Preliminary results for the year ended 31 Dec 2010
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'the Group')
Preliminary results for the year ended 31 December 2010
Morgan Sindall Group plc, the construction and regeneration group, today announces its preliminary results for the year ended 31 December 2010.
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2010 |
2009 |
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Revenue |
£2,102m |
£2,214m |
-5% |
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Profit before tax, amortisation and non-recurring items |
£51.3m |
£51.5m |
no change |
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Profit before tax |
£40.7m |
£44.7m |
-9% |
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Year end cash balance |
£149m |
£118m |
+26% |
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Average cash balance |
£63m |
£31m |
+103% |
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Adjusted earnings per share1 |
92.9p |
93.9p |
-1% |
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Basic earnings per share |
70.5p |
77.9p |
-9% |
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Total dividend per share |
42.0p |
42.0p |
no change |
1 Basic earnings per share before amortisation of intangible assets and non-recurring items
Group Highlights
· Strong financial and operational performance reflecting the market leading positions of each of the Group's operating divisions
· Group continues to secure profitable market opportunities
· Full-service Affordable Housing offering created by extending response and planned maintenance capability through acquisition of the social housing business from Connaught
· Construction and Infrastructure Services divisions combined to deliver integrated service and increase efficiency
· Continued focus on cost control with £59m of accumulated annualised savings realised over the past three years, including £21m realised in 2010
· Strong balance sheet with net cash balance of £149m (2009: £118m), £100m of undrawn facilities and a defined benefit pension deficit of only £2m (2009: £3m)
· Total dividend maintained at 42.0p, reflecting balance sheet strength and confidence in future prospects
Outlook
· Order book increased to £3.6bn (2009: £3.2bn), supplemented by Urban Regeneration's development pipeline of £1.4bn (2009: £1.4bn)
· Group's capabilities and broad sector spread leave it well placed to meet challenges and opportunities in the market
· Current focus on targeting infrastructure opportunities in power generation and utilities, exploiting Affordable Housing's expanded capabilities, maintaining Fit Out's market share and generating construction work through investment-led opportunities
John Morgan, Executive Chairman, commented:
"2010 was a year of important strategic and operational progress for the Group. The restructuring we conducted to create Construction & Infrastructure leaves us better placed than ever to meet our clients' needs, while Lovell's expansion in response and planned maintenance opens up exciting new market opportunities.
"Trading remains challenging, but we continue to secure profitable projects. We are well placed to exploit opportunities presented in the short-term, whilst carefully monitoring market trends to maximise long-term growth potential. The Group remains financially strong with an exciting future."
Divisional Highlights
* Operating profit is profit from operations before amortisation of intangible assets and non-recurring items.
Construction & Infrastructure
· Operating profit* of £26.9m (2009: £30.1m) on revenue of £1.3bn (2009: £1.5bn)
· Margin improved to 2.2% (2009: 2.0%) through continuing impact of Perfect Delivery quality programme and cost reduction initiatives
· Robust performance in a competitive construction market and an infrastructure market affected by the transition between AMP cycles in the water sector
· Combining Construction and Infrastructure Services divisions delivered £6m of annualised savings and better positions the division to deliver integrated contracts that require both construction and infrastructure capabilities
· Order book increased by 21% to £2.0bn (2009: £1.6bn), providing good visibility and underlying stability
· Significant opportunities in the infrastructure market in power generation and utilities infrastructure
Affordable Housing
· Operating profit* increased 8% to £16.1m (2009: £14.9m) on revenue of £387m (2009: £374m); margin improved to 4.2% (2009: 4.0%)
· Significant strategic development: full service social housing offering created through Connaught acquisition, which substantially enhances division's response maintenance capability, enables it to secure new integrated maintenance and new build opportunities and significantly expands its client base
· Order book improved to £1.5bn (2009: £1.3bn)
· Division focused on exploiting its enhanced capability whilst also working with clients and the Investments unit to facilitate innovative funding mechanisms for social housing delivery
Fit Out
· Operating profit* increased 7% to £14.8m (2009: £13.8m) on significantly increased revenue up 43% to £415m (2009: £291m)
· Volume growth driven by larger projects in central London market
· Margin of 3.6% (2009: 4.7%) reflects highly competitive market
· Restructuring completed with Overbury now operating in the office, education, retail and hotel and leisure markets with non-office markets providing immediate growth opportunities
· Order book marginally ahead of last year at £180m (2009: £171m)
· Market expected to tighten in short-term in 2011
Urban Regeneration
· Improved operating profit* to £2.0m (2009: £0.7m) on increased revenue of £46m (2009: £32m)
· Improved performance achieved through increased open market residential sales, an increase in fee income and by exploiting land trading opportunities
· Project portfolio enhanced by acquisition of joint venture interests in three schemes; £2.0m one-off gain in addition to £2.0m operating profit
· Share of development pipeline held at £1.4bn (2009: £1.4bn); future potential enhanced as a result of development contracts being restructured in 2010
Investments
· Directors' valuation of investment portfolio as detailed on page 10 increased 39% to £53m (2009: £38m)
· Rise in portfolio value mainly due to increased value created from existing schemes and by reaching financial close on Hull BSF and Tayside Mental Health PFI
· £221m of construction revenue generated from contracts financed by the unit and its partners
· Expertise ideally positions Investments to create investment-led opportunities for the divisions
· Operating loss of £3.3m (2009: £3.0m)
Key Financial Information
· Year end cash balance £149m (2009: £118m)
· Average cash for the year £63m (2009: £31m)
· Profit before tax, amortisation and non-recurring items £51.3m (2009: £51.5m)
· Amortisation £5.5m (2009: £6.8m)
· Non-recurring items
o Merger costs of Construction and Infrastructure Services £(3.2)m
o Acquisition and integration costs of Powerminster and Connaught £(3.9)m
o One-off gain arising on acquisition of Urban Regeneration joint ventures £2.0m
o Total non-recurring items £(5.1)m
· Profit before tax (after amortisation and non-recurring items) £40.7m (2009: £44.7m)
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ENQUIRIES: |
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Morgan Sindall Group plc |
Tel: 020 7307 9200 |
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John Morgan, Executive Chairman |
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Paul Smith, Chief Executive |
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David Mulligan, Finance Director |
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Blythe Weigh Communications |
Tel: 020 71383204 |
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Tim Blythe |
Mobile: 07816 924626 |
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Paul Weigh |
Mobile: 07989 129658 |
Morgan Sindall will hold its preliminary results presentation for analysts and institutional investors at 9.30am on 22 February 2011 at Kent House, 14-17 Market Place, London W1W 8AJ.
A copy of the presentation and an audio webcast will be available from 12.00pm at www.corporate.morgansindall.com/investors.
This preliminary report and other information about Morgan Sindall Group plc are available on its website www.corporate.morgansindall.com/investors via the link to the corporate site.
Chairman and chief executive's statement
A robust performance despite challenging conditions
The Group delivered a robust financial performance in 2010 against the backdrop of continued economic challenges and reductions in public spending. We are reporting a small decline in revenue to £2,102m (2009: £2,214m) with profit before tax, amortisation and non-recurring items in line with last year at £51.3m (2009: £51.5m). Non-recurring items of £5.1m arose from the acquisition and integration of two maintenance businesses and the merger of the Construction and Infrastructure Services divisions offset by a one-off gain on Urban Regeneration's acquisition of certain joint venture interests. Profit before tax (after amortisation and non-recurring items) was £40.7m (2009: £44.7m).
Adjusted earnings per share before amortisation of intangible assets and non-recurring items was 92.9p (2009: 93.9p). The Board recommends a final dividend of 30.0p giving a total dividend for the year maintained at 42.0p (2009: 42.0p).
Our year end cash balance was strong at £149m (2009: £118m) and we achieved, as expected, an increased average cash balance for the year of £63m (2009: £31m). The Group's solid financial position, including committed banking facilities of £100m available until mid-2012, ensures that we retain the capability to fund opportunities as they arise.
Significant progress against our strategy in 2010
We continue to pursue the strategic goal of achieving leading positions in all of our chosen markets. 2010 was a year of strategic progress and we have improved our capability to deliver larger and more complex projects, added resources in strategically important sectors and streamlined our structure to serve our customers better.
Integrated capability improved through merger of Construction and Infrastructure Services divisions
The Construction and Infrastructure Services divisions merged in 2010 to create a new enlarged division, trading as Morgan Sindall. This has enhanced our capability to deliver integrated construction projects to clients covering all elements of design, construction and infrastructure. The merger created operating efficiencies and realised annualised cost savings of £6m but, more importantly, places the business in a stronger position to deliver efficiently to the private sector and respond to changing demands from the public sector. The division achieved an improved operating margin of 2.2% (2009: 2.0%) and operating profit of £26.9m (2009: £30.1m) from revenue of £1.3bn (2009: £1.5bn).
Acquisitions transform Affordable Housing capability
Affordable Housing delivered an improved financial performance in 2010 with marginally increased revenue of £387m (2009: £374m) and operating profit of £16.1m (2009: £14.9m) demonstrating that the division's full lifecycle approach to clients' housing needs and the ability to mix all forms of tenure is creating opportunities even in the most challenging market conditions. The division acquired Powerminster in June 2010, and this was complemented by securing new clients, staff and assets from Connaught in September 2010 to create a full-service social housing business covering new build open market and social housing, and planned and response maintenance. The Connaught interests were acquired out of administration and half of the clients approached have appointed Affordable Housing as maintenance contractor. These acquisitions place Affordable Housing in a stronger position to secure both response and integrated maintenance opportunities and open up new opportunities to provide a wider service to its expanded client base.
