RESULTS FOR THE HALF YEAR (HY) ENDED 30 JUNE 2024
8 August 2024
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Partnerships, Fit Out and Construction Services Group
RESULTS FOR THE HALF YEAR (HY) ENDED 30 JUNE 2024
Record first half performance, full year now expected to be slightly ahead of our previous expectations
|
|
HY 2024 |
HY 2023 |
Change |
|
Revenue |
£2,214m |
£1,935m |
+14% |
|
Operating profit - adjusted1 |
£65.5m |
£59.1m |
+11% |
|
Profit before tax - adjusted1 |
£70.1m |
£59.8m |
+17% |
|
Earnings per share - adjusted1 |
112.5p |
98.9p |
+14% |
|
Period end net cash |
£351m |
£263m |
+£88m |
|
Interim dividend per share |
41.5p |
36.0p |
+15% |
|
|
|
|
|
|
Operating profit - reported |
£65.5m |
£57.3m |
+14% |
|
Profit before tax - reported |
£70.1m |
£58.0m |
+21% |
|
Basic earnings per share - reported |
113.1p |
100.0p |
+13% |
1 'Adjusted' is defined as before intangible amortisation of £0.3m and exceptional building safety credit of £0.3m. (HY 2023: before intangible amortisation of £2.2m and exceptional building safety credit of £0.4m)
Strong first half performance reinforcing the significant strategic and operational progress being made across the Group
o Revenue up 14% to £2.2bn
o Adjusted profit before tax up 17% to £70.1m
Continued balance sheet strength
o Net cash of £351m (HY 2023: £263m)
o Average daily net cash of £372m (HY 2023: £268m)
High quality total future workload
o Order book of £8.7bn (FY 2023: £8.9bn)
Interim dividend up 15% to 41.5p per share (HY 2023: 36.0p)
Divisional highlights
o Fit Out delivering significant growth compared to the prior year on the back of increased revenues; operating profit up 36% to £41.3m (HY 2023: £30.4m) with an operating margin of 6.6% (HY 2023: 6.1%).
o Construction delivering good revenue growth with margin within its medium-term target range; revenue up 10% to £519m (HY 2023: £470m) at an operating margin of 2.7%. Operating profit up 18% to £14.1m (HY 2023: £12.0m).
o Strong performance from Infrastructure; revenue up 24% to £530m (HY 2023: £428m) at an operating margin of 3.7% (HY 2023: 3.7%). Operating profit up 24% to £19.7m (HY 2023: £15.9m).
o The remediation programme continues to progress really well in Property Services, our smallest division. Early release from a small number of contracts led to first half operating losses of £11.0m (HY 2023: operating loss £4.1m). With the operating losses strongly weighted to the first half, the remediation plan is on track to be completed by the end of 2024 to leave the business positioned to return to profit in 2025.
o Partnership Housing has benefited from a modest improvement in the housing market since the start of the year, reflected through an increase in the level of open market sales activity in Mixed‐tenure, while Contracting has continued to show good growth. Revenues up 2% to £381m (HY 2023: £373m) while operating profits are 16% higher at £11.7m (HY 2023: £10.1m). The average capital employed for the full year is estimated at c£330m, as the business continues to invest in its partnerships for future growth.
o Mobilising existing long-term schemes to site for Mixed Use Partnerships has been slower in the first half of 2024 compared to prior years, resulting in a modest operating profit of £0.5m (HY 2023: £6.0m). Despite this hiatus we are in three preferred bidder positions in our newly formed Midlands region.
Commenting on today's results, Chief Executive, John Morgan said:
"We've delivered another record set of results in the first half, once again reflecting the high quality of our operations, with revenue, adjusted profit before tax and the interim dividend all showing strong mid to high double-digit growth in the period.
The challenging market conditions that we experienced in 2023 are easing, as we continue to make significant strategic and operational progress across the Group and remain well positioned to support the Government's affordable home and social infrastructure plans. Our balance sheet, supported by a substantial average daily cash position, has enabled us to focus on making the right decisions to drive for long-term sustainable growth while also supporting the returns to shareholders in the period.
Following our strong trading performance in the first half, combined with the high-quality secured order book and visibility for the rest of the year, we now expect to deliver a result for the full year which is slightly ahead of our previous expectations."
Enquiries
|
Morgan Sindall Group John Morgan Kelly Gangotra
Brunswick Jonathan Glass Nina Coad |
Tel: 020 7307 9200
Tel: 020 7404 5959 |
Presentation
· There will be an analyst and investor presentation at 09.00am at Deutsche Numis, 45 Gresham Street, London EC2V 7BF on 8 August 2024. Coffee and registration will be from 08.30am
· A copy of these results is available at: www.morgansindall.com
· The presentation will be available via live webcast from 09.00am on 8 August 2024 at www.morgansindall.com.
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc, the Partnerships, Fit Out and Construction Services Group, reported annual revenues of £4.1bn in full year 2023, employing around 7,700 employees and operating in the public, regulated and private sectors. It reports through six divisions of Partnership Housing, Mixed Use Partnerships, Fit Out, Construction, Infrastructure and Property Services.
Group Strategy
Reflecting the continued progression of the Group, and our strategy aligned to structural growth drivers, with balanced end markets, Morgan Sindall has evolved from the Construction and Regeneration Group to the Partnerships, Fit Out and Construction Services Group it is today.
Morgan Sindall's recognised expertise in Partnerships is displayed through its market positions in affordable housing (through its Partnership Housing division) and in mixed use regeneration development (through the Mixed Use Partnerships division). Both businesses within this segment reflect a deep understanding of the built environment, developed over many years and their ability to provide solutions for complex regeneration projects through various partnerships. As a result, its capabilities are aligned with sectors which support the UK's current and future regeneration and affordable housing needs.
Fit Out is the market leader in its field and delivers a consistently strong operational performance and together with the Construction Services, it generates cash resources to support the Group's investment in affordable housing and mixed use regeneration.
Through Construction Services the Group is also well positioned to meet the demand for ongoing investment in the UK's physical infrastructure, while its geographically diverse construction activities are focused on key areas of education, healthcare and commercial. The Group also has an operation in Property Services which is focused on response and planned maintenance activities provided to the social housing and the wider public sector.
Group Structure
Under the three strategic lines of business of Partnerships, Fit Out and Construction Services, the Group is organised into six reporting divisions as follows:
Partnerships comprise the following operations:
· Partnership Housing: Focused on working in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sale and for social/affordable rent, 'design & build' house contracting and refurbishment.
· Mixed Use Partnerships: Focused on transforming the urban landscape through partnership working and the development of multi-phase sites and mixed use regeneration.
Fit Out
· Focused on the fit out of office space with opportunities in commercial, central and local government offices and further education.
Construction Services comprise the following operations:
· Construction: Focused on the education, healthcare, commercial, industrial, leisure and retail markets.
· Infrastructure: Focused on the highways, rail, energy, nuclear and water markets. It also includes the BakerHicks engineering design activities.
· Property Services: Focused on response and planned maintenance activities provided to the social housing and the wider public sector.
Basis of Preparation
In addition to presenting the financial performance of the business on a statutory basis, adjusted performance measures are also disclosed. Refer to the Other Financial Information section which sets out the basis for the calculations. These measures are not an alternative or substitute to statutory UK IAS measures but are seen as more useful in assessing the performance of the business on a comparable basis and are used by management to monitor the performance of the Group.
In all cases the term 'adjusted' excludes the impact of intangible amortisation of £0.3m (HY 2023: £2.2m) and an exceptional building safety credit of £0.3m for HY 2024 (HY 2023: £0.4m credit).
Group Operating Review
Summary Group financial results
The Group delivered a strong performance in the first half, with a significant contribution from the Fit Out division. Group revenue increased by 14% up to £2,214m (HY 2023: £1,935m), while adjusted operating profit increased by 11% to £65.5m (HY 2023: £59.1m), which included the operating loss of £11.0m in Property Services (HY 2023 £4.1m loss). Operating margin was 3.0%, 10bps lower than the prior year period (HY 2023: 3.1%).
The Group benefited from higher interest rates on its cash balances compared to the prior year period, with a net finance income of £4.6m (HY 2023: £0.7m) resulting in adjusted profit before tax of £70.1m, up 17% (HY 2023: £59.8m). The statutory profit before tax was £70.1m, an increase of 21% (HY 2023: £58.0m).
The adjusted tax charge for the period was £17.8m (statutory tax charge of £17.5m), an effective rate of 25.4%.
The adjusted earnings per share increased 14% to 112.5p (HY 2023: 98.9p), with the statutory basic earnings per share of 113.1p, up 13% (HY 2023: 100.0p).
General market conditions
The challenging market conditions that we experienced in 2023 have continued to ease throughout the period with little increase in prices since the end of 2023. While there remains some cost inflation in the system, mostly related to energy costs and wage inflation, overall, the general trading environment remains more manageable and predictable.
The ongoing stability of the supply chain remains uncertain with liquidity issues increasingly common, requiring additional vigilance during both the pre-construction and delivery phases of projects. The risk is mitigated to some extent by the diligence taken before project commencement, and the fact that no division is overly reliant on any one supplier.
In Construction and Infrastructure, where projects are currently underway, most include appropriate inflationary protection within the overall contract pricing, and this is not seen as a significant risk. Where projects are being priced for future delivery, inflation and funding constraints in some areas continues to place some project budgets under pressure, which in turn has led to some delays in decision-making and project commencement. However, the impact of this has not been material and in many cases, any client budget constraints are being addressed by adjustments to project scopes, thereby allowing projects to proceed.
The market for Fit Out's services has continued to be very strong, with a number of positive structural changes in the market. The main drivers being lease-related events, the requirement for greater energy efficiency from offices, the move towards more flexible and collaborative workspaces, the use of office space as a tool for enhancing staff retention and brand image, and office relocations to the regions with clients requiring increasingly complex projects.
In Property Services, local authority and housing association clients are increasingly focused on housing maintenance and on the general state of repair of their housing stocks. In the delivery of maintenance services, cost inflation and particularly labour inflation have severely impacted the profitability of contracts.
Housing activity in the UK has remained subdued given the still relatively high mortgage rates, but there are some modest signs of improvement expected later this year. In Partnership Housing, the partnership model focusing on long-term partnerships with the public sector, has provided some level of resilience and cushion against the impact of the slowdown. While the demand for contracting has remained strong, the sales rates of private homes on its mixed-tenure sites has begun to show modest recovery since the end of 2023, with the first half of this year showing a gradual improvement on HY 2023 levels. It is positive that the Government has set out its ambitions for affordable home targets, which we believe will bring about some positive momentum in the near to medium term. In the current period, the challenging planning environment continues to prevail, noting however the recent proposed planning reforms by Government.
In Mixed Use Partnerships, build cost inflation continued to provide delay and challenges to the returns on some of its active developments and on the viability of some of its schemes being evaluated prior to commencement, although not material to the overall portfolio of schemes and their future financial performance. Similar to Partnership Housing, this division is currently exposed to a challenging planning environment.
Divisional headlines
Construction and Infrastructure both delivered strong revenue growth in the period, with Construction revenue up 10% to £519m (HY 2023: £470m) and Infrastructure up 24% to £530m (HY 2023: £428m). With both divisions continuing their disciplined focus on operational delivery and contract selectivity, their respective operating margins for the period were well within their target ranges.
