonstrated progress and continued to grow its order
book
infrastructure services benefited from the acquisition and integration
of Pipeline which broadened and enhanced the range of services for
customers.
• The review and restructuring programme at Bluestone, the regional
construction division, is well advanced and our forecast loss for the year
of £4.0m has remained unchanged. This loss has been taken in the first half.
• The Group's progress is demonstrated by a significant strengthening of the
order book to £1.5bn (2001: £861m).
• Markets in which the Group operates remain solid and robust which is
reflected in an increased interim dividend.
John Morgan, Executive Chairman, commented:
'The benefits of the Group's expansion into a number of specialist markets is
now clear. The Group has strong positions in growing markets and is better
positioned than ever to exploit potential opportunities in areas we see as
being very exciting.
There is strong evidence that Bluestone is being well received by clients with
an increase in the quality and quantity of enquiries. The concept behind
Bluestone is sound and it will compete on a national basis.
We view the future with much optimism.'
20 August 2002
ENQUIRIES:
Morgan Sindall plc Tel: 020 7307 9200
John Morgan, Executive Chairman
John Bishop, Finance Director
College Hill Tel: 020 7457 2020
Matthew Smallwood
Chairman's Statement
Overall economic forecasts for the UK construction industry are optimistic and
this is mirrored in the Group's trading levels and order book. Turnover for the
six months ended 30 June 2002 was £515m (30 June 2001: £407m) and the order book
stands at a record £1.5bn (30 June 2001: £861m) which also reflects the change
in profile of the Group over the last year resulting from strategic
acquisitions. Group profits have been affected by the disappointing performance
of the Regional Construction Division as announced in April; the forecast impact
of the losses of £4.0m for that Division has been taken in the first half. As a
result profit before tax was £5.9m (30 June 2001: £10.1m).
Nevertheless prospects for the Group are increasingly encouraging. Both the
Affordable Housing and Infrastructure Services Divisions, strengthened by recent
acquisitions, are progressing well in market places buoyed by increased public
expenditure programmes. Our Fit Out Division continues to prosper whilst
broadening its range of activities and Regional Construction will increasingly
benefit from the changes implemented earlier this year. With the focus for the
Group on organic growth we anticipate a return to positive cash flow during the
year even after further investment in Affordable Housing. Net cash at 30 June
2002 was £3.2m which compares to £15.4m at the same time last year, reflecting
the £15.0m spent on acquisitions during the previous twelve months. The Board
has decided to increase the interim dividend to 4.25p (30 June 2001: 4.00p).
Divisional Reviews
Fit Out
Fit Out achieved another record performance with an operating profit of £6.2m
from £115m turnover (2001: £5.7m on £113m) and enters the second half of the
year with a strong order book and a healthy prospect list. A new brand has been
launched, Vivid Interiors, to focus on specialised retailing, entertainment and
leisure fit out opportunities. Whilst this will have little financial impact
this year, it is evidence of the ability to exploit the Division's skill base
into new niche areas.
Although trading in the fit out market as a whole, has been mixed, the first
half's result from our Fit Out Division clearly shows the continued strength of
our Brands and client reaction to business improvement initiatives such as
Perfect Delivery that separates the Division from its competition.
Regional Construction
The restructuring programme, which commenced in January when the six regional
contracting companies were merged into Bluestone, is now well advanced. As
announced in our April Trading Update this major structural change has resulted
in the Division forecasting a loss of £4.0m for the year and our view remains
unchanged. We are now seeing an improvement in the volume and quality of
enquiries which we believe demonstrates that Bluestone is being favourably
received by clients but the extent and speed with which good new business is
being secured is still to be proven. Turnover for the Division for the six
months was £167m (2001: £193m) with a loss of £4.0m (2001: £2.4m profit).
The new management structure is now in place, marketing plans are progressively
being implemented as are new risk management procedures. The business is now
better placed to respond to its broader based customers' requirements and the
greater focus on selective market segments, where Bluestone has recognised
skills, will provide the base to enhance the Division's operating performance.