Growth in London fit out market in 2010
Fit Out achieved significant growth in revenue during 2010 increasing by 43% to £415m (2009: £291m), with operating profit increasing to £14.8m (2009: £13.8m). This performance was driven by a number of large schemes in the London office fit out market, primarily in the financial services sector. Very challenging conditions persist in the commercial fit out and refurbishment markets where intense competition is creating downward pressure on tender prices. Consequently the operating margin reduced to 3.6% (2009: 4.7%). During 2010 the division streamlined its structure by combining Vivid Interiors and Overbury to strengthen its operations in the retail, education, hotel and leisure sectors and thereby simplified the division's offering in the market. In addition, the strength of the Overbury brand will help accelerate growth in non-office markets where there is opportunity to increase market share.
Innovation improves Urban Regeneration development portfolio
In 2010 Urban Regeneration saw an improvement in activity and delivered an improved operating profit of £2.0m (2009: £0.7m) on revenue of £46m (2009: £32m). This performance is due to the division's flexible approach and its ability to exploit opportunities in the development market. An increase in development management fee income, improved open market residential sales, progress on a number of forward-sold new developments and land trading have contributed to this performance. Also during 2010 a significant effort has been made to enhance the existing portfolio of development schemes through restructuring and refinancing to improve opportunities in the medium-term.
New projects increase the size of the Group's investment portfolio
The Investments unit continued to generate construction opportunities for the operating divisions and also created long-term value in its portfolio. During the year £221m of construction revenue was generated from contracts financed by the unit and its partners for the Group's clients. The directors' valuation of the investment portfolio increased during the year to £53m (2009: £38m), largely as a result of achieving financial close on the Tayside Mental Health PFI and the Hull BSF programme. The basis of calculation for this valuation is on page 10.
Continued stability and financial robustness
The Group continued to maintain tight control of working capital and to drive cost efficiencies. Further restructuring realised annualised cost savings giving £21m of savings in the year and £59m of accumulated annualised savings achieved over the last three years. We remain highly flexible and able to adjust our organisational structure, either reducing costs or making investment available in response to changes in our markets. Our cash performance improved with average cash balances for the year of £63m (2009: £31m) and a year end cash balance of £149m (2009: £118m). This position is enhanced by committed banking facilities of £100m in place through to mid-2012 and a defined benefit pension deficit of only £2m (2009: £3m). Advances in the management of our supply chain through procurement initiatives will further improve operating efficiency, helping to protect our margins and maintain our competitiveness in the market in the short-term, and improving operating margins in the medium-term when markets recover.
Board changes
As previously announced, Simon Gulliford joined the Board on 1 March 2010 and Jon Walden retired from the Board on 6 May 2010. There were no other changes to the Board during 2010.
Improved forward order book
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Forward order book |
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2010 |
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2009 |
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Fit Out |
£180m |
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£171m |
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Construction & Infrastructure |
£2.0bn |
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£1.6bn |
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Affordable Housing |
£1.5bn |
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£1.3bn |
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Total |
£3.6bn |
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£3.2bn |
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Development pipeline |
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Urban Regeneration |
£1.4bn |
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£1.4bn |
The Group's forward order book at the year end strengthened by £0.4bn to £3.6bn (2009: £3.2bn). The forward order book represents anticipated future revenue from secured projects and an estimate of work to be awarded under framework arrangements. In addition the Urban Regeneration division maintained its development pipeline at £1.4bn (2009: £1.4bn).
Continued opportunities are created by market changes
The UK construction market is expected to weaken over the next three years and the industry is now anticipating the likely impacts of the changes in public spending following the Comprehensive Spending Review ('CSR'). Although capital expenditure directly from the public sector will fall in line with the CSR, the underlying need for infrastructure investment remains in the key sectors of health, housing, energy, transport and education.
Our capabilities in project financing, combined with the construction and life-cycle services offered by our divisions, place the Group in an excellent position to secure profitable opportunities as they arise. Overall we are pleased with the financial performance of the Group in 2010 while the enhancements we have made to the Group during the year leave us well placed to meet future challenges and opportunities presented by the market.
John Morgan Paul Smith
Executive Chairman Chief Executive
22 February 2011
Divisional performance
The performance of each of the operating divisions for the year ended 31 December 2010 is set out below.
* Operating profit is profit from operations before amortisation of intangible assets and non-recurring items.
CONSTRUCTION & INFRASTRUCTURE
Margin improvement underpins financial performance
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Construction |
Infrastructure |
Total |
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Revenue |
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2010 |
£737m |
£513m |
£1,250m |
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2009 |
£743m |
£770m |
£1,513m |
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Operating Profit* |
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2010 |
£14.3m |
£12.6m |
£26.9m |
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2009 |
£13.0m |
£17.1m |
£30.1m |
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Operating Margin |
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2010 |
1.9% |
2.5% |
2.2% |
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2009 |
1.7% |
2.2% |
2.0% |
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Order Book |
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2010 |
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£1,972m |
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2009 |
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£1,634m |
Revenue for the year reduced by 17% due to a slowdown in the infrastructure market caused by the timing of some major projects compounded by the completion of some long-term frameworks in the utilities sector. The operating profit margin has increased to 2.2% (2009: 2.0%) due to a combination of realised cost savings and improving margin performance underpinned by the division's improving operational performance.
The division's operating profit of £26.9m (2009: £30.1m) represents a robust performance given the competitive pressures in the market and the change in priorities brought about by the CSR.
Key projects and frameworks secured in 2010
The Construction & Infrastructure division continued to perform well, in securing a number of high quality projects and frameworks during 2010. Significant projects included the five-year Lee Tunnel for Thames Water, a £417m joint venture project in which the division has a 50% share, the successful appointment, in joint venture, to the Highways Agency's four-year £2bn motorways framework and the £400m Hull Building Schools for the Future programme. In addition, the division has been appointed, in joint venture, to the five-year £75m Yorkshire Water framework and a ten-year £500m framework for E.ON in central England.
Cautious construction outlook with opportunities in infrastructure
We remain cautious about the outlook in the short-term due to the sharp reduction in public sector capital spending and the anticipated modest recovery of the commercial sector. Opportunities remain in the infrastructure market due to the planned investment in power generation and utilities' infrastructure.
The forward order book for Construction & Infrastructure has increased by £0.4bn to £2.0bn (2009: £1.6bn). This level of secured workload provides underlying stability for the division whilst its enhanced capability ensures that it remains in a strong position to secure further high quality, technically demanding projects. In addition the division is working with both Urban Regeneration, on the Wakefield and Doncaster regeneration schemes, and the Investments unit to create innovative financing options to enable projects to progress.
AFFORDABLE HOUSING
Improved financial performance from expanded capabilities
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Revenue |
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2010 |
£387m |
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2009 |
£374m |
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Operating Profit* |
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2010 |
£16.1m |
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2009 |
£14.9m |
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Operating Margin |
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2010 |
4.2% |
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2009 |
4.0% |
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Order Book |
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2010 |
£1,468m |
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2009 |
£1,333m |
Although it has been another tough year for open market housing due to the lack of available mortgage finance, the impact of new acquisitions has enabled Affordable Housing to increase revenue in 2010 to £387m (2009: £374m). The operating profit margin has been improved to 4.2% (2009: 4.0%) and operating profit was £16.1m (2009: £14.9m). This increase in revenue and profit was largely driven by the growth in the division's response and planned maintenance capability.
Full service provision created by extending response maintenance capability
The Affordable Housing division has extended its client base during 2010 and continued to secure key schemes across all workstreams in the affordable housing market. As a direct result of the Powerminster and Connaught acquisitions, the division has been able to secure new long-term contracts with 45 local authorities and housing associations. The acquisitions have transformed Affordable Housing and helped it to become a full-service provider of affordable housing covering open market and new build social housing, planned and response maintenance. They have also reinforced the division's national coverage as well as extending its geographic coverage in the south and south-west of England.
In addition to the acquisition, key new project wins in 2010 included a three-year, £75m redevelopment framework for Glasgow City council, a £45m new build social housing contract to create 545 new homes for West Lothian Council and a position on the £135m four-year framework to deliver 1,500 new homes in central Scotland for Places for People. The division also secured three schemes for Southampton City Council to build energy efficient homes worth over £30m. Another notable contract secured was its first project under the Homes and Communities Agency's Delivery Partner Panel at Longfield Drive, Bradford (£6m).
Innovative approaches to address changes in funding model
The value of the division's forward order book at the start of 2011 was improved at £1.5bn (2009: £1.3bn). The division has largely completed the integration of Powerminster and Connaught and expects further expansion of its activities in 2011 as it seeks to build on these broader capabilities and exploit both response and integrated maintenance opportunities. In addition, the division is pursuing cross-subsidy mixed tenure projects as well as other innovative financing options with the Investments unit to address the changes in the UK social housing model announced in the CSR.
FIT OUT
Market recovery drives significant revenue growth and improved operating profit
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Revenue |
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2010 |
£415m |
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2009 |
£291m |
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Operating Profit* |
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2010 |
£14.8m |
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2009 |
£13.8m |
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Operating Margin |
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2010 |
3.6% |
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2009 |
4.7% |
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Order Book |
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2010 |
£180m |
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2009 |
£171m |
The improvement in the commercial fit out market led to Fit Out's revenue increasing significantly by 43% to £415m (2009: £291m). This growth was due in the most part to a higher volume of large projects in the Central London market driven by financial services clients taking advantage of large prime floorplates being available. Operating profit was £14.8m (2009: £13.8m) driven by revenue growth, tight control of overheads, continuing focus on profitable opportunities and close collaboration with the supply chain to realise efficiencies. The operating profit margin reduced to 3.6% (2009: 4.7%) due primarily to continued price competition in the market.
Key projects secured across a broad spread of sectors
Fit Out continued to pursue and secure high quality fit out and refurbishment projects during 2010. Key contracts secured for the division included the delivery of a media learning campus for the University of Salford, refurbished offices in Glasgow for Hewlett Packard and for Microsoft in Reading. In London significant contracts included the refurbishment of the Shell office headquarters building on the South Bank, the fit out of new offices for Macquarie Bank, the Bank of China and the Bank of Tokyo, and new trading facilities at Barclays Capital. In addition, the division secured projects under long-term frameworks for RBS and Lloyds Banking Group. In the education and leisure sectors, key projects included the refurbishment of the London Palladium and Thompson's Hotel in Belgravia as well as education sector projects for the University of London and London Metropolitan University.