Fit Out enjoyed another excellent period of trading, with revenues up 26% to £630m (HY 2023: £498m) supporting the significant growth to both operating profit and margin. Operating profit was up 36% to £41.3m (HY 2023: £30.4m) while its operating margin increased up to 6.6% (HY 2023: 6.1%).
As Property Services advanced with its remediation plan in the period, exit costs were incurred as the division negotiated its release from a small number of contracts and operationally restructured some of its existing contracts. The outcome of which has resulted in the division making an operating loss in the period of £11.0m (HY 2023: operating loss £4.1m).
Against the backdrop of a market downturn last year, the housing market started to make a gradual but modest recovery in the period, Partnership Housing revenues climbed up slightly by 2% to £381m (HY 2023: £373m), as growth in contracting work continued to provide a shield effect against the slowly recovering housing market. Operating profit was up 16% to £11.7m (HY 2023: £10.1m).
Mixed Use Partnerships, which holds a long-term development portfolio, was substantially impacted in the period by the duration of time that has lapsed between scheme completions in the prior year and a lower level of completions in the first half of this year. As a result, operating profit fell from £6.0m in HY 2023 to just £0.5m in HY 2024. ROCE for the last 12 months was 10% (HY 2023: 17%).
Secured order book
The Group has a high-quality secured order book of £8,663m at the end of the period, which has contracted against both the year-end position (FY 2023: £8,920m) and the prior period (HY 2023: £9,068m), largely due to an adjustment to remove the revenues of the unexpired term of the contracts which Property Services had negotiated an early release from.
Maintaining contract selectivity and bidding discipline to ensure there remains the appropriate risk balance in the order book is of critical importance to the future success of the Group.
Balance sheet & cash
Net cash at the period end was £351m, an increase of £88m on the prior year (HY 2023: £263m). Of this total, £50m was held in jointly controlled operations or held for future payment to designated suppliers (JVs/PBAs).
The average daily net cash for the period was £372m (including £43m in JVs/PBAs) compared to £268m in the prior year period. Looking ahead to the full year, based upon the current anticipated cash movements over the second half, we expect that the average daily net cash for the full year is likely to be in excess of £350m.
Operating cash for the period was an outflow of £36.1m (HY 2023: outflow of £31.2m), which in part was due to the continued investment in both Partnership Housing and Mixed Use Partnerships in line with their long-term strategies in regeneration, as well as also reflecting the usual seasonal working capital movements. Operating cash for the last twelve months was an inflow of £184.1m.
Dividend
The interim dividend has been increased by 15% to 41.5p per share (HY 2023: 36.0p). This reflects the increase in profit in the period, the strong balance sheet and the Board's confidence in the future prospects of the Group.
Capital Allocation Framework and Medium-Term Targets
The Capital Allocation Framework remains unchanged since December 2023 and can be found in the Group's Annual Report and Accounts for the period ending 31st December 2023.
To provide a framework for future performance, each division operates to a medium-term financial target or set of targets (the 'target' or 'targets'), these remain unchanged since August 2023 and can be found in each of the Divisional review section of this report.
Divisional Review
The following Divisional Review is given on an adjusted basis, unless otherwise stated. Refer to Note 14 of the consolidated financial statements for appropriate reconciliations to the comparable UK IAS measures.
Headline results by business segment (vs HY 2023)
|
|
Revenue |
Operating Profit |
Operating Margin |
|||
|
|
£m |
Change |
£m |
Change |
% |
Change |
|
Construction |
519 |
+10% |
14.1 |
+18% |
2.7% |
+10bps |
|
Infrastructure |
530 |
+24% |
19.7 |
+24% |
3.7% |
- |
|
Fit Out |
630 |
+26% |
41.3 |
+36% |
6.6% |
+50bps |
|
Property Services |
103 |
+6% |
(11.0) |
-168% |
-10.7% |
-650bps |
|
Partnership Housing |
381 |
+2% |
11.7 |
+16% |
3.1% |
+40bps |
|
Mixed Use Partnerships |
59 |
-38% |
0.5 |
-92% |
n/a |
n/a |
|
Group/Eliminations |
(8) |
n/a |
(10.8) |
n/a |
n/a |
n/a |
|
Total |
2,214 |
+14% |
65.5 |
+11% |
3.0% |
-10bps |
Group secured order book1 by division
The Group's secured order book1 at 30 June 2024 was £8,663m, down 4% and 3% when compared to the prior year and the year-end respectively. The divisional split is shown below.
|
|
HY 2024 |
HY 2023 |
Change |
FY 2023 |
Change |
|
|
£m |
£m |
vs HY 2023 |
£m |
vs FY 2023 |
|
Construction |
856 |
888 |
-4% |
796 |
+8% |
|
Infrastructure |
1,682 |
1,628 |
+3% |
1,689 |
- |
|
Fit Out |
1,210 |
1,217 |
-1% |
1,098 |
+10% |
|
Property Services |
1,006 |
1,579 |
-36% |
1,478 |
-32% |
|
Partnership Housing |
2,081 |
2,074 |
- |
2,034 |
+2% |
|
Mixed Use Partnerships |
1,830 |
1,699 |
+8% |
1,825 |
- |
|
Inter-divisional eliminations |
(2) |
(17) |
|
- |
|
|
Group secured order book1 |
8,663 |
9,068 |
-4% |
8,920 |
-3% |
1 The 'Secured order book' is the sum of the 'committed order book', the 'framework order book' and (for Partnership Housing and Mixed Use Partnerships) the Group's share of the gross development value of secured schemes (including the development value of open market housing schemes)
The 'committed order book' represents the Group's share of future revenue that will be derived from signed contracts or letters of intent. The 'framework order book' represents the Group's expected share of revenue from the frameworks on which the Group has been appointed. This excludes prospects where confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.
|
Construction |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
||||
|
|
£m |
£m |
|
||||
|
Revenue |
519 |
470 |
+10% |
||||
|
Operating profit1 |
14.1 |
12.0 |
+18% |
||||
|
Operating margin1 |
2.7% |
2.6% |
+10bps |
||||
Construction experienced a good period of revenue growth, up 10% to £519m (HY 2023: £470m). Operating profit1 of £14.1m was up 18% on the prior year (HY 2023: £12.0m), with the operating margin1 of 2.7% well placed in the middle of its strategically targeted range of 2.5%-3%. The strong profit performance was driven by improving the overall quality of earnings through contract selectivity and operational delivery together with prudent risk management within its order book.
The business remains broadly 85% public sector focused, with projects primarily delivered through frameworks and with education continuing to be the largest market sector served at around 50%.
The division had a strong period of winning new work, with the secured order book at the period end at £856m, down slightly by 4% from the prior year (HY 2023: £888m) and up 8% on the year-end position (FY 2023: £796m). Around 98% of the value of the order book is derived through either negotiated, framework or two-stage bidding procurement processes, in line with the preferred risk profile of work undertaken.
There continues to be a significant amount of suitable work available in the market, much of which is being generated through the existing frameworks. In addition to the secured order book, the division also had £1,181m of work at preferred bidder stage, providing confidence of a sizeable ongoing workload.
Key work won in the period included: the £51m new build secondary school in Dumfries, Scotland; the £43m new build high rise residential block in Salford for English Cities Fund; the £34m secondary academy in Newcastle-upon-Tyne for the Department for Education and the £32m redevelopment and upgrade of a Household Waste Recycling Centre (HWRC) and Waste Transfer Station (WTS) in Aldridge, West Midlands for the Walsall Metropolitan Council.
Divisional outlook for Construction
The medium-term target for Construction is an operating margin of between 2.5% and 3% per annum and revenue of £1bn. For the full year, the division is on track to meet both its revenue and margin targets, while at the same time also maintaining its normal risk profile in its workload and bidding discipline.
1 Before exceptional Building Safety charge of £nil (HY 2023: £8.6m). See Note 2 of the consolidated financial statements
|
Infrastructure |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
||||
|
|
£m |
£m |
|
||||
|
Revenue |
530 |
428 |
+24% |
||||
|
Operating profit |
19.7 |
15.9 |
+24% |
||||
|
Operating margin |
3.7% |
3.7% |
- |
||||
Infrastructure delivered another strong performance in the period. Revenues increased by 24% to £530m (HY 2023: £428m) with an equally strong flow through to operating profit, also up 24%, to £19.7m (HY 2023: £15.9m), with the operating margin of 3.7% in the middle of its targeted range of 3.5%-4%.
Infrastructure's order book of £1,682m was 3% up compared to the prior period (HY 2023: £1,628m) and broadly flat with the year-end position (FY 2023: £1,689m). The order book continues to remain long term in nature, with 73% for 2025 and beyond and around 95% derived through existing frameworks.
The division continues to remain focused on the key sectors of highways, nuclear, energy, water, and rail with visible opportunities in defence.
In highways, work started on the £83m M27 project in Hampshire and works continued on the A12 in Essex, both part of National Highway's Concrete Roads Programme - Reconstruction Works Framework, a four-year programme to repair or replace the concrete surface of motorways and major A roads in England. In addition, works continued on safety-critical upgrades to the M40-M42 interchange for National Highways, this is part of the original Smart Motorways Alliance. Through Early Contractor Involvement (ECI), we continue to work with Oxfordshire County Council on their project to replace Kennington Railway Bridge on the A423 Southern Bypass.
In nuclear, decommissioning works continued for Sellafield on the Infrastructure Strategic Alliance and on the £1.6bn Programme and Project Partners contract. In addition, work progressed on the 10-year Clyde Commercial Framework for the Defence Infrastructure Organisation and on the D58 facility for BAE Systems.
In energy, the division secured a position with National Grid on The Great Grid Partnership, the first phase being the delivery of an initial nine Accelerated Strategic Transmission Investment (ASTI) projects. The ASTI projects form a key part of The Great Grid Upgrade which is building the significant new electricity network infrastructure required to reduce the UK's reliance on fossil fuels by connecting 50GW of offshore wind by 2030. Elsewhere, work continued at Dinorwig in Wales, and commenced at ZA, in Hertfordshire as part of the RIIO-2 electricity construction EPC (Engineer, Procure and Construct) framework for National Grid. Under this framework the division also secured several schemes to maintain the existing onshore electricity transmission network in England and Wales. Work also continued in Shetland for Scottish and Southern Electricity Networks (SSEN), which includes an 11-kilometre 132Kv twin circuit underground cable project and construction of Gremista substation.
In water, work continued on various environmental improvement projects and wastewater treatment upgrades as part of the long-term AMP7 framework with Welsh Water. In addition, civil engineering works continued on the west section of the Thames Tideway 'super sewer' project to help prevent pollution in the Thames.
In rail, the division secured a position on the CP7 Eastern Framework for Network Rail, a £3.5bn framework through the Control Period 7 investment phase to 2029, this builds on our position secured on the CP7 Wales and Western Framework in 2023, a £2bn programme. In the period, work commenced on the Colindale Station Remodelling for Transport for London, a project to upgrade Colindale station with a new ticket hall and step-free access. Works continue on the project to extend Beckton Depot and a project to upgrade Surrey Quays station, both for Transport for London, as part of its London Rail Infrastructure Improvement Framework. Elsewhere, work continued on several schemes for Network Rail, including the Bangor to Colwyn Bay line, as part of the CP6 Wales and Western framework, the lift scheme at Liverpool Central Station as part of the Mersey Rail framework, and the Northumberland Line extension project.