Whilst volumes are expected to reduce in the short term, I believe that the
Division will return to profitability in 2003.
Affordable Housing
Lovell has made a solid start to the year with turnover up to £102m (2001: £66m)
and operating profit of £2.6m (2001: £1.9m). Costs of PFI tenders and
completion of lower margin work from the Carillion Housing acquisition mask the
improving margins in the business. With larger, more complex mixed tenure
schemes both starting on site and in the pipeline, Lovell are expecting
continued growth. This improvement is reflected in the order book which has
grown to £490m from £255m at the beginning of the year and gives us continued
confidence in the performance of this Division for the second half of 2002 and
beyond.
Whilst Lovell is pursuing three of the pathfinder PFI schemes and is working on
major long term refurbishment programmes in partnership with Whitefriars,
Sunderland and Pennine 2000 as part of stock transfer schemes, the majority of
present opportunities continue to be in mixed tenure regeneration cross subsidy
schemes. For example, the Metropolitan West Hendon Consortium, of which Lovell
is a member, has been selected for the West Hendon Regeneration Project in
partnership with the London Borough of Barnet. This includes the provision of
680 affordable homes, transportation upgrades including a new gyratory system,
community and environmental improvements funded by cross-subsidies from open
market housing, retail and leisure facilities. However schemes are funded there
is evidence of increasing activity and Lovell is well placed to benefit.
Infrastructure Services
Morgan Est has moved quickly to integrate Pipeline Constructors Group, acquired
in January, into its business. Already clients are reacting favourably to Morgan
Est's broader offering and their ability to offer an integrated construction and
utility capability. Turnover and operating profit for the half year were
satisfactory at £126m and £2.5m respectively. The nature and timing of certain
contracts are forecast to produce a stronger second half performance.
The order book for the Division stands at a record £730m and with further major
expenditure imminent in the Water Sector, where Morgan Est is a market leader,
the Division is gearing up for further growth. Management focus will however
remain on improving margins. Whilst much of the work is undertaken by cost
reimbursable and target cost forms of contract which reduce risk, additional
margins can be secured by achieving best value which is the key to client
satisfaction and the Division's long term success.
Accounting Policies
The Group has reviewed UITF 34, the new accounting abstract for pre-contract
costs, and confirms that implementation will not materially affect Group results
for this or prior years as generally such costs have been expensed.
Outlook
Looking forward, the Group has never been so well placed. The four Divisions
address different market segments and customers whilst supporting each other for
integrated complex schemes. Each of the businesses has organic growth potential
and in particular the Affordable Housing and Infrastructure Services Divisions
appear to be ideally positioned in the present climate. Whilst cash surpluses
have been used to make strategic acquisitions and the nature of the larger
contracts now undertaken particularly by Morgan Est make cash flow more
variable, overall the Group continues to have a cash generative profile. I
remain convinced that Morgan Sindall will continue to prosper.