Outlook
The division's forward order book is at a similar level to the start of 2010 at £180m (2009: £171m). Both the London and regional office markets are expected to remain competitive and tighten in 2011. In London the lack of major property developments completing in 2011 will mean the fit out market is expected to tighten in the short-term.
URBAN REGENERATION
Modest improvement in the market drives recovery in operating profit
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Revenue |
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2010 |
£46m |
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2009 |
£32m |
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Operating Profit* |
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2010 |
£2.0m |
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2009 |
£0.7m |
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Share of development pipeline |
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2010 |
£1.4bn |
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2009 |
£1.4bn |
Urban Regeneration saw a modest improvement in market conditions, which helped it to deliver revenue of £46m (2009: £32m). This growth was delivered through strong sales of open market residential units, an increase in development management fee income from regeneration projects, progress on a number of forward-sold new developments and land trading opportunities. The increased activity led to a recovery in operating profit to £2.0m (2009: £0.7m). Also as part of its strategy to enhance its portfolio the division was successful during the year in buying out its joint venture partners on three schemes, which generated a one-off gain of £2.0m in addition to the division's operating profit of £2.0m.
Progress made on major regeneration schemes
The division continued with its strategy of targeting and developing high quality regeneration opportunities. During the year it commenced construction of two new major regeneration projects; at Doncaster, a £300m town centre redevelopment where the first phase comprises 185,000 sqft of new council offices and at Canning Town where the first phase will deliver 271 residential apartments in a 21 storey tower. It also brought forward the latest phase of its development at Eurocentral Business park in Lanarkshire with the construction of two new energy efficient distribution units totalling 150,000 sqft. At Wakefield, following the completion of the first phase of apartments, offices and retail, construction has begun on the new council offices. 2010 also saw the release and subsequent sale of the final 54 residential units at Chatham Place, Reading.
Focus on development of existing portfolio
The division's share of its development pipeline, its best measure of forward activity, remains at £1.4bn. This is due to the division concentrating its resources on continuing to develop its existing portfolio whilst there have been few quality development opportunities in the market during 2010. This portfolio is now in an enhanced position and through the restructuring of deals the division is well placed to act on opportunities as they present themselves in the medium-term.
INVESTMENTS
Further growth in portfolio's value to £53m
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Investment Portfolio |
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2010 |
£53m |
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2009 |
£38m |
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Revenue |
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2010 |
£4m |
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2009 |
£3m |
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Operating Profit* |
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2010 |
(£3.3m) |
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2009 |
(£3.0m) |
2010 Review
The directors' valuation of the investment portfolio increased significantly during 2010 to £53m (2009: £38m). This is due to both increased value created from existing schemes and the achievement of financial close during 2010 on the Hull BSF Programme and Tayside Mental Health PFI Project. Revenue was £4m (2009: £3m) and the operating loss was £3.3m (2009: £3.0m). This reflects the significant upfront costs of creating and securing project opportunities.
The role of Investments is likely to become increasingly important as changes to procurement methods and reductions in public sector spend through traditional routes affect the market. Its ability to develop alternative financing options can help the public sector achieve its underlying construction needs, particularly in health, education, infrastructure and housing. The structure and expertise of Investments places the Group in an excellent position to create opportunities for construction-related projects and reinvigorate schemes in an uncertain funding environment.
Directors' valuation of investment portfolio
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Equity and sub-debt |
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Valuation |
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Invested |
£14.5m |
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£41m |
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Committed |
£12.0m |
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£12m |
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£26.5m |
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£53m |
At 31 December 2010 the Group had total equity and subordinated debt, invested and committed, in its portfolio of PPP/PFI concessions of £26.5m (2009: £19.2m). Of this total, £14.5m had been invested and £12.0m is committed to be invested over the next three years.
At 31 December 2010 the directors' valuation of the PPP/PFI concession portfolio, prior to the application of Group tax, is £53m (2009: £38m). The valuation is derived from the Group's latest detailed financial models discounted using rates appropriate to the particular scheme's nature and stage of development. These vary from 7.0% to 9.0% (post tax). Committed, but not currently invested, subordinated debt is added to this discounted cash flow value to give the directors' valuation. Investment properties are valued on a traditional basis using property yields that reflect the nature of the leases and stability of the tenants.
The valuation of this portfolio is based on discounting expected future cash flows but does not include potential refinancing gains or projects at preferred bidder stage or profit made by Investments from providing services or profit made by other parts of the Group that perform the construction, maintenance or facilities management work.
Financial review
Robust 2010 performance
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2010 |
2009 |
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Revenue |
£2,102m |
£2,214m |
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Profit from operations before amortisation and non-recurring items |
£52.4m |
£50.5m |
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Profit before tax, amortisation and non-recurring items |
£51.3m |
£51.5m |
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Profit before tax |
£40.7m |
£44.7m |
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Year end cash balance |
£149m |
£118m |
Where stated, operating profit is profit from operations before amortisation and non-recurring items.
Overview
Although 2010 has been another difficult year for the economy, the Group has delivered robust results in challenging market conditions. The Group has continued to shape its divisions either through internal merger and restructure or through acquisition, to better address the markets in which they operate. The amended structure provides a strong platform from which to exploit opportunities and to provide future growth when conditions in the Group's markets improve. The Group continues to address its cost base and this has resulted in annualised cost savings of £59m being realised since the start of 2008. Further action will continue to be taken as necessary.
In the year the Group has significantly extended its Affordable Housing offering through the acquisition of Powerminster in June and, in September, by acquiring from the administrators of Connaught Partnerships Limited the Connaught social housing maintenance business through the ability to pursue the novation of certain contracts, together with invoiced and uninvoiced debts. Provisional goodwill and other intangible assets of £33.9m have arisen on these two acquisitions and the Group believes that these transactions will transform the division, which now provides a unique full affordable housing service covering planned maintenance, response maintenance and new build open market and social housing.
Non-recurring items
The Group has incurred non-recurring costs during the year of £3.9m in acquiring and integrating the Connaught and Powerminster businesses and £3.2m in merging its Construction and Infrastructure Services divisions. These costs were offset by a one-off gain of £2.0m that arose on Urban Regeneration's purchase of certain joint venture interests.
Revenue of £2,102m and operating profit of £52.4m
Revenue has fallen by 5% to £2,102m (2009: £2,214m), with the main components being a fall of £263m in Construction & Infrastructure offset by rises of £124m in Fit Out and smaller rises in Affordable Housing and Urban Regeneration. Most of the increase in revenue in Affordable Housing is attributable to the Powerminster and Connaught acquisitions.
Operating profit has risen by £1.9m to £52.4m (2009: £50.5m), with increases in Fit Out (£1.0m), Affordable Housing (£1.2m), Urban Regeneration (£1.3m) and Group activities (£1.9m) being offset by a decrease of £3.2m in Construction & Infrastructure. The Investments unit incurred an operating loss of £3.3m (2009: £3.0m).
Construction & Infrastructure delivered a stronger operating margin at 2.2% (2009 2.0%). The operating margin in Fit Out has fallen to 3.6% (2009: 4.7%), due to continued tough market conditions and at Affordable Housing it improved to 4.2% (2009: 4.0%).
Net finance expense of £1.1m
The net finance expense of £1.1m compares with net finance income of £1.0m in 2009. This change is due to £1.7m of other finance charges being recognised in the net finance expense in 2010. Lower interest rates on what have been higher average cash balances, have also contributed to the impact on net finance cost.
Overall, profit before tax, amortisation and non-recurring items is in line with the previous year at £51.3m (2009: £51.5m). Amortisation in the year was £5.5m (2009: £6.8m).
Tax
The Group's tax charge of £10.9m (2009: £11.8m) represents an effective tax rate of 26.8% (2009: 26.4%). The effective tax rate is lower than the standard rate of corporation tax largely due to prior year adjustments of £0.9m (2009: £1.2m). The Group continues to discuss with HMRC the corporation tax treatment of the fair value adjustments which arose following the 2007 acquisition of certain businesses and assets from Amec. As a result of these discussions, the Group reduced the payments of corporation tax which it would otherwise have made to HMRC during 2010 by £3.9m. In 2009 the Group reduced its corporation tax payments by £9.2m and received repayments from HMRC of £9.5m. No benefit has been recognised in the tax charge in the income statement in respect of this matter, as discussions are still progressing and the eventual outcome is unclear.
Earnings per share
Adjusted basic earnings per share before amortisation and non-recurring items have fallen by 1% from 93.9p to 92.9p, reflecting the slight fall in adjusted profit before tax and the slight increase in the effective tax rate. Basic earnings per share have fallen by 9% from 77.9p to 70.5p.
Dividend
The Board recommends a final dividend of 30.0p payable on 16 May 2011 to shareholders on the register at the close of business on 26 April 2011. This will give a total dividend for the year maintained at 42.0p (2009: 42.0p). This is covered by adjusted earnings per share 2.2 times (2009: 2.2 times). The Group's long-term policy remains one of increasing the dividend broadly in line with the growth in earnings, aiming to cover the dividend by earnings between two-and-a-half and three times. Although in the short-term the cover has remained at 2.2 times, the Board is comfortable with this as the dividend is covered by operating cash flows. The Group will seek to re-establish the longer-term level of cover as and when profits increase.
Continuing balance sheet strength
Total equity increased to £221.7m (2009: £209.3m). The number of shares in issue at 31 December 2010 was 43.2m (2009: 43.2m). The small increase of 28,000 shares was due to the exercise of options under employee share option schemes.
Group has substantial year end cash balances
The cash position of the Group at the year end was robust at £149m (2009: £118m). Average cash during 2010 increased to £63m (2009: £31m).