In the BakerHicks design business, design work completed on Paisley Central Learning and Cultural Hub, Renfrewshire Council's new £7m home for library services. While in the highways sector, the innovative Tyn-y-bryn Active Travel Bridge design was commended in the Chartered Institution of Highways & Transportation's Infrastructure Award, providing residents with essential pedestrian access to the local town and services; notably the bridge's reinforced plastic structure considerably reduced its carbon footprint. Work also continued on an innovative feed additive facility for East Dunbartonshire Council in Dalry, North Ayrshire to reduce methane emissions from cattle.
Divisional outlook for Infrastructure
The medium-term target for Infrastructure is an operating margin of between 3.5% and 4% per annum and revenue of £1bn.
For the full year, based upon the timing of projects and the projected type of work, the division expects to make strong progress towards its revenue target, with its margin expected to be towards the middle of this range. This is underpinned by their continued focus on long‐term client relationships, disciplined contract selectivity, risk management and project delivery.
|
Fit Out |
|
|
|
|||
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
|||
|
|
£m |
£m |
|
|||
|
Revenue |
630 |
498 |
+26% |
|||
|
Operating profit |
41.3 |
30.4 |
+36% |
|||
|
Operating margin |
6.6% |
6.1% |
+50bps |
|||
Fit Out delivered an excellent result in the period, enjoying significant growth for both revenues and operating profit. With revenue increasing by 26% to £630m (HY 2023: £498m), operating profit was up 36% to £41.3m (HY 2023: £30.4m) resulting in an expansion in the operating margin at a very strong 6.6% (HY 2023: 6.1%), due to contract type, mix and operational leverage.
The division's focus on consistent operational delivery and enhanced customer experience has once again driven performance, complemented by a high-quality workload and disciplined and focused bidding, which in turn supports the division's strong brand reputation and market position.
The overall balance of the business has been reasonably consistent over recent years, with any movements in geography, type of work and sectors served not indicative of any longer-term trends; the London region remains the division's largest market, accounting for 72% of revenue (HY 2023: 59%) while other regions accounted for 28% of revenue (HY 2023: 41%), reinforcing Fit Out's focused but agile approach to its markets and understanding of its own capabilities and skills.
There was no significant change to the market sectors served. The commercial office market remained the largest, contributing 87% of revenue (HY 2023: 79%), with government/local authority, higher education and retail banking accounting for the majority of the remainder.
In terms of type of work delivered in the year, 85% related to traditional fit out work (HY 2023: 84%), while 15% related to 'design and build' (HY 2023: 16%). The proportion of revenue generated from the fit out of existing office space remained relatively constant at 79% (HY 2023: 78%), with the fit out of new office space at 21% (HY 2023: 22%). Of the fit out of existing office space, 43% of the work was refurbishment 'in occupation' compared to 57% where work was performed in non-occupied space.
The market for Fit Out remains strong, with a number of different factors driving demand; lease events and significant project requirements in the London commercial office market; upcoming public and private sector schemes outside of London; carbon-driven planning restrictions for new buildings and energy efficiency of existing office space; and the continuation of re-purposing of office space to accommodate new ways of working.
Underpinning the current and future performance is a high-quality workload, with the secured order book strong at £1,210m at the end of the period, in line with the prior year position (HY 2023: £1,217m) and 10% up on the year end position (FY 2023: £1,098m).
Of the secured order book, £577m (48%) relates to the second half of the year, which is 11% higher than the equivalent amount as at 30 June 2023 of £521m. The remaining £634m of the current order book (52%) is for 2025 and beyond; continuing to provide an increasing level of long-term visibility of workload compared to previous periods (HY 2023: £696m).
In addition, there remains a significant pipeline of visible opportunities being pursued. The division also had over £150m of work in the pre-contract 'preferred bidder' stage at the period end, as well as in excess of £800m of work currently being tendered or pending a decision and over £1bn at tender stage. The average value of enquiries received remains around £3-£4m.
Commercial fit out projects won in London during the period included 380,000 sq ft for PwC at More London; 277,000 sq ft for Latham & Watkins on Leadenhall Street; 276,000 sq ft for Unilever in Kingston-upon-Thames; 158,000 sq ft for Travers Smith; 101,000 sq ft fit out for Investec on Gresham Street; 56,000 sq ft for Standard Chartered Bank; 37,000 sq ft fit out for OMERS & Oxford Properties; 26,000 sq ft for Motability Operations at 22 Bishopsgate; 24,000 sq ft for Johnson Matthey at Gresham Street; and 8,500 sq ft for AstraZeneca at Pancras Square.
Regional project wins in the period included 152,500 sq ft for Lloyds Banking Group in Birmingham; 32,000 sq ft for an EV design and manufacturing company in Bicester; 27,000 sq ft for Evelyn Partners in Bristol; and 18,500 sq ft for a global telecommunications firm in Newbury.
Commercial fit out projects on site or completed in London during the period included 750,000 sq ft for a global financial services firm in Canary Wharf; 110,000 sq ft for a professional services firm in London; 109,000 sq ft for Aviva at 80 Fenchurch Street; 114,000 sq ft for law firm Reed Smith near Spitalfields; two projects totalling 99,500 sq ft for Deloitte at New Street Square; 51,500 sq ft for Berkeley Estate Asset Management in Mayfair; 40,000 sq ft for British Land on Bishopsgate; 17,000 sq ft for Boston Consulting Group on Charlotte Street; and an 11,000 sq ft fit out for Burges Salmon at New Street Square.
Regional projects on site or completed during the period include: 160,000 sq ft for Lloyds Banking Group in Leeds; 144,000 sq ft for Wirral Borough Council; 50,000 sq ft for Dojo in Bristol; 44,000 sq ft for Samsung in Cambridge; 27,000 sq ft for Arup in Bristol; and 20,000 sq ft for Sky in Leeds.
In the higher education and science and research sectors, projects won included 40,500 sq ft for Birmingham City University, 29,000 sq ft library refurbishment at University of Wolverhampton and two projects totalling 25,000 sq ft at Anglia Ruskin University.
Projects on site or completed during the period included a 150,000 sq ft HQ for GSK in London's Life Sciences Hub, known as the Knowledge Quarter; 100,000 sq ft at Durham University School of Business; five projects totalling 45,000 sq ft for Queen Mary University; 27,500 sq ft for Aston University; 26,000 sq ft fit out at Birmingham City University; and 12,500 sq ft to fit out Keele University's Clinical Skills department.
Design and build fit out projects won in the period included 117,000 sq ft for Wood Group at Green Park in Reading; 50,000 sq ft for Mapletree at Green Park in Reading; 50,000 sq ft for Accrue Capital in Maidenhead; 38,000 sq ft for Aurora Energy Research in Oxford and 18,000 sq ft for Sage UK in Winnerish Triangle, Reading.
Design and build projects completed during the period included 30,000 sq ft of fully-fitted labs and office space for Stanhope at MediaWorks in White City Place; 21,000 sq ft for Kajima Properties (Europe); 13,500 sq ft for Smiths Group plc; 8,600 sq ft for Centiva and 8,000 sq ft for AEW UK Investment Management.
Projects won under frameworks and corporate partnerships included £10.6m of works for the Mayor's Office for Policing and Crime (MOPAC), with a future order book of £18.2m; and two projects for Scape to the value of £3m.
Divisional outlook for Fit Out
The medium-term target for Fit Out is to deliver an average annual operating profit of £50m-£70m.
For 2024, current trading patterns are anticipated to continue through the second half, supported by a secured order book. Operating profit is likely to well exceed the top end of the medium-term target range for this year due to exceptional revenues.
|
Property Services |
|
|
|
|||
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
|||
|
|
£m |
£m |
|
|||
|
Revenue |
103 |
97 |
6% |
|||
|
Operating loss1 |
(11.0) |
(4.1) |
-168% |
|||
|
Operating margin1 |
-10.7% |
-4.2% |
-650bps |
|||
The remediation programme for Property Services continued to progress well in the first half and remains on track to be completed by the end of 2024. Under the leadership of the new management team, the division successfully negotiated early releases from a small number of underperforming contracts by way of mutual agreement resulting in exit costs recorded in the first half. Elsewhere, the division progressed with its operational restructuring efforts across the existing contract portfolio.
The impact of these events has resulted in an operating loss1 in the period of £11.0m (HY 2023: loss of £4.1m).
Revenue increased by 6%, up to £103m (HY 2023: £97m), with the growth driven by increased volumes of planned repair works as clients look to improve the condition of their residential assets.
At the period end, the secured order book was £1,006m, down 36% from the prior year (HY 2023: £1,579m) and 32% from the full year position (FY 2023: £1,478m), as revenues were removed for the unexpired term for those contracts for which the division had negotiated an early release from. Of the orderbook remaining, over 89% is for 2025 and beyond. Future growth in the order book during the second half and 2025 is expected to come through existing client contracts.
The division's primary objective is to successfully implement the remediation plan by the end of 2024 and to stabilise its operational delivery capability over 2025.
Divisional outlook for Property Services
The medium-term target for Property Services is to deliver £7.5m operating profit per annum.
A further loss is expected in the second half which is likely to be half of the level in the first half. The remediation programme is expected to leave the business positioned to return to profit in 2025 and beyond.
1 before intangible amortisation of £0.3m (HY 2023: £2.2m)
|
Partnership Housing |
|
|
|
|||
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
|||
|
|
£m |
£m |
|
|||
|
Revenue |
381 |
373 |
+2% |
|||
|
Operating profit |
11.7 |
10.1 |
+16% |
|||
|
Operating margin |
3.1% |
2.7% |
+40bps |
|||
|
Average capital employed1 (last 12 months) |
289.3 |
221.9 |
+£67.4m |
|||
|
Capital employed1 - at period end |
332.6 |
243.1 |
+£89.5m |
|||
|
ROCE2 (last 12 months) |
11% |
15% |
|
|||
In Partnership Housing, the partnership model focusing on long-term partnerships with the public sector provided resilience against a softer housing market.
During the first half of the year, while we have seen a modest improvement in the housing market, the demand for contracting remained strong, shielding the impact of a gradual recovery of open market sales within the mixed-tenure activities. The division continued to optimise construction of the contracted affordable homes on mixed-tenure sites to maintain activity.
Reflective of the above, revenue was up 2% to £381m (HY 2023: £373m), driven by Contracting (including planned maintenance and refurbishment) which was up 21% to £258m (68% of divisional total) compared to the prior year. Mixed-tenure revenue declined by 23% to £123m (32% of divisional total) compared to the prior year.
Notwithstanding the composition of the divisions revenue and its growth profile, both contracting and mixed-tenure activities enjoyed stronger margins in the period, led by contract type and mix of schemes delivered, resulting in operating profits increasing by 16% to £11.7m (HY 2023: £10.1m) with an operating margin of 3.1% (HY 2023: 2.7%).
Despite the challenging short-term market conditions, the longer-term development of the business and its partnerships with local authorities and housing associations has continued with planned momentum. Reflective of this ongoing activity and investment in future growth, the capital employed1 at the period end was £332.6m, an increase of £89.5m on the prior year (HY 2023: £243.1m) and £98.2m higher than at the year-end (FY 2023: £234.4m). As we continue to invest, the higher average capital employed1 for the last 12-month period of £289.3m (HY 2023: £221.9m), resulted in a reduction in the ROCE2 for the last 12-month period to 11% (HY 2023: 15%).
Mixed Tenure
The division continues to make good progress with its strategy of increasing the number and size of mixed-tenure sites. At the period end, the division had 63 active mixed-tenure sites at various stages of construction and sales, up from 61 at the year-end but down from 69 at the prior year. There was an average of 166 open market units per site at the period end.