John Morgan
Executive Chairman
20 August 2002
Group Profit and Loss Account (unaudited)
Unaudited Unaudited Audited
Six months to 30 Six months to 30 Year to
June 2002 June 2001 31 December 2001
£'000s £'000s £'000s
Turnover (note 1)
Continuing operations 468,813 407,928 910,766
Acquisitions 46,840 - -
Less share of joint venture turnover (939) (672) (1,598)
Group turnover (note 1) 514,714 407,256 909,168
Cost of sales (472,948) (365,842) (820,004)
Gross profit 41,766 41,414 89,164
Administrative expenses (36,296) (32,172) (70,709)
Other operating income 363 496 1,133
Operating profit
Continuing operations 4,235 9,738 19,588
Acquisitions 1,598 - -
Total operating profit (note 1) 5,833 9,738 19,588
Share of profits/(losses) of joint venture 164 (255) 17
Net interest (payable)/receivable (132) 612 1,165
Profit on ordinary activities before taxation 5,865 10,095 20,770
Tax charge on ordinary activities (note 4) (1,967) (2,625) (6,536)
Profit on ordinary activities after taxation 3,898 7,470 14,234
Dividends on equity and non-equity shares (1,761) (1,644) (5,824)
Retained profit for the period 2,137 5,826 8,410
Earnings per ordinary share (note 3) 9.48p 19.45p 36.03p
Diluted earnings per ordinary share (note 3) 9.27p 18.47p 34.87p
Group Balance Sheet (unaudited)
Unaudited Unaudited Audited
As at As at As at
30 June 2002 30 June 2001 31 December 2001
£'000s £'000s £'000s
Fixed Assets
Intangible assets 54,601 29,615 40,009
Tangible assets 19,986 19,850 19,887
Share of joint venture gross assets 22,861 19,209 22,151
Share of joint venture gross liabilities (21,097) (18,375) (20,551)
Investment in joint venture 1,764 834 1,600
Investments 1,334 1,293 1,366
77,685 51,592 62,862
Current Assets
Stocks 47,515 39,970 36,028
Debtors 192,321 147,747 155,261
Cash at bank and in hand 3,235 15,441 34,639
243,071 203,158 225,928
Creditors: amounts falling due within one year (254,172) (193,722) (224,418)
Net current (liabilities)/assets (11,101) 9,436 1,510
Total assets less current liabilities 66,584 61,028 64,372
Creditors: amounts falling due after more than
one year
(599) (729) (629)
Net assets 65,985 60,299 63,743
Capital and reserves
Called up share capital 4,997 5,794 4,993
Share premium account 22,997 21,729 22,896
Revaluation reserve 4,627 4,259 4,627
Profit and loss account 33,364 28,517 31,227
Total shareholders' funds 65,985 60,299 63,743
Shareholders' funds are attributable to:
Equity shareholders' funds 63,021 56,506 60,779
Non-equity shareholders' funds 2,964 3,793 2,964
65,985 60,299 63,743
Group Cash Flow Statement (unaudited)
Unaudited Unaudited Audited
Six months to 30 Six months to 30 Year to
June 2002 June 2001 31 December 2001
£'000s £'000s £'000s
Net cash (outflow)/inflow from operating
activities (note 5) (12,273) 4,412 36,159
Returns on investments and servicing of finance
Interest received 445 812 1,434
Interest paid (569) (549) (727)
Dividends paid to preference shareholders (83) (107) (190)
Interest paid on finance leases (33) (6) (62)
(240) 150 455
Taxation
Corporation tax paid (3,322) (1,820) (6,079)
Capital expenditure and financial investment
Payments to acquire fixed assets (1,880) (1,223) (3,330)
Receipts from sale of fixed assets 186 163 551
Payments to acquire fixed asset investments (32) (194) (311)
(1,726) (1,254) (3,090)
Acquisitions and disposals
Purchase of subsidiary undertakings (10,109) (20,162) (25,658)
Net cash acquired 506 4,720 4,720
(9,603) (15,442) (20,938)
Equity dividends paid (4,067) (2,852) (4,368)
Net cash (outflow)/inflow before financing (31,231) (16,806) 2,139
Financing
Issue of share capital, net of expenses 105 8,773 9,139
Capital element of finance leases (278) - (113)
Net cash (outflow)/inflow from financing
activities
(173) 8,773 9,026
(Decrease)/increase in cash (note 6) (31,404) (8,033) 11,165
Statement of Movements in Shareholders' Funds (unaudited)
Unaudited Unaudited Audited
Six months to 30 Six months to 30 Year to
June 2002 June 2001 31 December 2001
£'000s £'000s £'000s