The net cash inflow from operating activities was £93.1m (2009: £25.0m). This is primarily the result of the working capital improvement of £53.7m (2009: worsening of £31.3m). Additionally, the Group has £13.9m (2009: £9.0m) of shared equity receivables relating to open market sales in the Affordable Housing and Urban Regeneration divisions. There were net payments of £35.2m to acquire subsidiaries and other businesses (2009: £1.1m), capital expenditure was £3.1m (2009: £7.5m) and payments to increase interests in joint ventures were £4.3m (2009: £4.2m), all of which reflect ongoing investment in the business. Cash dividends of £0.8m (2009: £2.2m) were received from joint ventures. After tax payments, dividends and servicing of finance, the net increase in cash and cash equivalents was £30.9m (2009: £2.6m decrease). It is anticipated that these cash resources will be available for the development of the Group's businesses, either to fund acquisitions or invest in working capital as required.
Banking facilities of £100m committed until 2012
The Group has £100m of committed facilities available through to mid-2012. The banking facilities are subject to financial covenants, all of which have been met during the year. These committed facilities supplement the cash balances in providing financial security to the Group.
Consistent approach to treasury risk management
The Group has clear treasury policies which set out approved counterparties and determine the maximum period of borrowings and deposits. Deposits are restricted to periods of no longer than three months. The Group has very limited exposure to foreign exchange risk because its operations are based almost entirely in the UK; non-UK suppliers are used only occasionally.
Although the Group does not use derivatives, some of its joint venture businesses use interest rate swaps to hedge floating interest rate exposures and Retail Prices Index swaps to hedge inflation exposure. The Group considers that its exposure to interest rate and inflation movements is appropriately managed.
Related party transactions
Related party transactions are disclosed in note 9 following this statement.
Key risks
Key risks are disclosed in note 12 following this statement.
Consolidated income statement (unaudited)
For the year ended 31 December 2010
|
|
|
2010 |
|
2009 |
|
|
Notes |
£m |
|
£m |
|
Continuing operations |
|
|
|
|
|
Revenue |
4 |
2,101.9 |
|
2,213.5 |
|
|
|
|
|
|
|
Cost of sales |
|
(1,884.7) |
|
(1,993.0) |
|
|
|
|
|
|
|
Gross profit |
|
217.2 |
|
220.5 |
|
|
|
|
|
|
|
Amortisation of intangible assets |
4 |
(5.5) |
|
(6.8) |
|
|
|
|
|
|
|
Non-recurring items |
4 |
(5.1) |
|
- |
|
|
|
|
|
|
|
Other administrative expenses |
|
(165.2) |
|
(170.1) |
|
|
|
|
|
|
|
Total administrative expenses |
|
(175.8) |
|
(176.9) |
|
|
|
|
|
|
|
Share of net profit of equity accounted joint ventures |
4 |
0.1 |
|
0.1 |
|
|
|
|
|
|
|
Other gains and losses |
|
0.3 |
|
- |
|
|
|
|
|
|
|
Profit from operations |
4 |
41.8 |
|
43.7 |
|
|
|
|
|
|
|
Finance income |
|
1.7 |
|
3.3 |
|
|
|
|
|
|
|
Finance costs |
|
(2.8) |
|
(2.3) |
|
|
|
|
|
|
|
Net finance (costs)/income |
|
(1.1) |
|
1.0 |
|
|
|
|
|
|
|
Profit before income tax expense |
4 |
40.7 |
|
44.7 |
|
|
|
|
|
|
|
Income tax expense |
5 |
(10.9) |
|
(11.8) |
|
|
|
|
|
|
|
Profit for the year |
|
29.8 |
|
32.9 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Owners of the Company |
|
29.9 |
|
33.0 |
|
Non-controlling interests |
|
(0.1) |
|
(0.1) |
|
|
|
|
|
|
|
|
|
29.8 |
|
32.9 |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
From continuing operations |
|
|
|
|
|
Basic |
7 |
70.5p |
|
77.9p |
|
|
|
|
|
|
|
Diluted |
7 |
69.7p |
|
77.1p |
There were no discontinued operations in either the current or comparative year.
Consolidated statement of comprehensive income (unaudited)
For the year ended 31 December 2010
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
|
|
|
|
|
|
Profit for the year |
|
29.8 |
|
32.9 |
|
|
|
|
|
|
|
Other comprehensive income/(expense): |
|
|
|
|
|
Actuarial gain/(loss) arising on retirement benefit obligation |
|
0.8 |
|
(0.6) |
|
Deferred tax on retirement benefit obligation |
|
(0.3) |
|
- |
|
Movement on cash flow hedges in equity accounted joint ventures |
|
(1.4) |
|
0.6 |
|
|
|
|
|
|
|
Other comprehensive expense for the year, net of income tax |
|
(0.9) |
|
- |
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
28.9 |
|
32.9 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Owners of the Company |
|
29.0 |
|
33.0 |
|
Non-controlling interests |
|
(0.1) |
|
(0.1) |
|
|
|
|
|
|
|
|
|
28.9 |
|
32.9 |
Consolidated balance sheet (unaudited)
At 31 December 2010
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
Non-current assets |
|
|
|
|
|
Goodwill |
|
213.2 |
|
184.4 |
|
Other intangible assets |
|
16.6 |
|
16.6 |
|
Property, plant and equipment |
|
27.8 |
|
31.3 |
|
Investment property |
|
4.3 |
|
1.8 |
|
Investments in equity accounted joint ventures |
|
45.4 |
|
50.2 |
|
Investments |
|
0.1 |
|
0.1 |
|
Shared equity loan receivables |
|
13.9 |
|
9.0 |
|
Deferred tax assets |
|
3.2 |
|
3.8 |
|
|
|
324.5 |
|
297.2 |
|
Current assets |
|
|
|
|
|
Inventories |
|
141.1 |
|
141.2 |
|
Amounts due from construction contract customers |
|
178.4 |
|
192.5 |
|
Trade and other receivables |
|
229.2 |
|
142.3 |
|
Cash and cash equivalents |
|
148.6 |
|
117.7 |
|
|
|
697.3 |
|
593.7 |
|
|
|
|
|
|
|
Total assets |
|
1,021.8 |
|
890.9 |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
(667.2) |
|
(576.3) |
|
Amounts due to construction contract customers |
|
(63.2) |
|
(49.0) |
|
Current tax liabilities |
|
(30.6) |
|
(27.3) |
|
Finance lease liabilities |
|
(1.7) |
|
(1.8) |
|
Provisions |
|
(14.1) |
|
- |
|
|
|
(776.8) |
|
(654.4) |
|
Net current liabilities |
|
(79.5) |
|
(60.7) |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
|
- |
|
(0.1) |
|
Finance lease liabilities |
|
(6.0) |
|
(7.1) |
|
Retirement benefit obligation |
|
(1.9) |
|
(3.2) |
|
Provisions |
|
(15.4) |
|
(16.8) |
|
|
|
(23.3) |
|
(27.2) |
|
Total liabilities |
|
(800.1) |
|
(681.6) |
|
|
|
|
|
|
|
Net assets |
|
221.7 |
|
209.3 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
2.2 |
|
2.2 |
|
Share premium account |
|
26.7 |
|
26.7 |
|
Capital redemption reserve |
|
0.6 |
|
0.6 |
|
Own shares |
|
(5.9) |
|
(6.0) |
|
Hedging reserve |
|
(3.1) |
|
(1.7) |
|
Retained earnings |
|
201.4 |
|
187.6 |
|
Equity attributable to owners of the Company |
|
221.9 |
|
209.4 |
|
Non-controlling interests |
|
(0.2) |
|
(0.1) |
|
|
|
|
|
|
|
Total equity |
|
221.7 |
|
209.3 |
Consolidated cash flow statement (unaudited)
For the year ended 31 December 2010
|
|
|
2010 |
|
2009 |
|
|
Notes |
£m |
|
£m |
|
|
|
|
|
|
|
Net cash inflow from operating activities |
8 |
93.1 |
|
25.0 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Interest received |
|
1.9 |
|
3.4 |
|
Dividend from joint ventures |
|
0.8 |
|
2.2 |
|
Proceeds on disposal of property, plant and equipment |
|
1.1 |
|
1.0 |
|
Purchases of property, plant and equipment |
|
(3.1) |
|
(7.5) |
|
Payments to acquire interests in joint ventures |
|
(4.3) |
|
(4.2) |
|
Payments for the acquisition of subsidiaries and other businesses |
|
(35.2) |
|
(1.1) |
|
|
|
|
|
|
|
Net cash outflow from investing activities |
|
(38.8) |
|
(6.2) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Net payments to acquire own shares |
|
- |
|
(0.1) |
|
Dividends paid |
|
(17.8) |
|
(17.7) |
|
Repayments of obligations under finance leases |
|
(5.6) |
|
(3.7) |
|
Proceeds on issue of share capital |
|
- |
|
0.1 |
|
|
|
|
|
|
|
Net cash outflow from financing activities |
|
(23.4) |
|
(21.4) |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
30.9 |
|
(2.6) |
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
117.7 |
|
120.3 |
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
|
|
|
|
Bank balances and cash |
|
148.6 |
|
117.7 |
Consolidated statement of changes in equity (unaudited)
For year ended 31 December 2010
|
|
Attributable to owners of the Company |
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
Share premium account |
|
Capital redemption reserve |
|
Own shares |
|
Hedging reserve |
|
Retained earnings |
|
Total |
|
Non-controlling interests |
|
Total equity |
|
|
£m |
|
£m |
|
£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 |
|
- |
|
192.3 |
|
Total comprehensive income for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
- |
|
- |
|
- |
|
- |
|
- |
|
33.0 |
|
33.0 |
|
(0.1) |
|
32.9 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss arising on retirement benefit obligation |
- |
|
- |
|
- |
|
- |
|
- |
|
(0.6) |
|
(0.6) |
|
- |
|
(0.6) |
|
Movement on cash flow hedges in equity accounted joint ventures |
- |
|
- |
|
- |
|
- |
|
0.6 |
|
- |
|
0.6 |
|
- |
|
0.6 |
|
Total comprehensive income for the year, net of income tax |
- |
|
- |
|
- |
|
- |
|
0.6 |
|
32.4 |
|
33.0 |
|
(0.1) |
|
32.9 |
|
Share-based payments |
- |
|
- |
|
- |
|
- |
|
- |
|
1.0 |
|
1.0 |
|
- |
|
1.0 |
|
Issue of shares at a premium |
- |
|
0.1 |
|
- |
|
- |
|
- |
|
- |
|
0.1 |
|
- |
|
0.1 |
|
Exercise of share options |
- |
|
- |
|
- |
|
0.5 |
|
- |
|
(0.5) |
|
- |
|
- |
|
- |
|
Movement on deferred tax asset on share-based payments |
- |
|
- |
|
- |
|
- |
|
- |
|
0.8 |
|
0.8 |
|
- |
|
0.8 |
|
Own shares acquired in the year |
- |
|
- |
|
- |
|
(0.1) |
|
- |
|
- |
|
(0.1) |
|
- |
|
(0.1) |
|
Dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final dividend for 2008 |
- |
|
- |
|
- |
|
- |
|
- |
|
(12.7) |
|
(12.7) |
|
- |
|
(12.7) |
|
Interim dividend for 2009 |
- |
|
- |