784 units were completed across open market sales and social housing (including through its joint ventures) compared to 805 in the prior year period, noting that the number of open market sales within this increased by 7% to 364. The average sales price was £222k compared to the prior year average of £241k, a reduction of 8%.
Of the total divisional order book, the amount relating to mixed-tenure activities was £1,250m, broadly in line with the prior period and slightly ahead of the year end (HY 2023: £1,273m, FY 2023: £1,167m). In addition, the amount of mixed-tenure business in preferred bidder status, or already under development agreement but where land has not been drawn down, was £929m at the end of the period.
Work secured in the period included; a 350 unit development in partnership with the Aster Group, Williton; a 115 unit scheme in Haverford West in partnership with the Pobl Group; 727 units as we moved into Phases 2 and 3 on South Thamesmead Phases in joint venture with Peabody and 82 units in Primrose Hill with Birmingham City Council.
Elsewhere, Progress continues on other mixed-tenure schemes, in partnerships with Riverside, Clarion Housing, Trafford Housing Trust, Together Housing Group, Repton Property Developments (owned by Norfolk County Council), the Borough Council of Kings Lynn & West Norfolk, Flagship Group, Pobl Group, West Sussex, Suffolk and Homes England.
Contracting
Partnership Housing continued to experience good levels of demand with clients awarding work either through frameworks or direct negotiation.
The total number of equivalent units built increased by 19% to 1,584, up from 1,328 in the prior period. Of the total divisional order book, the contracting secured order book was slightly higher at £831m (HY 2023: £801m), of which £527m is for 2025 and beyond.
Key contracting schemes awarded in the period included; a £14m, 70 units in Castle Gresley for East Midlands Homes; a £11m, 38 units at Saffron Lane for Leicester City Council; a £10m, 45 units in Isleham for Havebury Housing Partnership; a £10m, 56 units in Baginton for Platform Housing Group; a £9m, 55 units at Crick Road Phase 2 for Canleston Homes; and a number of retrofit and refurbishment projects for local authorities and housing associations.
Divisional outlook for Partnership Housing
Partnership Housing's medium-term targets are to generate a return on average capital employed up towards 25% and to deliver an operating margin of 8%.
An improved performance is expected in the second half, based on the slightly improving housing market and the secured contracting work in the order book. For the full year, the operating margin is expected to improve slightly above last year's levels, while the return on average capital is expected to be lower than FY 2023 levels as we continue to invest.
The average capital employed1 is expected to increase up towards c£330m, reflecting the increased scale of the business and stage of developments.
1 Capital Employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding exceptional Building Safety provisions, corporation tax, deferred tax, inter-company financing and overdrafts)
2 Return On Average Capital Employed = (Adjusted operating profit plus interest from JVs) divided by average capital employed
|
Mixed Use Partnerships |
|
|
|
|||
|
|
|
|
|
|||
|
|
HY 2024 |
HY 2023 |
Change |
|||
|
|
£m |
£m |
|
|||
|
Revenue |
59 |
96 |
-38% |
|||
|
Operating profit1 |
0.5 |
6.0 |
-92% |
|||
|
Average capital employed2 (last 12 months) |
89.9 |
104.0 |
-£14.1m |
|||
|
Capital employed2 at period end |
92.4 |
120.5 |
-£28.1m |
|||
|
ROCE3 (last 12 months) |
10% |
17% |
|
|||
|
ROCE3 (average last 3 years) |
13% |
14% |
|
|||
Mixed Use Partnership's long-term projects were significantly impacted in the first half notably by the length of time between projects completing in the prior year and a lower level of completions in the first half of the year, resulting in an operating profit1 of £0.5m (HY 2023: £6.0m). The ROCE3 for the last 12 months was 10%, significantly down on the prior year, based on average capital employed2 of £89.9m.
Despite the modest profit contribution in the first half, key contributors to performance were profit from a land sale in Hucknall, East Midlands; profit and development fees generated from activity in Salford Central, Talbot Gateway in Blackpool, Stroudley Walk, Lewisham Gateway and Forge Island in Rotherham.
Good progress in the period was made on several long-term developments, including 191 affordable homes for Haringey Council at Hale Wharf, Tottenham Hale through the Waterside Places partnership with the Canal & River Trust and a 215,000 sq ft office building at Talbot Gateway, Blackpool for the Department for Work and Pensions. The final phase of Lewisham Gateway is virtually complete, delivering 649 homes for rent, retail space, food and beverage space, workspace and a multiplex cinema.
With the ECF partnership, strong progress was made on Manor Road, Canning Town where Phase 1 is expected to complete later this year; 355-homes delivered in partnership with the London Borough of Newham and Metropolitan Thames Valley Housing.
The division's development portfolio included 10 projects on site at the end of the period, totalling £877m gross development value, with a further 2 projects, with a gross development value of £41m expected to start on site in the second half and 14 planned to start in 2025 with a gross development value of £783m.
At the period end, the division's order book amounted to £1,830m, 8% up on the prior year period (HY 2023: £1,699m) and slightly ahead of the year end (FY 2023: £1,825m). Activity levels remain good and there are a number of sizeable projects currently in the pipeline at preferred bidder stage which are expected to be converted into contract in due course.
The Mixed Use Partnerships order book continues to maintain a diverse regional and sector split:
· by value, 68% is in the North West, 31% in London and the South East and 1% in Yorkshire and the North East: and
· by sector, 66% by value relates to residential, 18% to offices, with the remainder broadly split between industrial, retail, public realm and transport hubs.
Divisional outlook for Mixed Use Partnerships
The medium-term target for Mixed Use Partnerships is to generate a rolling three-year average ROCE up towards 20%. The phasing of schemes expected in 2024 reflects a hiatus between projects having reached completion towards the end of 2023 and the slower start-up of existing projects until later years.
While its full year performance is anticipated to be weighted towards the second half, we expect profit (and the resulting ROCE) to be significantly lower than in 2023, with the average capital employed for the year expected to be c£90m.
1 Before exceptional Building Safety Credit HY 2024: £0.3m (HY 2023: Credit £9.0m). See Note 2 of the consolidated financial statements
2 Capital Employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding exceptional Building Safety provisions, corporation tax, deferred tax, inter-company financing and overdrafts)
3 Return On Average Capital Employed = (Adjusted operating profit plus interest from JVs) divided by average capital employed
|
Other Financial Information |
1. Net finance income. Net finance income was £4.6m, an increase of £3.9m compared to HY 2023.
|
|
HY 2024 |
HY 2023 |
Change |
|
|
£m |
£m |
£m |
|
Interest income on bank deposits |
8.9 |
4.3 |
4.6 |
|
Amortisation of bank fees & non-utilisation fees |
(1.0) |
(1.0) |
- |
|
Interest expense on lease liabilities |
(1.8) |
(1.1) |
(0.7) |
|
Other |
(1.5) |
(1.5) |
- |
|
Total net finance income |
4.6 |
0.7 |
3.9 |
2. Tax. A reported tax charge of £17.5m is shown for the year (HY 2023: £11.7m). This equates to an effective tax rate of 25.0% on profit before tax. The adjusted tax charge is £17.8m (HY 2023: £14.0m).
|
|
HY 2024 |
HY 2023 |
|
|
£m |
£m |
|
Profit before tax |
70.1 |
58.0 |
|
Less: share of underlying1 net loss/(profit) in joint ventures |
0.1 |
(3.8) |
|
Profit before tax excluding joint ventures |
70.2 |
54.2 |
|
Statutory tax rate |
25.0% |
23.5% |
|
Current tax charge at statutory rate |
(17.6) |
(12.7) |
|
Tax on underlying1 joint venture profits2 |
- |
(0.9) |
|
Tax on exceptional items |
0.2 |
1.8 |
|
Residential Property Developer tax |
(0.1) |
(0.3) |
|
Other adjustments |
- |
0.4 |
|
Tax charge as reported |
(17.5) |
(11.7) |
|
Tax on amortisation |
(0.1) |
(0.5) |
|
Tax on exceptional items |
(0.2) |
(1.8) |
|
Adjusted tax charge |
(17.8) |
(14.0) |
|
1 Underlying net loss of joint ventures excludes the exceptional Building Safety charge of £0.6m related to joint ventures (HY 2023: Credit of £4.5m) 2 Most of the Group's joint ventures are partnerships where profits are taxed within the Group rather than the joint venture |
||
3. Net working capital. 'Net Working Capital' is defined as 'Inventories plus Trade & Other Receivables (including Contract Assets), less Trade & Other Payables (including Contract Liabilities)' adjusted as below.
|
|
HY 2024 |
HY 2023 |
Change £m
|
|
|
£m |
£m |
|
|
Inventories |
417.3 |
397.4 |
+19.9 |
|
Trade & Other Receivables1 |
772.5 |
666.7 |
+105.8 |
|
Trade & Other Payables2 |
(1,238.9) |
(1,063.8) |
-175.1 |
|
Net working capital |
(49.1) |
0.3 |
-49.4 |
1 Adjusted to exclude capitalised arrangement fees and accrued interest receivable of £1.8m (HY 2022: £1.7m) and exceptional Building Safety receivables of £8.1m (HY 2023: £nil).
2 Adjusted to exclude accrued interest payable of £0.4m (HY 2023: £0.6m).
4. Cash flow. Operating cash flow was an outflow of £36.1m (HY 2023: outflow of £31.2m). Free cash flow was an outflow of £50.0m (HY 2023: outflow of £37.3m).
|
|
HY 2024 |
HY 2023 |
Last 12 |
|
|
£m |
£m |
Months |
|
Operating profit - adjusted |
65.5 |
59.1 |
147.7 |
|
Depreciation |
15.3 |
12.4 |
29.7 |
|
Share option expense |
4.4 |
4.3 |
6.7 |
|
Share of underlying1 net loss/(profit) of joint ventures |
0.1 |
(3.8) |
(10.2) |
|
Other operating items 2 |
5.9 |
4.0 |
2.8 |
|
Change in working capital3 |
(104.9) |
(91.7) |
46.5 |
|
Net capital expenditure (including repayment of finance leases) |
(22.4) |
(18.0) |
(38.2) |
|
Dividends and interest received from joint ventures |
- |
2.5 |
(0.9) |
|
Operating cash flow |
(36.1) |
(31.2) |
184.1 |
|
Income taxes paid |
(22.3) |
(9.0) |
(38.5) |
|
Net interest received/(paid) (non-joint venture) |
8.4 |
2.9 |
13.1 |
|
Free cash flow |
(50.0) |
(37.3) |
158.7 |
1 'Underlying net profit of joint ventures excludes the exceptional building safety charge (£0.6m) related to joint ventures
2 'Other operating items' includes reduction on building safety receivable (£8.4m) and increase in provisions (£0.3m) less by building safety provision movements (£2.5m) and a gain on disposal of PPE (£0.3m).
3 'Change in working capital' excludes movement on building safety receivable (£8.4m).
5. Net cash. Net cash at 30 June 2024 was £350.5m, as a result of a net cash outflow of £110.2m from 1 January 2024, with movements summarised as:
|
|
£m |
|
Net cash as at 1 January 2024 |
460.7 |
|
Free cash flow (as above) |
(50.0) |
|
Dividends |
(36.5) |
|
Other1 |
(23.7) |
|
Net cash as at 30 June 2024 |
350.5 |
1 'Other' includes the purchase of shares in the Company by the employee benefit trust (£22.2m) and net loan advances paid from JVs (£15.2m) less proceeds from the exercise of share options (£13.6m) and proceeds from the issue of new shares (£0.1m).