Opening shareholders' funds 63,743 45,700 45,700
Retained profit for the period 2,137 5,826 8,410
Options exercised 105 408 774
New shares issued - 8,365 8,365
Surplus on revaluation - - 494
Closing shareholders' funds 65,985 60,299 63,743
Notes to the Interim Report
1. Analysis of turnover and operating profit
Unaudited six months to Unaudited six months to
30 June 2002 30 June 2001
Profit/ Profit/
Turnover (loss) Turnover (loss)
£'000s £'000s £'000s £'000s
Fit out 114,687 6,200 113,334 5,662
Regional construction 167,138 (3,965) 193,107 2,371
Affordable housing 102,012 2,585 66,167 1,899
Infrastructure services 126,125 2,509 23,641 559
Group activities 4,752 (1,496) 11,007 (753)
514,714 5,833 407,256 9,738
2. Acquisition of Pipeline Constructors Group
On 2 January 2002 the Company acquired the entire issued share capital
of Pipeline Constructors Group. Consideration of £17.1m was satisfied by
£9.9m of cash and £7.2m of loan notes and there were costs of approximately
£0.2m which have been capitalised. Tangible net assets acquired were £2.5m
and in addition provisional fair value adjustments have been made
recognising liabilities totalling £1.3m. The resultant value of goodwill
capitalised of £16.1m is provisional and will be subject to any subsequent
adjustments required to fair value of the net assets acquired.
3. Earnings per share
The calculation of the earnings per ordinary share is based on the
weighted average number of 40,254,000 ordinary shares in issue during the
period and on the profit for the period attributable to ordinary
shareholders of £3,815,000.
In calculating the diluted earnings per ordinary share, earnings are
adjusted for the preference dividend of £83,000 giving adjusted earnings of
£3,898,000. The weighted average number of ordinary shares is adjusted for
the dilutive effect of the convertible preference shares by 1,185,000,
share options by 600,000 and contingent awards under the Long Term
Incentive Plan of nil giving an adjusted number of ordinary shares of
42,039,000.
4. Taxation
Taxation on current period profits is charged at 31% being the estimated
effective rate of taxation for the year.
5. Reconciliation of operating profit to net cash (outflow)/inflow from
operating activities
Unaudited Unaudited Audited
Six months to 30 Six months to 30 Year to
June 2002 June 2001 31 December 2001
£'000s £'000s £'000s
Operating profit 5,833 9,738 19,588
Depreciation of tangible fixed assets 2,096 1,334 3,119
Amortisation of goodwill 1,470 472 1,478
(Profit)/loss on sale of fixed assets (43) 5 (80)
(Increase)/decrease in stocks and work in progress (9,648) (3,876) 231
Increase in debtors (21,434) (543) (4,825)
Increase/(decrease) in creditors 9,453 (2,718) 16,648
Net cash (outflow)/inflow from operating activities (12,273) 4,412 36,159
6. Reconciliation of net cash flow to movement in net funds
Unaudited Six Audited
months to 30 Year to
June 2002 31 December 2001
£'000s £'000s
(Decrease)/increase in cash (31,404) 11,165
Cash outflow from decrease in finance leases 278 113
Change in net funds resulting from cash flows (31,126) 11,278
Loan notes issued on acquisition (note 2) (7,161) -
Finance leases acquired with subsidiary undertaking (407) (967)
Change in net funds (38,694) 10,311
Net funds at start of period 33,785 23,474
Net (debt)/funds at end of period (4,909) 33,785
7. Interim dividend
The interim dividend of 4.25p per share (2001: 4.00p) will be paid on
20 September 2002 to shareholders on the register at 31 August 2002. The
ex-dividend date will be 28 August 2002.
8. The results for the half years ended 30 June 2002 and 2001 and the balance
sheets as at those dates have not been audited and do not constitute
statutory accounts. The figures for the year ended 31 December 2001 are an
abridged version of the Group's statutory accounts for that year which
received an unqualified audit report and which have been filed with the
Registrar of Companies.
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