|
- |
|
- |
|
- |
|
(5.0) |
|
(5.0) |
|
- |
|
(5.0) |
|
Balance at 31 December 2009 |
2.2 |
|
26.7 |
|
0.6 |
|
(6.0) |
|
(1.7) |
|
187.6 |
|
209.4 |
|
(0.1) |
|
209.3 |
|
Balance at 1 January 2010 |
2.2 |
|
26.7 |
|
0.6 |
|
(6.0) |
|
(1.7) |
|
187.6 |
|
209.4 |
|
(0.1) |
|
209.3 |
Consolidated statement of changes in equity (unaudited) (continued)
For year ended 31 December 2010
|
|
Share capital |
|
Share premium account |
|
Capital redemption reserve |
|
Own shares |
|
Hedging reserve |
|
Retained earnings |
|
Total |
|
Non-controlling interests |
|
Total equity |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2010 |
2.2 |
|
26.7 |
|
0.6 |
|
(6.0) |
|
(1.7) |
|
187.6 |
|
209.4 |
|
(0.1) |
|
209.3 |
|
Total comprehensive income for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
- |
|
- |
|
- |
|
- |
|
- |
|
29.9 |
|
29.9 |
|
(0.1) |
|
29.8 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain arising on retirement benefit obligation |
- |
|
- |
|
- |
|
- |
|
- |
|
0.8 |
|
0.8 |
|
- |
|
0.8 |
|
Deferred tax on retirement benefit obligation |
- |
|
- |
|
- |
|
- |
|
- |
|
(0.3) |
|
(0.3) |
|
- |
|
(0.3) |
|
Movement on cash flow hedges in equity accounted joint ventures |
- |
|
- |
|
- |
|
- |
|
(1.4) |
|
- |
|
(1.4) |
|
- |
|
(1.4) |
|
Total comprehensive income for the year, net of income tax |
- |
|
- |
|
- |
|
- |
|
(1.4) |
|
30.4 |
|
29.0 |
|
(0.1) |
|
28.9 |
|
Share-based payments |
- |
|
- |
|
- |
|
- |
|
- |
|
0.7 |
|
0.7 |
|
- |
|
0.7 |
|
Issue of shares at a premium |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
Exercise of share options |
- |
|
- |
|
- |
|
0.1 |
|
- |
|
(0.1) |
|
- |
|
- |
|
- |
|
Movement on deferred tax asset on share-based payments |
- |
|
- |
|
- |
|
- |
|
- |
|
0.6 |
|
0.6 |
|
- |
|
0.6 |
|
Own shares acquired in the year |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
Dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second interim dividend for 2009 |
- |
|
- |
|
- |
|
- |
|
- |
|
(12.7) |
|
(12.7) |
|
- |
|
(12.7) |
|
Interim dividend for 2010 |
- |
|
- |
|
- |
|
- |
|
- |
|
(5.1) |
|
(5.1) |
|
- |
|
(5.1) |
|
Balance at 31 December 2010 |
2.2 |
|
26.7 |
|
0.6 |
|
(5.9) |
|
(3.1) |
|
201.4 |
|
221.9 |
|
(0.2) |
|
221.7 |
Consolidated statement of changes in equity (unaudited) (continued)
For year ended 31 December 2010
Share premium account
The share premium account represents the difference between the fair value of consideration received and the nominal value of the shares issued.
Capital redemption reserve
The capital redemption reserve was created on the redemption of preference shares in 2003.
Own shares
The shares are held as 'treasury shares' and represent the cost to Morgan Sindall Group plc of shares purchased in the market and held by the Morgan Sindall Employee Benefit Trust (the 'Trust') to satisfy options under the Group's share incentive schemes.
The number of shares held by the Trust at 31 December 2010 was 781,444 (2009: 797,034).
Cash flow hedging reserve
Under cash flow hedge accounting, movements on the effective portion of hedges are recognised through the hedging reserve, whilst any ineffectiveness is taken to the income statement.
Notes (unaudited)
For the year ended 31 December 2010
1. General information
The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2009. The financial information for the year ended 31 December 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2010 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.
This preliminary announcement has been prepared solely to assist shareholders in assessing the strategies of the Board and in gauging their potential to succeed. It should not be relied on by any other party or for other purposes. Forward looking statements have been made by the directors in good faith based on the information available to them up to the time of their approval of this preliminary results announcement. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business factors, underlying any such forward-looking information.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.
In accordance with the Companies Act 2006, the Company will make the annual report and accounts for the year ended 31 December 2010 that comply with IFRS available on the Company's website on or about 21 March 2011. If a shareholder has requested to continue to receive hard copy of the annual report and accounts they will be posted on or about 21 March 2011. They will be delivered to the Registrar of Companies following the Company's annual general meeting.
2. Basis of preparation
Morgan Sindall's activities and the key risks facing its future development, performance and position are set out in this preliminary announcement and in the Group's annual report and accounts for the year ended 31 December 2010. The directors have reviewed the current and projected position of the Group and have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual financial statements.
3. Accounting policies
There have been no significant changes to accounting policies, presentation or methods of preparation since the financial statements for the year ended 31 December 2009 and the period to 30 June 2010, except as described below.
In the current financial year, the Group has adopted IFRS 3 'Business Combinations' (revised 2008) and IFRIC 12, 'Service Concession Arrangements'.
The most significant changes to the Group's previous accounting policies for business combinations are as follows:
· Acquisition related costs which previously would have been included in the cost of a business combination are included in administrative expenses as they are incurred;
· Any pre-existing equity interest in the entity acquired is remeasured to fair value at the acquisition date, with any resulting gain or loss included in profit or loss;
Notes continued (unaudited)
For the year ended 31 December 2010
3. Accounting policies (continued)
· Any changes in the Group's ownership interest subsequent to the date of obtaining control are recognised directly in equity, with no adjustment to goodwill; and
· Any changes to the cost of an acquisition, including contingent consideration, resulting from events after the date of the acquisition are recognised in profit or loss.
The adoption of IFRS 3 'Business Combinations' is not considered to have had a material impact in the period.
IFRIC 12 addresses the accounting by private sector operators involved in the provision of public sector infrastructure assets and services where the assets are not controlled by the operator, typically under PPP and PFI arrangements. Under IFRIC 12 infrastructure assets are not recognised as property, plant and equipment of the operator but recognised as a financial asset as the operator has an unconditional right to receive a specified amount of cash or other financial asset over the life of the agreement. As a consequence of this treatment the operator now recognises investment income in respect of the financial asset on an effective interest basis. Additionally, the timing of profit recognition changes over the lifetime of the contract. Importantly, there is no change in the overall project cash flows arising, or on the directors' valuation. IFRIC 12 has been adopted in the period with retrospective effect. The effect of adoption on comparative amounts was immaterial, and so comparative amounts have not been restated.
Accounting for construction and service contracts
Recognition of revenue and margin is based on judgments made in respect of the ultimate profitability of a contract. Such judgments are arrived at through the use of estimates in relation to the costs and value of work performed to date and to be performed in bringing contracts to completion, including satisfaction of maintenance responsibilities. These estimates are made by reference to recovery of pre-contract costs, surveys of progress against the construction programme, changes in work scope, the contractual terms under which the work is being performed, costs incurred, and external certification of the work performed. The Group has appropriate control procedures to ensure all estimates are determined on a consistent basis and subject to appropriate review and authorisation.
4. Business segments
The Group has merged its Construction and Infrastructure Services segments, which are now reported in the new Construction & Infrastructure segment. The comparative result for the year to 31 December 2009 has been restated. Revenue is generated from each of the Group's operating segments as follows:
· Construction & Infrastructure: offers a national service for design, construction and infrastructure to public and private clients;
· Affordable Housing: development and construction of social and open market affordable housing, and planned and response maintenance of social housing;
· Fit Out: undertakes refurbishment and fit out projects in the offices, education, retail & hotel and leisure markets;
· Urban Regeneration: development through partnership agreements of large-scale mixed use urban regeneration projects with a view to letting and/or sale;
· Investments: facilitates project finance and provides investment management expertise to the Group's PPP/PFI activities and investment portfolio; and
· Group Activities: represents costs and income arising from corporate activities which cannot be allocated to the operating segments. These include costs for central activities such as treasury management, corporate tax coordination, insurance management, pension administration and company secretarial and legal services.