6. Capital employed by strategic activity. An analysis of the capital employed in Construction Services and Fit Out shows a decrease of £89.3m since the prior period, split as follows:
|
Capital employed1,2 in Construction Services and Fit Out |
HY 2024 £m |
HY 2023 £m |
Change £m |
|
Construction |
(228.4) |
(200.8) |
-27.6 |
|
Infrastructure |
(84.5) |
(72.2) |
-12.3 |
|
Fit Out |
(70.6) |
(54.3) |
-16.3 |
|
Property Services |
41.9 |
75.0 |
-33.1 |
|
|
(341.6) |
(252.3) |
-89.3 |
An analysis of capital employed in the Partnership activities shows an increase of £61.4m since the prior period, split as follows:
|
Capital employed1,2 in Partnerships |
HY 2024 £m |
HY 2023 £m |
Change £m |
|
Partnership Housing |
332.6 |
243.1 |
+89.5 |
|
Mixed Use Partnerships |
92.4 |
120.5 |
-28.1 |
|
|
425.0 |
363.6 |
+61.4 |
1 Total assets (excluding goodwill, intangibles, inter-company financing and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts)
2 Adjusted to exclude Building Safety receivables and provisions
7. Exceptional Building Safety credit. The total exceptional building safety credit of £0.3m arose as a result of a better estimate of expected costs and recoveries. This includes a charge of £0.6m that has been recognised in respect of the Group's share of constructive and legal obligations to remediate legacy building safety issues within JVs, and this has been recognised within the Group's share of net profit of joint ventures. A net credit of £0.9m has been recognised in cost of sales.
|
|
HY 2024 £m |
HY 2023 £m |
|
Net releases/(additions) on building safety provisions |
0.9 |
(4.1) |
|
Exceptional building safety credit/(charge) within cost of sales |
0.9 |
(4.1) |
|
Exceptional building safety (charge)/credit within joint ventures |
(0.6) |
4.5 |
|
Total exceptional building safety credit |
0.3 |
0.4 |
8. Dividends. The Board of Directors has proposed an interim dividend of 41.5p per share, an increase of 15% on the prior year interim dividend (HY 2023: 36.0p). This will be paid on 24 October 2024 to shareholders on the register on 4 October 2024. The ex-dividend date will be 3 October 2024.
9. Principal risks and uncertainties. The Board continues to take a proactive approach to recognising and mitigating risk with the aim of protecting and safeguarding the interests of the Group and its shareholders in the changing environment in which it operates.
Details of the principal risks facing the Group and mitigating actions are included within the 2023 Annual Report. These are still considered to be relevant risks and uncertainties for the Group at this time and are summarised below (in no order of magnitude).
Summary of principal risks as per 2023 Annual Report:
Economic change and uncertainty - UK construction continues to benefit from sustained government (and cross-party) investment commitments. This continues to support the Group's market sectors which remain structurally secure particularly in regeneration, construction and infrastructure (primary areas in the UK targeted for growth). In addition, the Group's diversity of offering and strong balance sheet protects the business from cyclical changes in individual markets.
Exposure to UK housing market - The Group's long-term public sector partnerships models, Government support (including cross-party) and UKs Affordable Housing need complement its product position. Prior headwinds such as inflation and mortgage availability have eased during the reporting period, with cost of living set to follow, signalling signs of recovery in the market, although interest rate trajectory is likely to impact timing. Planning constraints continue to contribute to a slowdown in sales and in Partnerships, cost inflation on some schemes is impacting their potential viability.
Poor contract selection and/or bidding - The quality of the Group's public and regulated industry sectors should safeguard future performance, allowing the Group to continue selecting the right projects and in sectors where it has proven capability.
Macro-induced inflationary pressures have eased, with impacted projects now largely completed and newer projects benefiting from improved customer budgets which whilst more realistic in some instances do still result in preconstruction periods taking longer.
Poor project delivery (including changes to contracts and contract disputes) - The improved macro inflationary backdrop is allowing bids to include sensible contingency allowances and contract terms with competition re-emerging in the supply chain. In addition, the Group's longstanding supply chain relationships and focus on customer experience continue to mitigate any significant issues and disputes should they arise.
Health and safety - Failure to protect the health, safety and wellbeing of its key stakeholders could damage the Group's reputation as a responsible employer and affect its ability to secure future work.
Failure to attract and retain talented people - Talented people are needed to provide excellence in project delivery and customer service. Skills shortages in the construction industry remain an issue for the foreseeable future.
Insolvency of key client, subcontractor, joint venture partner or supplier - There is a risk that our supply chain partners may be trading with strained finances as a result of prior inflationary and borrowing pressures. Our teams are acutely aware of this and have increased due diligence activities as well as providing help and assistance where appropriate. In some limited circumstances we have supported key partners with more favourable terms to assist their cash flow while obtaining assurance on production progress and forms of guarantee.
Condensed consolidated income statement
For the six months ended 30 June 2024
|
|
|
Six months to |
Six months to |
Year ended |
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
(unaudited) |
(unaudited) |
(audited) |
|
|
Notes |
£m |
£m |
£m |
|
Revenue |
|
2,214.2 |
1,935.2 |
4,117.7 |
|
Cost of sales |
|
(1,978.0) |
(1,723.8) |
(3,672.9) |
|
Gross profit |
|
236.2 |
211.4 |
444.8 |
|
Analysed as: |
|
|
|
|
|
Adjusted gross profit |
|
235.3 |
215.5 |
446.7 |
|
Exceptional building safety items |
3 |
0.9 |
(4.1) |
(1.9) |
|
Administrative expenses |
|
(171.4) |
(163.9) |
(324.0) |
|
Share of net (loss)/profit of joint ventures |
7 |
(0.7) |
8.3 |
18.2 |
|
Other operating income |
|
1.4 |
1.5 |
1.6 |
|
Operating profit |
|
65.5 |
57.3 |
140.6 |
|
Analysed as: |
|
|
|
|
|
Adjusted operating profit |
|
65.5 |
59.1 |
141.3 |
|
Exceptional building safety items |
3 |
0.3 |
0.4 |
2.2 |
|
Amortisation of intangible assets |
|
(0.3) |
(2.2) |
(2.9) |
|
Finance income |
|
8.9 |
4.3 |
10.8 |
|
Finance costs |
|
(4.3) |
(3.6) |
(7.5) |
|
Profit before tax |
|
70.1 |
58.0 |
143.9 |
|
Analysed as: |
|
|
|
|
|
Adjusted profit before tax |
|
70.1 |
59.8 |
144.6 |
|
Exceptional building safety items |
3 |
0.3 |
0.4 |
2.2 |
|
Amortisation of intangible assets |
|
(0.3) |
(2.2) |
(2.9) |
|
Tax |
4 |
(17.5) |
(11.7) |
(26.2) |
|
Profit for the period |
|
52.6 |
46.3 |
117.7 |
|
Attributable to: |
|
|
|
|
|
Owners of the Company |
|
52.6 |
46.3 |
117.7 |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
Basic |
6 |
113.1p |
100.0p |
254.2p |
|
Diluted |
6 |
110.0p |
98.5p |
250.4p |
There were no discontinued operations in either the current or comparative periods.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2024
|
|
Six months to |
Six months to |
Year ended |
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
(unaudited) |
(unaudited) |
(audited) |
|
|
£m |
£m |
£m |
|
Profit for the period |
52.6 |
46.3 |
117.7 |
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
|
|
Foreign exchange (loss)/gain on translation of overseas operation |
- |
(0.1) |
0.2 |
|
Fair value loss arising on hedging instruments |
- |
(0.1) |
- |
|
Other comprehensive income/(expense) |
- |
(0.2) |
0.2 |
|
Total comprehensive income |
52.6 |
46.1 |
117.9 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
52.6 |
46.1 |
117.9 |
Condensed consolidated statement of financial position
At 30 June 2024
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
(unaudited) |
(unaudited) |
(audited) |
|
|
|
|
|
|
|
|
Notes |
£m |
£m |
£m |
|
Assets |
|
|
|
|
|
Goodwill and other intangible assets |
|
218.3 |
219.3 |
218.6 |
|
Property, plant and equipment |
|
93.8 |
75.7 |
86.0 |
|
Investment property |
|
0.8 |
0.8 |
0.8 |
|
Investments in joint ventures |
7 |
121.1 |
108.4 |
106.6 |
|
Non-current assets |
|
434.0 |
404.2 |
412.0 |
|
Inventories |
|
417.3 |
397.4 |
344.7 |
|
Contract assets |
|
332.1 |
295.6 |
270.6 |
|
Trade and other receivables |
8 |
450.3 |
372.8 |
461.6 |
|
Current tax assets |
|
2.9 |
- |
- |
|
Shared equity loan receivables |
|
- |
0.3 |
- |
|
Cash and cash equivalents |
11 |
391.9 |
326.9 |
541.3 |
|
Current assets |
|
1,594.5 |
1,393.0 |
1,618.2 |
|
Total assets |
|
2,028.5 |
1,797.2 |
2,030.2 |
|
Liabilities |
|
|
|
|
|
Contract liabilities |
|
(97.8) |
(78.5) |
(95.8) |
|
Trade and other payables |
9 |
(1,116.6) |
(949.4) |
(1,087.0) |
|
Current tax liabilities |
|
- |
(8.4) |
(1.9) |
|
Lease liabilities |
|
(21.2) |
(16.2) |
(19.1) |
|
Borrowings |
11 |
(41.4) |
(63.8) |
(80.6) |
|
Provisions |
10 |
(70.4) |
(62.9) |
(76.7) |
|
Current liabilities |
|
(1,347.4) |
(1,179.2) |
(1,361.1) |
|
Net current assets |
|
247.1 |
213.8 |
257.1 |
|
Trade and other payables |
9 |
(24.9) |
(36.5) |
(28.2) |
|
Lease liabilities |
|
(44.8) |
(37.6) |
(44.7) |
|
Retirement benefit obligation |
|
- |
(0.2) |
- |
|
Deferred tax liabilities |
|
(8.7) |
(6.7) |
(8.7) |
|
Provisions |
10 |
(22.6) |
(23.5) |
(19.4) |
|
Non-current liabilities |
|
(101.0) |
(104.5) |
(101.0) |
|
Total liabilities |
|
(1,448.4) |
(1,283.7) |
(1,462.1) |
|
Net assets |
|
580.1 |
513.5 |
568.1 |
|
Equity |
|
|
|
|
|
Share capital |
|
2.4 |
2.4 |
2.4 |
|
Share premium account |
|
56.1 |
55.9 |
56.0 |
|
Other reserves |
|
1.3 |
0.9 |
1.3 |
|
Retained earnings |
|
520.3 |
454.3 |
508.4 |
|
Equity attributable to owners of the Company |
|
580.1 |
513.5 |
568.1 |
|
Total equity |
|
580.1 |
513.5 |
568.1 |
|
|
||||
Condensed consolidated cash flow statement
For the six months ended 30 June 2024
|
|
|
Six months to |
Six months to |
Year ended |
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
(unaudited) |
(unaudited) |
(audited) |
|
|
Notes |
£m |
£m |
£m |
|
Operating activities |
|
|
|
|
|
Operating profit |
|
65.5 |
57.3 |
140.6 |
|
Adjusted for: |
|
|
|
|
|
Exceptional building safety items |
3 |
(2.8) |
(0.4) |
13.7 |
|
Amortisation of intangible assets |
