TIDMMGNS
RNS Number : 8487U
Morgan Sindall Group PLC
04 August 2022
4 August 2022
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
This announcement contains information that qualified, or may
have qualified, as inside information for the purposes of Article
17 of the Market Abuse Regulations (EU) 596/2014 (MAR). The person
responsible for making this announcement is Steve Crummett, Finance
Director.
RESULTS FOR THE HALF YEAR (HY)ED 30 JUNE 2022
HY 2022 HY 2021 Change
Revenue GBP1,698m GBP1,559m +9%
Operating profit - adjusted(1) GBP56.9m GBP54.8m +4%
Profit before tax - adjusted(1) GBP54.6m GBP53.1m +3%
Earnings per share - adjusted(1) 95.8p 93.1p +3%
Period end net cash GBP274m GBP337m -GBP63m
Interim dividend per share 33.0p 30.0p +10%
Operating profit - reported GBP56.0m GBP54.1m +4%
Profit before tax - reported GBP53.7m GBP52.4m +2%
Basic earnings per share
- reported 94.3p 87.6p +8%
------------------------------------ ----------- ----------- --------
(1) 'Adjusted' is defined as before intangible amortisation of
GBP0.9m
(HY 2021: before intangible amortisation of GBP0.7m and deferred
tax charge for future changes in tax rates of GBP1.9m)
HY 2022 summary:
-- Record performance for the Group despite market headwinds
o Revenue up 9% to GBP1.7bn
o Adjusted profit before tax up 3% to GBP54.6m
o Full year performance expected to be slightly above previous
expectations
-- Continued balance sheet strength
o Net cash of GBP274m (HY 2021: GBP337m)
o Average daily net cash of GBP264m (HY 2021: GBP294m)
-- High quality order book with secured workload of GBP8.5bn
o Up 2% on prior year (HY 2021: GBP8.3bn); down 1% on year end
(FY 2021: GBP8.6bn)
-- Interim dividend up 10% to 33.0p per share (HY 2021: 30.0p)
-- Divisional highlights
o Further margin improvement in Construction &
Infrastructure; operating margin up to 3.2% (HY 2021: 2.9%), with
operating profit up 7% to GBP24.1m (HY 2021: GBP22.6m)
o Another excellent performance from Fit Out; operating profit
up 10% to GBP21.2m (HY 2021: GBP19.3m)
o Property Services' operating profit(1) up 4% to GBP2.5m (HY
2021: GBP2.4m)
o Further good progress in Partnership Housing with operating
profit up 15% to GBP13.9m (HY 2021: GBP12.1m) and operating margin
up to 4.9% (HY 2021: 4.5%)
o Long-term regeneration schemes progressing in Urban
Regeneration with operating profit of GBP7.3m (HY 2021:
GBP8.7m)
Commenting on today's results, Chief Executive, John Morgan
said:
"We've had a record first half of the year and these results
reinforce the significant strategic and operational progress we
have made over the past few years. Whilst early days, this is a
good start towards our medium-term targets outlined in
February.
With the more challenging economic backdrop, our strong balance
sheet including a substantial net cash position is critical to
operating efficiently and effectively. It allows us to continue
making the right decisions and to best position us in our markets,
giving us competitive advantage for continued sustainable long-term
growth.
Our market positions and disciplined approach to contract
selection continues to drive positive momentum across the Group.
Our order book is substantial and of high quality. Following our
strong first half performance and with the current visibility we
have of 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 Tel: 020 7307 9200
John Morgan
Steve Crummett
Instinctif Partners Tel: 020 7457 2020
Matthew Smallwood
Bryn Woodward
Presentation
-- There will be an analyst and investor presentation at 09.00am
at Numis Securities Limited, 45 Gresham Street, London EC2V 7BF.
Coffee and registration will be from 08.30am
-- A copy of these results is available at: www.morgansindall.com
-- Today's presentation will be available via live webcast from
09.00am at www.morgansindall.com. T he presentation will be
available via playback on our website in the afternoon.
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK Construction &
Regeneration group with annual revenue of GBP3.2bn, employing
around 7,200 employees and operating in the public, regulated and
private sectors. It reports through five divisions of Construction
& Infrastructure, Fit Out, Property Services, Partnership
Housing and Urban Regeneration.
Group Strategy
The Group's strategy is focused on its well-established core
strengths of Construction and Regeneration in the UK. The Group has
a balanced business which is geared toward the increasing demand
for affordable housing, urban regeneration and infrastructure and
construction investment.
Morgan Sindall's recognised expertise and market positions in
affordable housing (through its Partnership Housing division) and
in mixed-use regeneration development (through its Urban
Regeneration division) reflect its deep understanding of the built
environment developed over many years and its ability to provide
solutions for complex regeneration projects. As a result, its
capabilities are aligned with sectors of the UK economy which are
expected to see increasing opportunities in the medium to long term
and which support the UK's current and future regeneration and
affordable housing needs.
Through its Construction & Infrastructure division, the
Group is also well positioned to meet the demand for ongoing
investment in the UK's infrastructure, while its geographically
diverse construction activities are focused on key areas of
education, healthcare and commercial.