Notes continued (unaudited)
For the year ended 31 December 2010
4. Business segments (continued)
For management purposes, the Group is organised into four operating divisions: Construction & Infrastructure, Affordable Housing, Fit Out, Urban Regeneration and one specialist unit, Investments. Group Activities includes activities of the parent company, Morgan Sindall Group plc. The divisions and the specialist unit are the basis on which the Group reports its segment information. Segment information about the Group's continuing operations is presented below:
|
2010 |
Construction & Infrastructure |
|
Affordable Housing |
|
Fit Out |
|
Urban Regeneration |
|
Investments |
|
Group Activities |
|
|
|
Eliminations |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: external |
1,249.8 |
|
387.3 |
|
415.1 |
|
45.8 |
|
3.9 |
|
- |
|
2,101.9 |
|
- |
|
2,101.9 |
|
Revenue: inter-segment |
49.6 |
|
2.2 |
|
3.5 |
|
- |
|
- |
|
- |
|
55.3 |
|
(55.3) |
|
- |
|
Operating profit/(loss) before amortisation and non-recurring items |
26.9 |
|
16.3 |
|
14.8 |
|
2.5 |
|
(4.1) |
|
(4.1) |
|
52.3 |
|
- |
|
52.3 |
|
Share of results of associates and joint ventures after tax |
- |
|
(0.2) |
|
- |
|
(0.5) |
|
0.8 |
|
- |
|
0.1 |
|
- |
|
0.1 |
|
Profit/(loss) from operations before amortisation and non-recurring items |
26.9 |
|
16.1 |
|
14.8 |
|
2.0 |
|
(3.3) |
|
(4.1) |
|
52.4 |
|
- |
|
52.4 |
|
Amortisation of intangible assets |
(0.5) |
|
(0.3) |
|
- |
|
(4.7) |
|
- |
|
- |
|
(5.5) |
|
- |
|
(5.5) |
|
Non-recurring items |
(3.2) |
|
(3.9) |
|
- |
|
2.0 |
|
- |
|
- |
|
(5.1) |
|
- |
|
(5.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) from operations |
23.2 |
|
11.9 |
|
14.8 |
|
(0.7) |
|
(3.3) |
|
(4.1) |
|
41.8 |
|
- |
|
41.8 |
|
Net finance expense |
|
|
|
|
|
|
|
|
|
|
|
|
(1.1) |
|
|
|
(1.1) |
|
Profit before income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
40.7 |
|
|
|
40.7 |
Notes continued (unaudited)
For the year ended 31 December 2010
4. Business segments (continued)
|
2009 (restated) |
Construction & Infrastructure |
|
Affordable Housing |
|
Fit Out |
|
Urban Regeneration |
|
Investments |
|
Group Activities |
|
|
|
Eliminations |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
Revenue: external |
1,513.2 |
|
373.8 |
|
291.2 |
|
31.9 |
|
3.4 |
|
- |
|
2,213.5 |
|
- |
|
2,213.5 |
|
Revenue: inter-segment |
13.1 |
|
- |
|
- |
|
- |
|
6.1 |
|
- |
|
19.2 |
|
(19.2) |
|
- |
|
Operating profit/(loss) before amortisation |
30.1 |
|
14.9 |
|
13.8 |
|
0.6 |
|
(3.0) |
|
(6.0) |
|
50.4 |
|
- |
|
50.4 |
|
Share of results of associates and joint ventures after tax |
- |
|
- |
|
- |
|
0.1 |
|
- |
|
- |
|
0.1 |
|
- |
|
0.1 |
|
Profit/(loss) from operations before amortisation |
30.1 |
|
14.9 |
|
13.8 |
|
0.7 |
|
(3.0) |
|
(6.0) |
|
50.5 |
|
- |
|
50.5 |
|
Amortisation of intangible assets |
(1.5) |
|
- |
|
- |
|
(5.3) |
|
- |
|
- |
|
(6.8) |
|
- |
|
(6.8) |
|
Profit/(loss) from operations |
28.6 |
|
14.9 |
|
13.8 |
|
(4.6) |
|
(3.0) |
|
(6.0) |
|
43.7 |
|
- |
|
43.7 |
|
Net finance income |
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
1.0 |
|
Profit before income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
44.7 |
|
|
|
44.7 |
5. Income tax expense
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
Current tax expense: |
|
|
|
|
|
UK corporation tax |
|
11.7 |
|
12.2 |
|
Adjustment in respect of prior years |
|
(1.4) |
|
(1.1) |
|
|
|
10.3 |
|
11.1 |
|
|
|
|
|
|
|
Deferred tax expense: |
|
|
|
|
|
Current year |
|
0.1 |
|
0.8 |
|
Adjustment in respect of prior years |
|
0.5 |
|
(0.1) |
|
|
|
0.6 |
|
0.7 |
|
|
|
|
|
|
|
Income tax expense for the year |
|
10.9 |
|
11.8 |
Corporation tax is calculated at 28.0% (2009: 28.0%) of the estimated assessable profit for the year.
Notes continued (unaudited)
For the year ended 31 December 2010
5. Income tax expense (continued)
The total tax charge for the year of £10.9m is lower (2009: £11.8m) than the standard rate of corporation tax in the UK of 28.0% (2009: 28.0%). The difference can be reconciled as follows:
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
Current tax expense: |
|
|
|
|
|
Profit before tax |
|
40.7 |
|
44.7 |
|
Income tax expense at UK corporation tax rate |
|
11.4 |
|
12.5 |
|
|
|
|
|
|
|
Tax effect of: |
|
|
|
|
|
Share of net profit of equity accounted joint ventures |
|
- |
|
- |
|
Expenses that are not deductible in determining taxable profits |
|
0.8 |
|
0.8 |
|
Adjustments in respect of prior years |
|
(0.9) |
|
(1.2) |
|
Effect of expected forthcoming change in tax rates upon closing deferred tax balance |
|
0.1 |
|
- |
|
Other |
|
(0.5) |
|
(0.3) |
|
|
|
|
|
|
|
Income tax expense for the year |
|
10.9 |
|
11.8 |
|
|
|
|
|
|
|
Effective tax rate for the year |
|
26.8% |
|
26.4% |
|
Effective tax rate for the year ignoring prior year adjustments |
|
29.0% |
|
29.1% |
6. Dividends
Amounts recognised as distributions to equity holders in the period:
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
|
|
|
|
|
|
Second interim dividend for the year ended 31 December 2009 of 30.0p (2008: final dividend of 30.0p) per share |
|
12.7 |
|
12.7 |
|
|
|
|
|
|
|
Interim dividend for the year ended 31 December 2010 of 12.0p (2009: 12.0p) per share |
|
5.1 |
|
5.0 |
|
|
|
|
|
|
|
|
|
17.8 |
|
17.7 |
|
|
|
|
|
|
|
Proposed final dividend for the year ended 31 December 2010 of 30.0p (2009: second interim dividend of 30.0p) per share |
|
12.8 |
|
12.7 |
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 final dividend will be paid on 16 May 2011 to shareholders on the register at 26 April 2011. The ex-dividend date will be 20 April 2011.
Notes continued (unaudited)
For the year ended 31 December 2010
7. Earnings per share
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:
|
|
2010 |
|
2009 |
|
Earnings |
£m |
|
£m |
|
|
|
|
|
|
Earnings before tax |
40.7 |
|
44.7 |
|
Deduct tax expense per the income statement |
(10.9) |
|
(11.8) |
|
Non-controlling interests |
0.1 |
|
0.1 |
|
|
|
|
|
|
Earnings for the purposes of basic and dilutive earnings per share being net profit attributable to owners of the Company |
29.9 |
|
33.0 |
|
Add back: |
|
|
|
|
pre-tax amortisation expense (note 4) |
5.5 |
|
6.8 |
|
non-recurring items (note 4) |
4.0 |
|
- |
|
|
|
|
|
|
Earnings for the purposes of adjusted basic and dilutive earnings per share being net profit attributable to owners of the Company adjusted for amortisation expense and non-recurring items |
39.4 |
|
39.8 |
|
|
2010 |
|
2009 |
|
Number of shares |
No. 000's |
|
No. 000's |
|
|
|
|
|
|
Weighted average number of ordinary shares for the purposes |
42,391 |
|
42,281 |
|
|
|
|
|
|
Effect of dilutive potential ordinary shares: |
|
|
|
|
Share options |
93 |
|
92 |
|
Conditional shares not vested |
389 |
|
332 |
|
|
|
|
|
|
Weighted average number of ordinary shares for the purposes |
42,873 |
|
42,705 |
The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options and long-term incentive plan shares was based on quoted market prices for the period that the options were outstanding. The weighted average share price for the period was £5.93 (2009: £6.11).
Earnings per share as calculated in accordance with IAS 33, 'Earnings per Share' are disclosed below:
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Basic earnings per share |
70.5p |
|
77.9p |
|
Diluted earnings per share |
69.7p |
|
77.1p |
Earnings per share adjusted for amortisation expense and non-recurring items:
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Basic earnings per share adjusted for amortisation expense and non-recurring items |
92.9p |
|
93.9p |
|
Diluted earnings per share adjusted for amortisation expense and non-recurring items |
91.9p |
|
93.0p |
Notes continued (unaudited)
For the year ended 31 December 2010
7. Earnings per share (continued)
A total of 2,246,025 share options that could potentially dilute earnings per share in the future were excluded from the above calculations because they were anti-dilutive at 31 December 2010 (2009: 2,820,160).