|
0.3 |
2.2 |
2.9 |
|
Underlying share of net profit of equity accounted joint ventures |
7 |
0.1 |
(3.8) |
(14.1) |
|
Depreciation |
|
15.3 |
12.4 |
26.8 |
|
Share-based payments |
|
4.4 |
4.3 |
6.6 |
|
Gain on disposal of investments |
|
- |
(1.5) |
- |
|
Gain on disposal of property, plant and equipment |
|
(0.3) |
- |
(0.1) |
|
Additional pension contributions |
|
- |
- |
(0.2) |
|
Repayment of shared equity loan receivables |
|
- |
0.1 |
0.4 |
|
Increase/(decrease) in provisions (excluding exceptional building safety items) |
10 |
0.3 |
5.4 |
1.4 |
|
Operating cash inflow before movements in working capital |
|
82.8 |
76.0 |
178.0 |
|
Increase in inventories |
|
(72.6) |
(63.5) |
(10.8) |
|
(Increase)/decrease in contract assets |
|
(61.5) |
(1.0) |
24.0 |
|
Decrease/(increase) in receivables |
|
10.9 |
(19.4) |
(107.8) |
|
Increase/(decrease) in contract liabilities |
|
2.0 |
4.3 |
21.6 |
|
Increase/(decrease) in payables |
|
24.7 |
(12.1) |
116.2 |
|
Movements in working capital |
|
(96.5) |
(91.7) |
43.2 |
|
Cash (outflow)/inflow from operations |
|
(13.7) |
(15.7) |
221.2 |
|
Income taxes paid |
|
(22.3) |
(9.0) |
(25.2) |
|
Net cash (outflow)/inflow from operating activities |
|
(36.0) |
(24.7) |
196.0 |
|
Investing activities |
|
|
|
|
|
Interest received |
|
8.9 |
4.2 |
10.0 |
|
Dividend from joint ventures |
|
- |
2.5 |
1.6 |
|
Proceeds on disposal of property, plant and equipment |
|
0.3 |
0.3 |
2.0 |
|
Purchases of property, plant and equipment |
|
(10.9) |
(8.6) |
(14.3) |
|
Purchases of intangible fixed assets |
|
- |
(0.3) |
(0.3) |
|
Capital advances to joint ventures |
7 |
(24.1) |
(26.9) |
(44.2) |
|
Capital repayments from joint ventures |
7 |
8.9 |
4.3 |
34.2 |
|
Proceeds from the disposal of investments |
|
- |
1.5 |
- |
|
Net cash outflow from investing activities |
|
(16.9) |
(23.0) |
(11.0) |
|
Financing activities |
|
|
|
|
|
Interest paid |
|
(0.5) |
(1.3) |
(2.4) |
|
Dividends paid |
5 |
(36.5) |
(31.5) |
(48.1) |
|
Repayments of lease liabilities |
|
(11.8) |
(9.4) |
(21.2) |
|
Proceeds on issue of share capital |
|
0.1 |
- |
0.1 |
|
Payments by the Trust to acquire shares in the Company |
|
(22.2) |
(2.2) |
(11.3) |
|
Proceeds on exercise of share options |
|
13.6 |
0.6 |
4.0 |
|
Net cash outflow from financing activities |
|
(57.3) |
(43.8) |
(78.9) |
|
Net (decrease)/increase in cash and cash equivalents |
|
(110.2) |
(91.5) |
106.1 |
|
Cash and cash equivalents at the beginning of the period |
|
460.7 |
354.6 |
354.6 |
|
Cash and cash equivalents at the end of the period |
11 |
350.5 |
263.1 |
460.7 |
|
Cash and cash equivalents presented in the consolidated cash flow statement include bank overdrafts. See note 11 for a reconciliation to cash and cash equivalents presented in the consolidated statement of financial position. |
||||
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2024
|
|
Share capital |
Share premium account |
Other reserves |
Retained earnings |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
|
1 January 2024 |
2.4 |
56.0 |
1.3 |
508.4 |
568.1 |
|
Profit for the year |
- |
- |
- |
52.6 |
52.6 |
|
Other comprehensive expense |
- |
- |
- |
- |
- |
|
Total comprehensive (expense)/income |
- |
- |
- |
52.6 |
52.6 |
|
Share-based payments |
- |
- |
- |
4.4 |
4.4 |
|
Issue of shares at a premium |
- |
0.1 |
- |
- |
0.1 |
|
Exercise of share options |
- |
- |
- |
13.6 |
13.6 |
|
Purchase of shares in the Company by the Trust |
- |
- |
- |
(22.2) |
(22.2) |
|
Dividends paid |
- |
- |
- |
(36.5) |
(36.5) |
|
30 June 2024 (unaudited) |
2.4 |
56.1 |
1.3 |
520.3 |
580.1 |
|
|
Share capital |
Share premium account |
Other reserves |
Retained earnings |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
|
1 January 2023 |
2.4 |
55.9 |
1.1 |
436.8 |
496.2 |
|
Profit for the period |
- |
- |
- |
46.3 |
46.3 |
|
Other comprehensive expense |
- |
- |
(0.2) |
- |
(0.2) |
|
Total comprehensive income |
- |
- |
(0.2) |
46.3 |
46.1 |
|
Share-based payments |
- |
- |
- |
4.3 |
4.3 |
|
Exercise of share options |
- |
- |
- |
0.6 |
0.6 |
|
Purchase of shares in the Company by the Trust |
- |
- |
- |
(2.2) |
(2.2) |
|
Dividends paid |
- |
- |
- |
(31.5) |
(31.5) |
|
30 June 2023 (unaudited) |
2.4 |
55.9 |
0.9 |
454.3 |
513.5 |
|
|
Share capital |
Share premium account |
Other reserves |
Retained earnings |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
|
1 January 2023 |
2.4 |
55.9 |
1.1 |
436.8 |
496.2 |
|
Profit for the year |
- |
- |
- |
117.7 |
117.7 |
|
Other comprehensive income |
- |
- |
0.2 |
- |
0.2 |
|
Total comprehensive income |
- |
- |
0.2 |
117.7 |
117.9 |
|
Share-based payments |
- |
- |
- |
6.6 |
6.6 |
|
Tax relating to share-based payments |
- |
- |
- |
2.7 |
2.7 |
|
Issue of shares at a premium |
- |
0.1 |
- |
- |
0.1 |
|
Exercise of share options |
- |
- |
- |
4.0 |
4.0 |
|
Purchase of shares in the Company by the Trust |
- |
- |
- |
(11.3) |
(11.3) |
|
Dividends paid |
- |
- |
- |
(48.1) |
(48.1) |
|
31 December 2023 (audited) |
2.4 |
56.0 |
1.3 |
508.4 |
568.1 |
Other reserves
Other reserves include:
· Capital redemption reserve of £0.6m (30 June 2023: £0.6m, 31 December 2023: £0.6m) which was created on the redemption of preference shares in 2003.
· Hedging reserve of (£0.8m) (30 June 2023: (£0.9m), 31 December 2023: (£0.8m)) arising under cash flow and net investment hedge accounting. Movements on the effective portion of hedges are recognised through the hedging reserve, whilst any ineffectiveness is taken to the income statement.
· Translation reserve of £1.5m (30 June 2023: £1.2m, 31 December 2023: £1.5m) arising on the translation of overseas operations into the Group's functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held by the Morgan Sindall Employee Benefit Trust to satisfy options under the Group's share incentive schemes. The number of shares held by the Trust at 30 June 2024 was 965,018 (30 June 2023: 947,924, 31 December 2023: 1,124,215) with a cost of £23.8m (30 June 2023: £19.8m, 31 December 2023: £23.4m).
Notes to the consolidated financial statements
For the six months ended 30 June 2024
1 Basis of preparation
General information
The financial information for the year ended 31 December 2023 set out in this half year report does not constitute the Company's statutory accounts as defined by section 434 of the Companies Act 2006. A copy of the statutory accounts for that year was delivered to the Registrar of Companies. The auditor 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) of the Companies Act 2006. This half year report has not been audited or reviewed by the auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information. Figures as at 30 June 2024 and 2023 and for the six months ended 30 June 2024 and 2023 are therefore unaudited.
Basis of preparation
The annual financial statements of Morgan Sindall Group plc are prepared in accordance with the requirements of the Companies Act 2006 and UK-adopted international accounting and reporting standards (UK IAS). The condensed consolidated financial statements included in this half year report were prepared in accordance with IAS 34 'Interim Financial Reporting'. While the financial information included in this half year report was prepared in accordance with the recognition and measurement criteria of UK IAS, this half year report does not itself contain sufficient information to comply with UK IAS.
Going concern
As at 30 June 2024, the Group had cash of £391.9m and total loans and total overdrafts repayable on demand of £41.4m (together net cash of £350.5m). Should further funding be required the Group has total committed banking facilities of £180m which are in place for greater than one year. The directors have reviewed the Group's forecasts and projections, and have modelled certain downside scenarios which show that the Group will have a sufficient level of headroom within facility limits and covenants for the going concern period, which the directors have defined as the period from the date of approval of the 30 June 2024 financial statements through to 8 August 2025. After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the going concern period to 8 August 2025. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.
Tax
A tax charge of £17.5m is shown for the six month period (six months to 30 June 2023: £11.7m, year ended 31 December 2023: £26.2m). This tax charge is recognised based upon the best estimate of the average effective income tax rate on profit before tax for the full financial year.
Changes in accounting policies
There have been no significant changes to accounting policies, presentation or methods of preparation since the Group's latest annual audited financial statements for the year ended 31 December 2023.
Seasonality
The Group's activities are generally not subject to significant seasonal variation.
2 Business segments
For management purposes, the Group is organised into six operating divisions: Construction, Infrastructure, Fit Out, Property Services, Partnership Housing and Mixed Use Partnerships, and this is the structure of segment information reviewed by the Chief Operating Decision Maker (CODM). The CODM is determined to be the Board of directors and reporting provided to the Board is in line with these six divisions, which have been considered to be the Group's operating segments.
The six operating divisions' activities are as follows:
· Construction: Morgan Sindall Construction focuses on education, healthcare, commercial, industrial, leisure and retail markets.
· Infrastructure: Morgan Sindall Infrastructure focuses on highways, rail, energy, water and nuclear markets. Infrastructure also includes the BakerHicks design activities based out of the UK and Switzerland.
· Fit Out: Overbury plc specialises in fit out and refurbishment in commercial, central and local government offices, retail banking and further education. Morgan Lovell plc provides office interior design and build services direct to occupiers.
· Property Services: Morgan Sindall Property Services Limited provides response and planned maintenance for social housing and the wider public sector.
· Partnership Housing: Lovell Partnerships Limited is focused on working in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sales and for social/affordable rent, design and build house contracting and planned maintenance and refurbishment.
· Mixed Use Partnerships: Muse Places Limited is focused on transforming the urban landscape through partnership working and the development of multi-phase sites and mixed-use regeneration.
