Interim Results

Morgan Sindall PLC 09 August 2004 Morgan Sindall Plc ('Morgan Sindall' or 'the Group') Interim results for the six months to 30 June 2004 Morgan Sindall plc, the construction brands group, today announces record interim results for the six months to 30 June 2004. 2004 2003 £m £m % increase Group turnover 604 559 +8% Profit before tax and goodwill amortisation 13.2 10.4 +27% Profit before tax 11.6 8.9 +31% Earnings per share before goodwill amortisation 21.92p 18.13p +21% Earnings per share 18.20p 14.44p +26% Total dividend per share 5.25p 4.75p +11% Group highlights • Excellent results driven by strong performances in Affordable Housing and Fit Out • Highly cash generative in the period with £39 million of cash at 30 June • Well positioned to take advantage of further growth in its specialised sectors Divisional highlights Fit Out • Profit increased by 17% with a margin of 4.6% due to improving market conditions and greater market share • Seeing a return to fitting out of new office space leading to the order book strengthening to £106 million, double that of a year ago Construction • Improving margins driven by a selective approach • NHS LIFT projects are core to the division's future with four successful schemes either closed or at preferred bidder stage • Order book of £218 million Infrastructure Services • Turnover maintained and profit at £2.9 million • Key projects progressing well - performance weighted to second half • Order book of £436 million Affordable Housing • Strong growth with turnover up 50% • Profits of £5.7 million - more than doubled • Order book of £789 million • Outlook very positive with market growth driven by increasing expenditure from the government and housing associations John Morgan, Chairman, said: 'These record results represent excellent progress for the Group and in particular reflect strong performances from Affordable Housing and Fit Out. 'Looking forward we are well placed to take advantage of new opportunities in both the public and private sectors. We have a strong forward order book and are confident of achieving our expectations for the full year.' 9 August 2004 Enquiries: Morgan Sindall plc Tel: 020 7307 9200 John Morgan, Chairman Paul Smith, Chief Executive College Hill Tel: 020 7457 2020 Kate Pope Matthew Smallwood Chairman and Chief Executive's Statement We are pleased to announce record interim results with Group turnover for the six months ended 30 June 2004 of £604m and profit before tax and goodwill amortisation of £13.2m (2003: £559m and £10.4m respectively). Earnings per share for the period increased by 26% to 18.20p (2003: 14.44p). The growth in turnover and profit is largely attributable to the expansion of Affordable Housing and to a strong performance at Fit Out as the commercial office fit out market recovers. With satisfactory performances at Infrastructure Services and Construction the Group is well positioned to achieve its financial aspirations for 2004. The Group was highly cash generative in the period. Cash balances at 30 June 2004 were £39m with £24m of cash being generated since December 2003 reflecting improvements in working capital across the Group. In particular Fit Out has generated cash as it has expanded while Affordable Housing has seen an increased level of mixed tenure house sales in the first six months of 2004 compared with the previous year. In light of the encouraging trading in the first half of the year and the Board's confidence in the future it has been decided that an increased interim dividend of 5.25p (2003: 4.75p) be paid to shareholders. DIVISIONAL REVIEWS Fit Out Fit Out achieved turnover for the period of £121m (2003: £101m) demonstrating improving market conditions and growth in its market share. Operating profit was £5.6m (2003: £4.8m) giving a margin of 4.6% (2003: 4.7%) which the Board believes is consistent with the sustainable, long-term margin for this division. In May Morgan Lovell opened a new office in Birmingham in line with Fit Out's strategy to expand its operations outside the southeast of England. During the first half we began to see a return to the fitting out of new office space as well as orders for contracts extending into 2005. As a result the order book has lengthened and strengthened to £106m from £77m at December 2003 and £49m a year ago. Overall the outlook for Fit Out is positive with demand increasing across a number of sectors including information technology, recruitment and financial services. Construction During the first half Construction's margins improved resulting in a profit of £0.6m (2003: £0.2m) as we continued our specific focus on the education, healthcare and light industrial sectors, and on the securing of longer term framework arrangements. Turnover for the six months reduced to £130m (2003: £153m) due to this market focus. In particular in the healthcare sector, NHS LIFT projects are a core part of the future and we have been successful in financially closing two schemes at Barnsley and Camden & Islington for £100m. Overall we have closed or are preferred bidder on 4 of the 42 schemes released to date, which is in line with our original target. The forward order book increased to £218m from £170m at December 2003. With the increases in capital spending for health and education announced in the Chancellor's spending review in