8. Cash flows from operating activities
|
|
2010 |
|
2009 |
|
|
£m |
|
£m |
|
|
|
|
|
|
Profit from operations for the year |
41.8 |
|
43.7 |
|
|
|
|
|
|
Adjusted for: |
|
|
|
|
Amortisation of fixed life intangible assets |
5.5 |
|
6.8 |
|
Share of net profit of equity accounted joint ventures |
(0.1) |
|
(0.1) |
|
Depreciation of property, plant and equipment |
8.8 |
|
9.3 |
|
Expense in respect of share options |
0.7 |
|
1.0 |
|
Retirement benefit obligation payment |
(0.7) |
|
(0.7) |
|
Retirement benefit obligation charge |
0.2 |
|
0.3 |
|
One off gain from bargain purchase of subsidiary previously held as equity interest (note 11) |
(2.0) |
|
- |
|
Gain on disposal of property, plant and equipment |
(0.5) |
|
(0.4) |
|
Increase in shared equity loan receivables |
(4.3) |
|
(9.0) |
|
Write downs in work in progress recognised as an expense |
- |
|
1.0 |
|
Decrease in provisions |
(1.4) |
|
(1.5) |
|
|
|
|
|
|
Operating cash flows before movements in working capital |
48.0 |
|
50.4 |
|
|
|
|
|
|
Decrease in inventories |
12.8 |
|
29.1 |
|
(Increase)/decrease in receivables |
(66.8) |
|
62.3 |
|
Increase/(decrease) in payables and short-term provisions |
107.7 |
|
(122.7) |
|
Movements in working capital |
53.7 |
|
(31.3) |
|
|
|
|
|
|
Cash generated from operations |
101.7 |
|
19.1 |
|
|
|
|
|
|
Income taxes (paid)/received |
(6.4) |
|
7.7 |
|
Interest paid |
(2.2) |
|
(1.8) |
|
Net cash inflow from operating activities |
93.1 |
|
25.0 |
Additions to leased property, plant and equipment during the year amounting to £0.7m (2009: £2.0m) and additions to leasehold property amounting to £nil (2009: £0.2m) 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.
Notes continued (unaudited)
For the year ended 31 December 2010
9. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures are disclosed below.
Trading transactions
During the year, Group companies entered into transactions to provide construction and property development services with related parties, all of which were joint ventures, not members of the Group. Transactions and amounts owed at the year end are as follows:
|
|
Provision of goods and services |
Amounts owed by/(to) related parties |
|||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
Morgan-Vinci Limited |
- |
|
0.1 |
|
- |
|
- |
|
Community Solutions Investment Partners Limited |
19.5 |
|
12.9 |
|
0.5 |
|
1.4 |
|
Renaissance Miles Platting Limited |
0.1 |
|
0.1 |
|
- |
|
- |
|
Blue Light Holdings Limited |
0.3 |
|
15.0 |
|
0.1 |
|
0.2 |
|
Ashton Moss Developments Limited |
- |
|
- |
|
(0.2) |
|
(0.2) |
|
Bromley Park Limited |
- |
|
- |
|
(0.6) |
|
(0.6) |
|
ECf (General Partner) Limited |
1.7 |
|
1.4 |
|
- |
|
0.6 |
|
Lewisham Gateway Developments Limited |
- |
|
- |
|
0.2 |
|
0.2 |
|
Lingley Mere Business Park Development Company Limited |
- |
|
0.3 |
|
- |
|
- |
|
North Shore Development Partnership Limited |
- |
|
- |
|
0.1 |
|
0.1 |
|
The Compendium Group Limited |
0.5 |
|
1.4 |
|
0.1 |
|
- |
|
Access for Wigan Limited |
0.1 |
|
- |
|
- |
|
- |
|
Hull Esteem Consortium PSP Limited |
50.2 |
|
- |
|
4.8 |
|
- |
|
St Andrews Brae Developments Limited |
4.0 |
|
- |
|
4.0 |
|
- |
|
Taycare Health (Holdings) Limited |
1.8 |
|
- |
|
- |
|
- |
|
Chatham Place (Building 1) Limited* |
0.1 |
|
0.4 |
|
n/a |
|
- |
|
Eurocentral Partnership Limited* |
1.9 |
|
- |
|
n/a |
|
0.2 |
|
Ician Developments Limited* |
- |
|
- |
|
n/a |
|
0.4 |
|
|
80.2 |
|
31.6 |
|
9.0 |
|
2.3 |
* In the course of the year the Group acquired full control of these legal entities and they are subsidiaries at 31 December 2010.
Notes continued (unaudited)
For the year ended 31 December 2010
9. Related party transactions (continued)
|
|
|
|
Amounts owed by/(to) related parties |
||
|
|
|
|
2010 |
|
2009 |
|
|
|
|
£m |
|
£m |
|
Amounts owed by related parties |
|
|
9.8 |
|
3.1 |
|
Amounts owed to related parties |
|
|
(0.8) |
|
(0.8) |
|
|
|
|
9.0 |
|
2.3 |
All transactions with related parties were made on an arm's length basis.
The amounts outstanding are unsecured and will be settled in cash. Other than construction related performance guarantees given in the ordinary course of business, no guarantees have been given to or received from related parties. No provisions have been made for doubtful debts in respect of amounts owed by related parties. All amounts owed to or owing by related parties are non-interest bearing.
Remuneration of key management personnel
The remuneration of the directors, who are key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.
|
|
|
2010 |
|
2009 |
|
|
|
£m |
|
£m |
|
Emoluments |
|
3.3 |
|
2.2 |
|
Social security contributions |
|
0.3 |
|
0.3 |
|
Other long-term benefits |
|
0.1 |
|
0.2 |
|
Share option exercises |
|
- |
|
- |
|
Post-employment benefits |
|
0.2 |
|
0.4 |
|
|
|
3.9 |
|
3.1 |
Directors' transactions
In the course of the year, Eurocentral Partnership Limited (a wholly owned subsidiary of the Group) sold some land and buildings to a syndicate of investors on arm's length terms. The Group retained a small minority investment in this syndicate. Senior employees and directors of Muse Developments Limited together with John Morgan (£269k) and Paul Smith (£163k) purchased part of the investment in the syndicate in cash. The transaction was carried out on an arm's length basis and on the same commercial terms as those offered to the other investors in the syndicate. There are no amounts outstanding.
There have been no other related party transactions with any director either during the year or in the subsequent period to 21 February 2011.
Directors' material interests in contracts with the Company
No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent period to 21 February 2011.
10. Contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating companies in the Group. There are contingent liabilities in respect of surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.
Notes continued (unaudited)
For the year ended 31 December 2010
11. Acquisition of subsidiaries
Acquisition of Powerminster Gleeson Services Limited
On 30 June 2010 the Group acquired 100% of the issued ordinary share capital of Powerminster Gleeson Services Limited. The company subsequently changed its name to Lovell Powerminster Limited. Details of the net assets acquired and goodwill arising are as follows:
|
|
£m |
|
Total purchase consideration: cash |
6.6 |
|
Net liabilities acquired |
(0.1) |
|
Goodwill |
6.7 |
Goodwill arising on this acquisition represents the value of people, track record and expertise acquired within acquisitions that are not capable of being individually identified and separately recognised.
|
|
Acquiree's carrying amount |
|
Fair value adjustments |
|
Fair value |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
Intangible fixed asset |
- |
|
0.8 |
|
0.8 |
|
Tangible fixed asset |
1.4 |
|
- |
|
1.4 |
|
Trade receivables |
3.4 |
|
- |
|
3.4 |
|
Trade creditors and accruals |
(2.7) |
|
(4.5) |
|
(7.2) |
|
Cash |
1.8 |
|
- |
|
1.8 |
|
Deferred tax |
(0.3) |
|
- |
|
(0.3) |
|
Net liabilities acquired |
3.6 |
|
(3.7) |
|
(0.1) |
|
Purchase consideration settled in cash |
|
|
|
|
6.6 |
|
Cash and cash equivalents acquired |
|
|
|
|
(1.8) |
|
Cash outflow on acquisition |
|
|
|
|
4.8 |
The acquired business contributed £7.1m of revenue in the period from 30 June 2010 to 31 December 2010. Due to the fact that the business has been integrated into the existing Affordable Housing division, it is impracticable to disclose the amount of operating profit that is included in the Group's results or for the full year.
Acquisition of the business, obligations and certain assets from the administrators of Connaught Partnerships Limited
On 9 September 2010, the Group acquired the business, obligations and certain assets from the administrators of Connaught Partnerships Limited ('Connaught'). Details of the assets acquired and provisional goodwill arising are as follows:
|
|
£m |
|
Total purchase consideration: cash |
28.0 |
|
Net assets acquired |
5.6 |
|
Goodwill |
22.4 |
Notes continued (unaudited)
For the year ended 31 December 2010
11. Acquisition of subsidiaries (continued)
Goodwill arising on this acquisition represents the value of people, track record, expertise and opportunity to access new markets acquired within acquisitions that are not capable of being individually identified and separately recognised.
|
|
Acquiree's carrying amount |
|
Provisional fair value adjustments |
|
Provisional fair value |
|
|
£m |
|
£m |
|
£m |
|
Intangible fixed asset |
- |
|
4.0 |
|
4.0 |
|
Trade receivables and amounts on construction contracts recorded by Connaught |
72.4 |
|
(44.4) |
|
28.0 |
|
Provisions |
- |
|
(26.4) |
|
(26.4) |
|
Net assets acquired |
72.4 |
|
(66.8) |
|
5.6 |
|
|
|
|
|
|
|
|
Purchase consideration settled in cash |
|
|
|
|
28.0 |
|
Cash and cash equivalents acquired |
|
|
|
|
- |
|
Cash outflow on acquisition |
|
|
|
|
28.0 |
Provisional fair value adjustments on trade receivables and amounts due from construction contract customers recorded by Connaught include correction of errors and adjustments to reflect the anticipated amount likely to be recovered.
The acquired business contributed £20.9m of revenue in the period from 9 September 2010 to 31 December 2010. Due to the fact that the business has been integrated into the existing Affordable Housing division it is impracticable to disclose the amount of operating profit that is included in the Group's results or for the full year.
The above acquisitions were made in order to create a full service social housing business covering new build, open market and social housing and planned and response maintenance.