Group Activities represent costs and income arising from corporate activities which cannot be meaningfully allocated to the operating segments. These include the costs of the Group Board, treasury management, corporate tax coordination, Group finance and internal audit, insurance management, company secretarial services, information technology services, interest revenue and interest expense.
|
Six months to 30 June 2024 |
|
|
|
|
|
|
|
|
|
|
|
Construction |
Infrastructure |
Fit Out |
Property Services |
Partnership Housing |
Mixed Use Partnerships |
Group Activities |
Eliminations |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
External revenue |
517.9 |
523.8 |
629.8 |
103.1 |
380.5 |
59.1 |
- |
- |
2,214.2 |
|
Inter-segment revenue |
0.6 |
6.3 |
0.6 |
- |
- |
- |
- |
(7.5) |
- |
|
Total revenue |
518.5 |
530.1 |
630.4 |
103.1 |
380.5 |
59.1 |
- |
(7.5) |
2,214.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit/(loss) (Note 14) |
14.1 |
19.7 |
41.3 |
(11.0) |
11.7 |
0.5 |
(10.8) |
- |
65.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation of intangible assets |
- |
- |
- |
(0.3) |
- |
- |
- |
- |
(0.3) |
|
Exceptional operating items |
- |
- |
- |
- |
- |
0.3 |
- |
- |
0.3 |
|
Operating profit/(loss) |
14.1 |
19.7 |
41.3 |
(11.3) |
11.7 |
0.8 |
(10.8) |
- |
65.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
8.9 |
|
Finance expense |
|
|
|
|
|
|
|
|
(4.3) |
|
Profit before tax |
|
|
|
|
|
|
|
|
70.1 |
|
Six months to 30 June 2023 |
|
|
|
|
|
|
|
|
|
|
|
Construction |
Infrastructure |
Fit Out |
Property Services |
Partnership Housing |
Mixed Use Partnerships |
Group Activities |
Eliminations |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
External revenue |
457.0 |
422.5 |
498.0 |
96.5 |
365.2 |
96.0 |
- |
- |
1,935.2 |
|
Inter-segment revenue |
13.0 |
5.1 |
0.4 |
- |
7.6 |
- |
- |
(26.1) |
- |
|
Total revenue |
470.0 |
427.6 |
498.4 |
96.5 |
372.8 |
96.0 |
- |
(26.1) |
1,935.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit/(loss) (Note 14) |
12.0 |
15.9 |
30.4 |
(4.1) |
10.1 |
6.0 |
(11.2) |
- |
59.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation of intangible assets |
- |
- |
- |
(2.2) |
- |
- |
- |
- |
(2.2) |
|
Exceptional operating items |
(8.6) |
- |
- |
- |
- |
9.0 |
- |
- |
0.4 |
|
Operating profit/(loss) |
3.4 |
15.9 |
30.4 |
(6.3) |
10.1 |
15.0 |
(11.2) |
- |
57.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
4.3 |
|
Finance expense |
|
|
|
|
|
|
|
|
(3.6) |
|
Profit before tax |
|
|
|
|
|
|
|
|
58.0 |
|
Year ended 31 December 2023 |
|
|
|
|
|
|
|||
|
|
Construction |
Infrastructure |
Fit Out |
Property Services |
Partnership Housing |
Mixed Use Partnerships |
Group Activities |
Eliminations |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
External revenue |
945.2 |
876.0 |
1,104.8 |
185.2 |
821.2 |
185.3 |
- |
- |
4,117.7 |
|
Inter-segment revenue |
21.4 |
10.7 |
0.4 |
- |
16.3 |
- |
- |
(48.8) |
- |
|
Total revenue |
966.6 |
886.7 |
1,105.2 |
185.2 |
837.5 |
185.3 |
- |
(48.8) |
4,117.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit/(loss) (Note 14) |
25.9 |
38.5 |
71.8 |
(16.8) |
30.5 |
14.8 |
(23.4) |
- |
141.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation of intangible assets |
- |
- |
- |
(2.9) |
- |
- |
- |
- |
(2.9) |
|
Exceptional operating items |
(11.5) |
- |
- |
- |
- |
13.7 |
- |
- |
2.2 |
|
Operating profit/(loss) |
14.4 |
38.5 |
71.8 |
(19.7) |
30.5 |
28.5 |
(23.4) |
- |
140.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
10.8 |
|
Finance expense |
|
|
|
|
|
|
|
|
(7.5) |
|
Profit before tax |
|
|
|
|
|
|
|
|
143.9 |
|
|
|
|
|
|
|
|
|
|
|
During the period ended 30 June 2024, the period ended 30 June 2023 and the year ended 31 December 2023, inter-segment sales were charged at prevailing market prices and significantly all of the Group's operations were carried out in the UK.
3 Exceptional building safety items
|
|
|
Six months to 30 June 2024 |
Six months to 30 June 2023 |
Year ended 31 Dec 2023 |
|
|
Notes |
£m |
£m |
£m |
|
Exceptional building safety provisions released/(recognised) |
10 |
0.9 |
(4.1) |
(18.4) |
|
Insurance and recoveries recognised in receivables |
|
- |
- |
16.5 |
|
|
|
0.9 |
(4.1) |
(1.9) |
|
Exceptional building safety (charge)/credit within joint ventures |
7 |
(0.6) |
4.5 |
4.1 |
|
Total exceptional building safety credit |
|
0.3 |
0.4 |
2.2 |
During 2022 the Partnership Housing division signed the Developers Pledge (the "Pledge") with the Department of Levelling Up, Housing and Communities ("DLUHC") setting out the principles under which life critical fire-safety issues on buildings that they have developed of 11 meters and above are to be remediated. A letter was also received from DLUHC requesting information to assess whether it may be appropriate for Mixed Use Partnerships to also commit to the principles of the Pledge as part of its commitment to support the remediation of historic cladding and fire safety defects over and above its obligations under the new Building Safety Act. The Group subsequently signed the Developer Remediation Contract in March 2023 on behalf of all of its divisions.
An exceptional charge of £48.9m was recognised in 2022 due to the materiality and irregular nature of creating provisions arising because of the Pledge.
In the current period, the legal and constructive obligations related to the Pledge (including reimbursement of grants provided by the Building Safety Fund), the Building Safety Act and associated fire safety regulations have been reassessed based on further information. The overall movement in the building safety items is a net credit of £0.3m and is shown separately as an exceptional item consistent with prior year treatment.
Included in the £0.3m exceptional building safety credit (30 June 2023: £0.4m, 31 December 2023: £2.2m) is a £0.6m charge (30 June 2023: £4.5m credit, 31 December 2023: £4.1m credit) that has been recognised in respect of the Group's share of constructive and legal obligations to remediate legacy building safety issues within joint ventures, and this has been recognised within the Group's share of net profit of joint ventures. The remaining net credit of £0.9m (30 June 2023: £4.1m charge, 31 December 2023: £1.9m charge) has been recognised in cost of sales.
At the reporting date the Group had not yet made any reimbursements to the Building Safety Fund for amounts previously granted and drawn on any of the developments for which the Group has taken responsibility for. As notified by the DLUHC, any repayments will only be requested upon final completion of all the relevant works.
4 Tax
The effective tax rate applied for the period was 25.0% (six months to 30 June 2023: 20.2%, year ended 31 December 2023: 18.2%). This reflects the anticipated full year effective rate before adjusting items, as amended for the tax effect of adjusting items incurred in the first half of the financial year.
Deferred tax has been measured using the enacted rates that are expected to apply to the period in which each asset or liability is expected to unwind.
The adjusted effective tax rate for the period was 25.4% (six months to 30 June 2023: 23.4%, year ended 31 December 2023: 20.7%) with the difference between the reported and adjusted rates reflecting adjustments to exclude the impact of the amortisation of intangibles and movements within exceptional items.
5 Dividends
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
|
Six months to |
Six months to |
Year ended |
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
£m |
£m |
£m |
|
Final dividend for the year ended 31 December 2023 of 78.0p per share |
36.5 |
- |
- |
|
Final dividend for the year ended 31 December 2022 of 68.0p per share |
- |
31.5 |
31.5 |
|
Interim dividend for the year ended 31 December 2023 of 36.0p per share |
- |
- |
16.6 |
|
|
36.5 |
31.5 |
48.1 |
A proposed interim dividend of 41.5p per share for 2024 was approved by the Board on 6 August 2024 and will be paid on 24 October 2024 to shareholders on the register at 4 October 2024. The ex-dividend date is 3 October 2024.
6 Earnings per share
|
|
|
Six months to |
Six months to |
Year ended |
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
£m |
£m |
£m |
|
Profit attributable to the owners of the Company |
|
52.6 |
46.3 |
117.7 |
|
Adjustments: |
|
|
|
|
|
Exceptional operating items |
|
(0.3) |
(2.2) |
(2.2) |
|
Amortisation of intangible assets |
|
0.3 |
2.2 |
2.9 |
|
Tax relating to the above items |
|
(0.3) |
(0.5) |
(3.7) |
|
Adjusted earnings |
|
52.3 |
45.8 |
114.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average ordinary shares (m) |
|
46.5 |
46.3 |
46.3 |
|
Dilutive effect of share options and conditional shares not vested (m) |
|
1.3 |
0.7 |
0.7 |
|
Diluted weighted average ordinary shares (m) |
|
47.8 |
47.0 |
47.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
113.1p |
100.0p |
254.2p |
|
Diluted earnings per share |
|
110.0p |
98.5p |
250.4p |
|
Adjusted earnings per share |
|
112.5p |
98.9p |
247.7p |
|
Diluted adjusted earnings per share |
|
109.4p |
97.4p |
244.0p |
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 average share price for the period was £23.36 (30 June 2023: £17.35, 31 December 2023: £18.57).
A total of 1,416,101 share options that could potentially dilute earnings per share in the future were excluded from the above calculations because they were anti-dilutive at 30 June 2024 (30 June 2023: 4,835,809, 31 December 2023: 2,535,887).