July the outlook for Construction is also encouraging. Infrastructure Services Infrastructure Services had a satisfactory first half with turnover of £177m (2003: £177m) and profit of £2.9m (2003: £3.4m). This year, due to the programme timing of a number of large projects, profits will again be weighted towards the second half. Key infrastructure projects, namely Heathrow Terminal 5, Newport Southern Distributor Road, Channel Tunnel Rail Link 310 and the A92 Dundee to Arbroath road improvements, all continue to progress well. In May the division expanded its rail expertise with the recruitment of AWG's rail team, which builds on the experience gained on the Channel Tunnel Rail Link projects and puts us in a stronger position to pursue the increasing opportunities for renewal work in the rail sector. The forward order book stands at £436m. The division is currently engaged in bidding for a number of opportunities including some large framework contracts under the Asset Management Programme 4 (AMP4), the fourth tranche of the water sector's five year investment cycle. Affordable Housing Affordable Housing produced a record profit of £5.7m (2003: £2.7m), more than double that of the same period last year and giving a margin of 3.2% (2003: 2.3%). Turnover increased by 50% to £177m (2003: £118m). Both margin and turnover growth is in part attributable to a greater number of mixed tenure house sales in the first half of the year, with a total of 436 sales versus 230 in the corresponding period of 2003. In addition sales and as a result profits are expected to be more evenly balanced between the first and second halves of 2004 compared to 2003. Lovell's forward order book at June 2004 has increased to £789m from £688m at December 2003. Following the recent announcements by the Chancellor and Deputy Prime Minister of further funds being made available for affordable housing, we believe the outlook for Lovell is very positive since, as national market leader, it is well placed to help clients deliver their Decent Homes and Sustainable Communities programmes. OUTLOOK With an order book of £1.55bn and with our balance of activities across the four divisions, the Group is well positioned to take advantage of new opportunities in both the public and private sectors particularly as the Government increases its investment in the affordable housing, health, education, road and rail sectors, and as the commercial office sector recovers. Overall, we are confident of fulfilling our expectations for this year and are pleased with the prospects for 2005 and beyond. John Morgan Paul Smith Chairman Chief Executive 9 August 2004 Group Profit and Loss Account for the six months to 30 June 2004 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to June 2004 June 2003 December 2003 £'000s £'000s £'000s Turnover Continuing operations 605,438 560,055 1,139,456 Less share of joint venture turnover (993) (934) (1,919) Group turnover (note 1) 604,445 559,121 1,137,537 Cost of sales (549,461) (510,911) (1,030,719) Gross profit 54,984 48,210 106,818 Administrative expenses (43,626) (39,448) (85,276) Other operating income 17 376 428 Operating profit from continuing operations (note 1) 11,375 9,138 21,970 Share of profits and losses of joint ventures 110 138 132 Net interest receivable/(payable) 160 (401) (1,182) Profit on ordinary activities before taxation 11,645 8,875 20,920 Tax charge on ordinary activities (note 2) (4,067) (2,929) (6,006) Profit on ordinary activities after taxation 7,578 5,946 14,914 Dividends on equity and non-equity shares (note 6) (2,188) (2,006) (6,830) Retained profit for the period 5,390 3,940 8,084 Earnings per ordinary share (note 3) 18.20p 14.44p 36.04p Diluted earnings per ordinary share 17.46p 14.26p 35.45p Group Balance Sheet at 30 June 2004 (unaudited) Unaudited Audited Unaudited June 2003 December 2003 June 2004 (restated) (restated) £'000s £'000s £'000s Fixed Assets Intangible assets 51,451 52,890 53,002 Tangible assets 13,413 13,087 13,375 Share of joint ventures gross assets 70,176 37,750 59,509 Share of joint ventures gross liabilities (64,876) (33,483) (53,711) Investment in joint ventures 5,300 4,267 5,798 Other investments 103 103 103 70,267 70,347 72,278 Current Assets Stocks 65,020 68,587 65,411 Debtors 198,776 212,112 195,546 Cash at bank and in hand 39,044 - 14,613 302,840 280,699 275,570 Creditors: amounts falling due within one year (287,242) (277,167) (267,401) Net current assets 15,598 3,532 8,169 Total assets less current liabilities 85,865 73,879 80,447 Creditors: amounts falling due after more than one year (1,394) (741) (1,569) Net assets 84,471 73,138 78,878 Capital and reserves Called up share capital 2,105 2,709 2,100 Share premium account 25,590 25,464 25,392 Capital redemption reserve 623 - 623 Investment in own shares (1,094) (1,234) (1,094) Revaluation reserve 5,507 3,994 5,507 Profit and loss account 51,740 42,205 46,350 Total shareholders' funds 84,471 73,138 78,878 Shareholders' funds are attributable to: Equity shareholders' funds 84,471 72,515 78,878 Non-equity shareholders' funds - 623 - 84,471 73,138 78,878 The Group Balance Sheets at 31 December 2003 and 30 June 2003 have been restated following implementation of accounting abstracts UITF 37 (Purchases and Sales of Own Shares) and UITF 38 (Accounting for ESOP Trusts), which requires