The fair value of the acquired assets and liabilities are provisional due to the inherent uncertainty relating to asset realisations and quantification of provisions.
Notes continued (unaudited)
For the year ended 31 December 2010
11. Acquisition of subsidiaries (continued)
Acquisition of partner interests in Urban Regeneration joint ventures
In the course of the year, the Group acquired full control of three legal entities in which it previously had 50% shareholdings. Two of the acquisitions were acquired at fair value and one was negotiated at a price which was less than fair value.
Details of the assets acquired and the gain arising are as follows:
|
|
£m |
|
Purchase consideration: |
|
|
Cash paid |
0.1 |
|
Fair value of non cash consideration |
2.8 |
|
Total purchase consideration |
2.9 |
|
Fair value of net assets acquired |
5.2 |
|
|
(2.3) |
|
Goodwill on original shareholdings |
0.3 |
|
One off gain from a bargain purchase |
(2.0) |
|
|
Acquiree's carrying amount |
|
Fair value adjustments |
|
Fair value |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
Intangible fixed assets |
1.1 |
|
0.7 |
|
1.8 |
|
Shared equity loan receivables |
0.6 |
|
- |
|
0.6 |
|
Inventories |
12.7 |
|
- |
|
12.7 |
|
Trade receivables |
1.5 |
|
- |
|
1.5 |
|
Trade creditors and accruals |
(13.0) |
|
- |
|
(13.0) |
|
Cash and cash equivalents |
2.2 |
|
- |
|
2.2 |
|
Corporation tax |
(0.6) |
|
- |
|
(0.6) |
|
|
|
|
|
|
|
|
Net assets acquired |
4.5 |
|
0.7 |
|
5.2 |
|
|
|
|
|
|
|
|
Purchase consideration settled in cash |
|
|
|
|
0.1 |
|
Payment to acquire joint venture party loans |
|
|
|
|
4.5 |
|
|
|
|
|
|
4.6 |
|
Cash and cash equivalents acquired |
|
|
|
|
(2.2) |
|
|
|
|
|
|
|
|
Cash outflow on acquisition |
|
|
|
|
2.4 |
The acquired businesses contributed £24.6m of revenue and an operating profit of £5.2m before tax in the periods from acquisition to 31 December 2010. If the acquisitions had been completed on 1 January 2010, the total revenue from the acquired businesses would have been £24.6m.
Notes continued (unaudited)
For the year ended 31 December 2010
12. Key risks
The Group's achievement of its goal and strategies is subject to a number of key risks. Risk management processes are designed to continually assess, identify, understand the key risks and challenge the effectiveness of mitigating actions. The Board considers that the most significant risks and the main mitigating actions are:
Market and economic environment
The market sectors in which the Group operates are affected to varying degrees by general macroeconomic conditions and changes in Government spending priorities. The Group is particularly focused at present on managing the impact of the challenging economic conditions and continuing to invest for the long-term to be prepared for opportunities when they arise.
|
Risks |
|
· Shortage of opportunities caused by macroeconomic factors · Changes in Government spending · Reliance on key customers and sectors and increased competition · Projects consuming excessive capital inhibit growth · Inability to manage overheads during downturn · More onerous financial security such as bonding and other financial guarantees required in the current market in order to qualify for work |
|
Impacts |
|
· Loss of revenue · Profit effect magnified if overheads not managed appropriately · Increased competition leads to falling margin on work · Reduced pipeline of work · Excessive consumption of cash leads to inability to carry out work |
|
Mitigation |
|
· Investigation and proposal to clients of new methods of project finance provided by the Group and its partners · Delegated authorities in place throughout the Group require approval of tenders at appropriate levels · Refusal to compete solely on price: Perfect Delivery quality programme seeks to differentiate the Group's offering on service and quality · Adequacy of cash resources and facilities available · Bonding lines and insurance programme are kept under constant review · Sector spread and diversification offer some protection against decline in individual sectors · Regular feedback from clients and others used to tailor the Group's offering · Regular monitoring and reporting of financial performance, work won, prospects and pipeline of opportunities · Regular review of resource levels against anticipated workload · Scale gives some protection by enabling us to compete and work in areas with higher barriers to entry |
Regulatory environment
The Group operates within a constantly changing regulatory environment governed by legislation and industry specific regulation. Non-compliance with legislation or regulations can damage the Group's reputation, market standing and ability to secure new business and may lead to financial penalties.
|
Risks |
|
· Regulatory or legislative breach, failure to understand regulatory environment · Failure of employees and subcontractors to comply with legislation |
|
Impacts |
|
· Loss of reputation and market share · Cost of investigation, fines and prosecution |
Notes continued (unaudited)
For the year ended 31 December 2010
12. Key risks (continued)
|
Mitigation |
|
· Regular communication of relevant regulation, including changes and amendments · Key regulatory risks dealt with in Group policies and induction processes · Regular training and updates for those with responsibility for ensuring compliance · Regular reporting of significant measures relevant to regulation · Systems of management to identify risks and controls, audits and reviews to ensure that controls are operating effectively · Periodic reviews by external professionals and involvement of external experts in training where necessary · Raising concerns and ethical policies and procedures in place |
Health, safety and environmental risks
The Group's health and safety and environmental performance affect employees, subcontractors and the public and, in turn, can affect its reputation and commercial performance.
|
Risks |
|
· Environmental or safety incidents caused by the Group's activities |
|
Impacts |
|
· Harm to individuals and communities · Loss of reputation · Loss of market share · Fines and prosecution |
|
Mitigation |
|
· Key executives with specific responsibility for HSE are identified in each division and on the Board · Health and safety and environmental policy frameworks are communicated and senior managers appointed in each division · Well established safety systems, site visits, monitoring and reporting (including near miss and potential hazard reporting) in place · Investigation and root cause analysis of accidents and near misses · Regular health and safety and environmental training and updates including behavioural training · Certification of workforce under Construction Skills Certification Scheme |
Developing talent
The ability of the Group to secure and deliver projects successfully to clients, grow in profitability and develop strong, sustained financial performance relies on the quality of its employees. It is critical that talented individuals are attracted, developed and retained.
|
Risks |
|
· Failure to attract talented individuals to the Group · Inadequate succession planning · Failure to retain talented individuals · Talented people see better opportunities for reward and satisfaction in other industries or with competitors |
|
Impacts |
|
· Quality of service and of project delivery falls · The Group fails to develop the people necessary to provide future growth |
Notes continued (unaudited)
For the year ended 31 December 2010
12. Key risks (continued)
|
Mitigation |
|
· Senior executives focused on creating a dynamic working environment based on shared characteristics and core values driven by the Board · Management development programmes in place alongside formal individual appraisal and development processes · Regular review of remuneration levels and competitive bonus structure · Long-term incentivisation through Save As You Earn and share option schemes · Succession and staff development considered in annual and longer-term business planning cycles |
Acquisitions
The Group regularly identifies and evaluates potential acquisitions and it is important that acquisitions deliver the planned benefits.
|
Risks |
|
· Group fails to deliver benefits sought at time the of the acquisition, through issues with due diligence, strategic assessment, alignment of cultures or other reasons · Unknown liabilities are uncovered subsequent to completion |
|
Impacts |
|
· Loss of profitability and reputation · Excessive resources required to be directed towards the acquisition |
|
Mitigation |
|
· All acquisitions approved at Board level · Commercial and financial due diligence led by senior teams, with clear roles and responsibilities · Post acquisition integration plans prepared and monitored · KPIs established and monitored post acquisition |
Contractual risks
The Group undertakes several hundred contracts each year and it is important that contractual terms reflect risks arising from the nature and complexity of the works and the duration of the contract.
|
Risks |
|
· Acceptance of work outside core competences · Acceptance of unprofitable work · Poor project management leading to delays and cost overruns · Inability to agree valuation of additional work and variations · Significant levels of volatility in input prices for key materials |
|
Impacts |
|
· Loss of reputation · Excessive resources and attention devoted to poorly performing projects · Loss of profitability on contracts or streams of work |
|
Mitigation |
|
· System of delegated authorities governs tenders and the acceptance of work · Work carried out under standard terms wherever possible · Well established systems of measuring and reporting project progress and estimated outturns · Strategic trading arrangements in place with key suppliers. · For very significant purchases on large projects, forward orders can be placed on a longer timescale. · Collation and review of client feedback · Lessons learned exercises carried out on projects · Use of accredited subcontractors with established relationships wherever possible · Staff incentivised on basis of contract performance · Cross regional peer reviews |
Notes continued (unaudited)
For the year ended 31 December 2010
12. Key risks (continued)
Counterparty and liquidity risks
The terms on which the Group trades with counterparties affect its liquidity. Without sufficient liquidity, the Group's ability to meet its liabilities as they fall due would be compromised, which could ultimately lead to its failure to continue as a going concern.
|
Risks |
|
· Insolvency of key client, subcontractor or supplier · Inadequate liquidity |
|
Impacts |
|
· Significant financial loss due to bad debt · Cost of replacing supplier · Reputational impact · Group cannot continue in business, or cannot grow as desired, due to lack of funds |
|
Mitigation |
|
· Work only carried out for financially sound clients, established through credit checks · Specific commercial terms, including payment terms, with escrow accounts used as appropriate · Seek and secure financial security where appropriate · Work with approved suppliers wherever possible · Contracts with clients, subcontractors or suppliers only entered into after review at appropriate level of delegated authority · Work carried out under standard terms of contract as far as possible · Regular monitoring of cash levels and forecasting of cash balances · Regular stress testing of longer-term cash forecasts · Regular assessment of the level of banking facilities available to the Group |
Responsibility statement
The responsibility statement below has been prepared in connection with the Company's annual report and accounts for the year ended 31 December 2010. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
· The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· The business review, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board on 22 February 2011 and is signed on its behalf by:
Paul Smith David Mulligan
Chief Executive Finance Director
22 February 2011
This information is provided by RNS