7 Investments in joint ventures
|
|
|
Six months to 30 June 2024 |
Six months to 30 June 2023 |
Year ended 31 Dec 2023 |
|
|
Notes |
£m |
£m |
£m |
|
1 January |
|
106.6 |
84.0 |
84.0 |
|
Equity accounted share of net profits: |
|
|
|
|
|
Underlying share of net profits |
|
(0.1) |
3.8 |
14.1 |
|
Exceptional building safety credit/(charge) |
3 |
(0.6) |
4.5 |
4.1 |
|
|
|
(0.7) |
8.3 |
18.2 |
|
Capital advances to joint ventures |
|
24.1 |
26.9 |
44.2 |
|
Loans repaid by joint ventures |
|
(8.9) |
(4.3) |
(34.2) |
|
Dividends received |
|
- |
(2.5) |
(1.6) |
|
Reclassification from funding obligations payable |
|
- |
(4.0) |
(4.0) |
|
End of period |
|
121.1 |
108.4 |
106.6 |
8 Trade and other receivables
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
£m |
£m |
£m |
|
Amounts falling due within one year |
|
|
|
|
|
Trade receivables |
|
308.7 |
253.4 |
320.9 |
|
Amounts owed by joint ventures |
|
17.7 |
12.6 |
21.1 |
|
Prepayments |
|
24.0 |
20.2 |
17.8 |
|
Insurance receivables |
|
10.8 |
4.3 |
21.7 |
|
Other receivables |
|
29.2 |
30.8 |
31.3 |
|
|
|
390.4 |
321.3 |
412.8 |
|
Amounts falling due after more than one year |
|
|
|
|
|
Trade receivables |
|
59.9 |
51.5 |
48.8 |
|
|
|
59.9 |
51.5 |
48.8 |
|
|
|
|
|
|
|
Trade and other receivables |
|
450.3 |
372.8 |
461.6 |
|
The Group holds third party insurances that may mitigate the contract and legal liabilities described in note 10 - Provisions. Insurance receivables are recognised when reimbursement from insurers is virtually certain. |
||||
9 Trade and other payables
|
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
|
£m |
£m |
£m |
|
Trade payables |
|
228.9 |
207.1 |
202.2 |
|
Amounts owed to joint ventures |
|
0.2 |
0.2 |
0.2 |
|
Other tax and social security |
|
133.6 |
95.3 |
142.8 |
|
Accrued expenses |
|
717.2 |
599.9 |
703.9 |
|
Deferred income |
|
4.3 |
3.6 |
3.8 |
|
Land creditors |
|
18.3 |
26.7 |
20.7 |
|
Other payables |
|
14.1 |
16.6 |
13.4 |
|
Current |
|
1,116.6 |
949.4 |
1,087.0 |
|
Land creditors |
|
22.2 |
36.5 |
25.5 |
|
Other payables |
|
2.7 |
- |
2.7 |
|
Non-current |
|
24.9 |
36.5 |
28.2 |
10 Provisions
|
|
|
|
|
|
|
|
|
Building Safety |
Self-insurance |
Contract & legal |
Other |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
|
1 January 2023 |
38.3 |
19.8 |
15.7 |
3.1 |
76.9 |
|
Utilised |
(0.3) |
(0.8) |
(1.0) |
(0.1) |
(2.2) |
|
Additions |
8.6 |
3.1 |
6.9 |
0.5 |
19.1 |
|
Released |
(4.5) |
- |
(2.0) |
(0.9) |
(7.4) |
|
30 June 2023 |
42.1 |
22.1 |
19.6 |
2.6 |
86.4 |
|
Utilised |
(0.6) |
(0.5) |
(4.2) |
(0.2) |
(5.5) |
|
Additions |
17.7 |
0.8 |
3.7 |
0.3 |
22.5 |
|
Reclassifications |
0.3 |
- |
3.7 |
- |
4.0 |
|
Released |
(3.4) |
(3.2) |
(4.5) |
(0.2) |
(11.3) |
|
1 January 2024 |
56.1 |
19.2 |
18.3 |
2.5 |
96.1 |
|
Utilised |
(2.5) |
(0.4) |
(3.5) |
- |
(6.4) |
|
Additions |
0.9 |
4.0 |
3.1 |
- |
8.0 |
|
Released |
(1.8) |
(1.6) |
(0.2) |
(1.1) |
(4.7) |
|
30 June 2024 |
52.7 |
21.2 |
17.7 |
1.4 |
93.0 |
|
|
|
|
|
|
|
|
Current |
52.7 |
- |
17.7 |
- |
70.4 |
|
Non-current |
- |
21.2 |
- |
1.4 |
22.6 |
|
30 June 2024 |
52.7 |
21.2 |
17.7 |
1.4 |
93.0 |
|
|
|||||
Building Safety provisions
Management have reviewed legal and constructive obligations arising from the Developers Pledge, the Building Safety Act and other associated fire regulations. Where obligations exist, these have been evaluated for the likely cost to address, including repayments of the Building Safety Fund. As a result of this review process provisions are recognised, as reported in the table above, excluding those recognised in joint ventures. See note 3 for further detail.
The Group also holds third party insurances that may mitigate the liabilities. Third party insurance reimbursement in respect of these provisions has been recognised as a separate asset, but only when the reimbursement is virtually certain. See notes 3 and 8 for details of mitigating insurance receivables recognised at the period end. Note 12 includes details of contingent liabilities related to building safety.
Self-insurance provisions
Self-insurance provisions comprise the Group's self-insurance of certain risks and include £11.4m (30 June 2023: £13.1m, 31 December 2023: £10.0m) held in the Group's captive insurance company, Newman Insurance Company Limited (the 'Captive').
The Group makes provisions in respect of specific types of claims incurred but not reported (IBNR). The valuation of IBNR considers past claims experience and the risk profile of the Group. These are reviewed periodically and are intended to provide a best estimate of the most likely or expected outcome.
Contract and legal provisions
Contract and legal provisions include liabilities, loss provisions, defect and warranty provisions on contracts that have reached completion.
The Group also holds third party insurances that may mitigate the liabilities. Third party insurance reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. See note 8 for details of mitigating insurance assets recognised at the period end.
Other provisions
Other provisions include property dilapidations and other personnel related provisions.
11 Net cash
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
£m |
£m |
£m |
|
Cash and cash equivalents |
391.9 |
326.9 |
541.3 |
|
Bank overdrafts presented as borrowings due within one year |
(41.4) |
(63.8) |
(80.6) |
|
Net cash |
350.5 |
263.1 |
460.7 |
Included within cash and cash equivalents is £28.0m which is the Group's share of cash held within jointly controlled operations (30 June 2023: £36.8m, 31 December 2023: £26.1m). There is £21.9m included within cash and cash equivalents held for future payments to designated suppliers (30 June 2023: £4.2m, 31 December 2023: £13.9m).
The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £15m mature in June 2026 and £165m in October 2026. These facilities are undrawn at 30 June 2024.
Average daily net cash during the period to 30 June 2024 was £372m (30 June 2023: £268m, 31 December 2023: £282m). Average daily net cash is defined as the average of the period's end of day balances of the net cash (as defined above) over the course of the reporting period. Management use this as a key metric in monitoring the performance of the business.
12 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.
Contingent liabilities may also arise in respect of subcontractor and other third party claims made against the Group, in the normal course of trading. These claims can include those relating to cladding/legacy fire safety matters, and defects. A provision for such claims is only recognised to the extent that the Directors believe that the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefit will be required to settle the obligation. However, such claims are predominantly covered by the Group's insurance arrangements. Recoveries under insurance arrangements are recognised as insurance receivables when they are considered virtually certain.
Building Safety
At 30 June 2024, provisions in respect of liabilities arising from the Developers Pledge, the Building Safety Act and other associated fire regulations totalled £58.8m (30 June 2023: £47.4m, 31 December 2023: £61.6m), including those related to joint ventures.
The ongoing legislative and regulatory changes in respect of legacy building safety issues create uncertainty around the extent of remediation required for legacy buildings, the liability for such remediation, recoveries from other parties and the time to be considered. It is possible that as remediation work proceeds, additional remedial works are required that may not have been identified from the reviews and physical inspections undertaken to date. The scope of buildings and remediation works to be considered may also change as legislation and regulations continue to evolve.
Uncertainties also exist in respect of the timing and extent of expected recoveries from other third parties involved in developments.
13 Subsequent events
There were no subsequent events that affected the financial statements of the Group.
14 Adjusted Performance Measures
In addition to monitoring and reviewing the financial performance of the operating segments and the Group on a statutory basis, management also use adjusted performance measures which are also disclosed in the Annual Report. These measures are not an alternative or substitute to statutory IFRS measures but are seen by management as useful in assessing the performance of the business on a comparable basis. These financial measures are also aligned to the measures used internally to assess business performance in the Group's budgeting process and when determining compensation. The Group also uses other non-statutory measures which cannot be derived directly from the financial statements. There are four alternative performance measures used by management and disclosure in the Annual Report which are:
'Adjusted' In all cases the term 'adjusted' excludes the impact of intangible amortisation and exceptional items. This is used to improve the comparability of information between reporting periods and aid the reader's understanding of the activities across the Group's portfolio.
Below is a reconciliation between the reported gross profit, operating profit and profit before tax measures on a statutory basis and the adjustment made to calculate adjusted gross profit, adjusted operating profit and adjusted profit before tax.
Adjusted basic earnings per share and adjusted diluted earnings per share is the statutory measure excluding the post-tax impact of intangible amortisation and exceptional items. See note 6 for a detailed reconciliation of the adjusted earnings per share measures.
|
Gross profit |
|
|
|
|
|
|
|
Six months to 30 June 2024 |
Six months to 30 June 2023 |
Year ended 31 Dec 2023 |
|
|
Note |
£m |
£m |
£m |
|
Reported |
|
236.2 |
211.4 |
444.8 |
|
Add back: exceptional building safety (credit)/charge |
3 |
(0.9) |
4.1 |
1.9 |
|
Adjusted |
|
235.3 |
215.5 |
446.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
|
|
|
|
|
Six months to 30 June 2024 |
Six months to 30 June 2023 |
Year ended 31 Dec 2023 |
|
|
Note |
£m |
£m |
£m |
|
Reported |
|
65.5 |
57.3 |
140.6 |
|
Add back: exceptional building safety credit |
3 |
(0.3) |
(0.4) |
(2.2) |
|
Add back: amortisation of intangible assets |
|
0.3 |
2.2 |
2.9 |
|
Adjusted |
|
65.5 |
59.1 |
141.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
Six months to 30 June 2024 |
Six months to 30 June 2023 |
Year ended 31 Dec 2023 |
|
|
Note |
£m |
£m |
£m |
|
Reported |
|
70.1 |
58.0 |
143.9 |
|
Add back: exceptional building safety credit |
3 |
(0.3) |
(0.4) |
(2.2) |
|
Add back: amortisation of intangible assets |
|
0.3 |
2.2 |
2.9 |
|
Adjusted |
|
70.1 |
59.8 |
144.6 |
'Net cash' Net cash is defined as cash and cash equivalents less borrowings and non-recourse project financing. Lease liabilities are not deducted from net cash. A reconciliation of this number at the reporting date can be found in note 11. In addition, management monitor and review average daily net cash as good discipline in managing capital. Average daily net cash is defined as the average of the period's end of day balances of the net cash over the course of a reporting period.
'Operating cash flow' Management use an adjusted measure for operating cash flow as it encompasses other cash flows that are key to the ongoing operations of the Group such as repayments of lease liabilities, investment in property, plant and equipment, investment in intangible assets, and returns from equity accounted joint ventures. Operating cash flow can be derived from the cash inflow from operations reported in the consolidated cash flow statement as shown below.
Operating cash flow conversion is operating cash flow divided by adjusted operating profit as defined above.
|
|
Six months to |
Six months to |
Year ended |
|
|
30 June 2024 |
30 June 2023 |
31 Dec 2023 |
|
|
£m |
£m |
£m |
|
Cash (outflow)/inflow from operations - reported |
(13.7) |
(15.7) |
221.2 |
|
Dividends from joint ventures |
- |
2.5 |
1.6 |
|
Proceeds on disposal of property, plant and equipment |
0.3 |
0.3 |
2.0 |
|
Purchases of property, plant and equipment |
(10.9) |
(8.6) |
(14.3) |
|
Purchases of intangible fixed assets |
- |
(0.3) |
(0.3) |
|
Repayments of lease liabilities |
(11.8) |
(9.4) |
(21.2) |
|
Operating cash flow |
(36.1) |
(31.2) |
189.0 |
|
|
|
|
|
'Return on capital employed' Management use return on capital employed (ROCE) in assessing the performance and efficient use of capital within the Partnership activities. ROCE is calculated as adjusted operating profit plus interest received from joint ventures divided by average capital employed. Average capital employed is the 12 month average of total assets (excluding goodwill, other intangible assets and cash) less total liabilities (excluding corporation tax, deferred tax, intercompany financing and overdrafts).
The directors confirm that to the best of their knowledge:
· the unaudited condensed consolidated financial statements, which have been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting', give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as required by DTR 4.2.4R;
· the half year report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
· the half year report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein)
By order of the Board
John Morgan Kelly Gangotra
Chief Executive Officer Chief Financial Officer
8 August 2024
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