the Group's investment in own shares to be deducted from shareholders' funds. Group Cash Flow Statement for the six months to 30 June 2004 (unaudited) Unaudited Unaudited Audited Six months to Six months to Year to June 2004 June 2003 December 2003 £'000s £'000s £'000s Net cash inflow/(outflow) from operating activities (note 4) 32,018 (11,066) 22,832 Dividend received from joint venture 336 355 355 Returns on investments and servicing of finance Interest received 1,246 1,287 2,021 Interest paid (1,036) (1,668) (3,127) Dividends paid to preference shareholders - (45) (62) Interest paid on finance leases (50) (33) (80) 160 (459) (1,248) Taxation Corporation tax paid (1,577) (2,384) (6,946) Capital expenditure and financial investment Payments to acquire fixed assets (1,831) (1,544) (3,034) Receipts from sale of fixed assets 188 1,411 9,205 (1,643) (133) 6,171 Acquisitions and disposals Purchase of subsidiary undertakings - (6,801) (6,801) Equity dividends paid (4,889) (4,479) (6,357) Net cash inflow/(outflow) before financing 24,405 (24,967) 8,006 Financing Issue of share capital, net of expenses 203 152 717 Redemption of preference shares - - (623) (Capital element of finance leases)/new finance leases (177) 183 (336) Net cash inflow/(outflow) from financing activities 26 335 (242) Net cash inflow/(outflow) (note 5) 24,431 (24,632) 7,764 Management of liquid resources (3,399) 4,900 421 Increase/(decrease) in cash 27,830 (29,532) 7,343 24,431 (24,632) 7,764 Statement of Movements in Shareholders' Funds for the six months to 30 June 2004 (unaudited) Unaudited Audited Unaudited Six months to Year to Six months to June 2003 December 2003 June 2004 (restated) (restated) £'000s £'000s £'000s Opening shareholders' funds (as previously stated) 79,972 70,280 70,280 Own shares reclassified (1,094) (1,234) (1,234) Opening shareholders' funds (as restated) 78,878 69,046 69,046 Retained profit for the period 5,390 3,940 8,084 Options exercised 203 152 717 LTIP shares vested - - 140 Redeemed preference shares - - (623) Share of joint venture revaluation surplus - - 1,514 Closing shareholders' funds 84,471 73,138 78,878 The Statements of Movement in Shareholders' Funds at 31 December 2003 and 30 June 2003 have been restated following implementation of accounting abstracts UITF 37 (Purchases and Sales of Own Shares) and UITF 38 (Accounting for ESOP Trusts), which requires the Group's investment in own shares to be deducted from shareholders' funds. Notes (unaudited) 1. Analysis of turnover and operating profit Unaudited six months to Unaudited six months to June 2004 June 2003 Profits/ Profits/ Turnover (losses) Turnover (losses) £'000s £'000s £'000s £'000s Fit Out 120,923 5,583 101,146 4,783 Construction 129,688 597 152,632 179 Infrastructure Services 176,506 2,910 177,352 3,437 Affordable Housing 177,328 5,674 117,991 2,672 Group activities - (3,389) 10,000 (1,933) 604,445 11,375 559,121 9,138 2. Taxation Taxation on current period profits is charged at 32% being the estimated effective rate of taxation for the year. 3. Earnings per ordinary share The calculation of the earnings per ordinary share is based on the weighted average number of 41,643,000 ordinary shares in issue during the period and on the profit for the period attributable to ordinary shareholders of £7,578,000. In calculating the diluted earnings per share, the weighted average number of ordinary shares is adjusted for the dilutive effect of share options by 1,569,000 and by a further 202,000 for contingent awards under the Long Term Incentive Plan giving an adjusted number of ordinary shares of 43,414,000. 4. Reconciliation of operating profit to net cash inflow/(outflow) from operating activities Unaudited Unaudited Audited Six months to Six months to Year to June 2004 June 2003 December 2003 £'000s £'000s £'000s Operating profit 11,375 9,138 21,970 Depreciation of tangible fixed assets 1,642 1,923 4,292 Amortisation of goodwill 1,551 1,505 3,191 Profit on sale of fixed assets (37) (624) (1,056) Decrease/(increase) in stocks and work in progress 391 (11,881) (15,767) Increase in debtors (3,247) (35,615) (18,367) Increase in creditors 20,343 24,488 28,569 Net cash inflow/(outflow) from operating activities 32,018 (11,066) 22,832 5. Reconciliation of net cash flow to movement in net funds Unaudited Unaudited Audited Six months to Six months to Year to June 2004 June 2003 December 2003 £'000s £'000s £'000s Increase/(decrease) in cash 24,431 (24,632) 7,764 Cash flow from decrease/(increase) in finance leases 177 (182) 336 Change in net funds resulting from cash flows 24,608 (24,814) 8,100 Loan notes redeemed - 6,801 6,801 Non cash movement - - (1,474) Change in net funds 24,608 (18,013) 13,427 Net funds/(debt) at start of period 12,313 (1,114) (1,114) Net funds/(debt) at end of period 36,921 (19,127) 12,313 6. Interim dividend The interim dividend of 5.25p per share (2003: 4.75p) will be paid on 10 September 2004 to shareholders on the register at 20 August 2004. The ex-dividend date will be 18 August 2004. 7. The results for the half years ended 30 June 2004 and 2003 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 2003 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. This information is provided by RNS The company news service from the London Stock Exchange

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