The Fit Out division is the market leader in its field and
delivers a consistently strong operational performance. Fit Out,
together with the Construction & Infrastructure division,
generates cash resources to support the Group's investment in
affordable housing and mixed-use regeneration. 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 two strategic lines of business of Construction and
Regeneration, the Group is organised into five reporting divisions
as follows:
Construction activities comprise the following operations:
-- Construction & Infrastructure : Focused on the education,
healthcare, commercial, industrial, leisure and retail markets in
Construction; and on the highways, rail, energy, water and nuclear
markets in Infrastructure. Infrastructure also includes the
BakerHicks design activities based out of the UK and
Switzerland
-- Fit Out : Focused on the fit out of office space with
opportunities in commercial, central and local government offices
and further education
-- Property Services : Focused on response and planned
maintenance activities provided to the social housing and the wider
public sector
Regeneration activities 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 planned maintenance & refurbishment
-- Urban Regeneration : Focused on transforming the urban
landscape through partnership working and the development of
multi-phase sites and mixed-use regeneration
Medium-term divisional targets
To provide a framework for future performance, each division
operates to a medium-term financial target or set of targets (the
'target' or 'targets'). The targets relate to revenue, operating
margin, return on capital employed and/or profit and are referred
to in the Divisional review.
The medium-term targets are shown in the table below and were
first published on 24 February 2022.
Division Medium-term target
Construction Operating margin of between 2.5% and 3% per annum,
revenue of GBP1bn
------------------- -----------------------------------------------------
Infrastructure
Operating margin of between 3.5% and 4% per annum,
revenue of GBP1bn
------------------- -----------------------------------------------------
Fit Out Average annual operating profit through the cycle
of GBP40m-GBP45m
------------------- -----------------------------------------------------
Property Operating profit of GBP15m
Services
------------------- -----------------------------------------------------
Partnership Operating margin of 8% / return on capital up
Housing towards 25%
------------------- -----------------------------------------------------
Urban Regeneration 3-year rolling average return on capital up towards
20%
-----------------------------------------------------
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 GBP0.9m (HY 2021: before intangible
amortisation of GBP0.7m and (in the case of earnings per share) a
deferred tax charge for future changes in tax rates of GBP1.9m)
.
Group operating review
Summary Group financial results
The Group delivered a record performance in the first half
against a difficult market backdrop, with Group revenue increasing
by 9% up to GBP1,698m (HY 2021: GBP1,559m), while adjusted
operating profit increased 4% to GBP56.9m (HY 2021: GBP54.8m).
Operating margin was 3.4%, 10bps lower than the prior year period
(HY 2021: 3.5%).
The net finance expense increased to GBP2.3m (HY 2021: GBP1.7m)
resulting in adjusted profit before tax of GBP54.6m, up 3% (HY
2021: GBP53.1m). The statutory profit before tax was GBP53.7m, an
increase of 2% (HY 2021: GBP52.4m).
The adjusted tax charge for the period was GBP10.9m (statutory
tax charge of GBP10.7m), an effective rate of 20%. The tax charge
is based upon the expected effective tax rate for the full year and
includes the impact of the Residential Property Developer Tax which
became effective on 1 April 2022.
The adjusted earnings per share increased 3% to 95.8p (HY 2021:
93.1p), with the statutory basic earnings per share of 94.3p, up 8%
(HY 2021: 87.6p).
General market conditions
Across the Group, inflationary pressures and supply issues have
remained a significant headwind throughout the period. Rising
energy prices, supply constraints on certain materials and
increased trade and labour costs have continued to drive upward
pressure on total build costs, which in turn is placing increased
strain on the stability of the supply chain. This is expected to
continue through the second half and beyond.
Where projects are active and underway, the additional costs
arising have generally been offset by a combination of contractual
protection, operational efficiencies, flexible sourcing and (in the
case of Partnership Housing) by house sales price inflation. On
projects where it has not been possible to mitigate all such
additional costs in full, the resulting impact on margins has been
unavoidable.
Where projects are being priced for future delivery, the
inflationary environment has continued to place some project
budgets under pressure particularly in Construction &
Infrastructure, which in turn has led to some delays in
decision-making and project commencement.
In Urban Regeneration, construction cost inflation has also
provided additional challenges to the returns on some of its active
developments and on the viability of some of its schemes being
evaluated prior to commencement.
Divisional performances
On a divisional basis, Construction & Infrastructure further
improved its operating margin to 3.2% (HY 2021: 2.9%) by continuing
its disciplined focus on operational delivery and contract
selectivity. Its operating profit of GBP24.1m was an increase of 7%
(HY 2021: GBP22.6m), with revenue slightly lower at GBP764m (HY
2021: GBP774m). Fit Out delivered another excellent performance,
with revenue and profit both increasing. Revenue grew 20% to
GBP457m, while profit increased by 10% to GBP21.2m at a margin of
4.6% (HY 2021: 5.1%). Property Services also increased its profit,
up 4% to GBP2.5m (HY 2021: GBP2.4m), with revenue up 10% to GBP76m
(HY 2021: GBP69m) and a margin of 3.3% (HY 2021: 3.5%).
Of the Group's regeneration divisions, Partnership Housing
performed well, with operating profit increasing by 15% to GBP13.9m
(HY 2021: GBP12.1m) on revenue of GBP284m, up 5% (HY 2021:
GBP270m). Its operating margin increased 40bps to 4.9% (HY 2021:
4.5%). Urban Regeneration progressed as planned with its
development portfolio, delivering an operating profit of GBP7.3m
(HY 2021: GBP8.7m), after charging GBP7.0m in relation to building
safety (see section below).
Secured workload
The Group has a high-quality workload and maintaining contract
selectivity and bidding discipline to ensure the appropriate risk
balance in the order book remains of critical importance to the
future success of the Group. The total secured workload for the
Group at the period end was GBP8,519m, up 2% on the same time last
year (HY 2021: GBP8,324m) and 1% lower than at the year-end
position (FY 2021: GBP8,614m).
Payment practices
The Group's relationships with its supply chain partners are of
major strategic importance and the prompt payment of its suppliers
remains a key component of this. Particularly in the current
inflationary environment, strong supply chain relationships can
provide a competitive advantage and support superior operational
delivery.
For the formal Payment Practices Reporting period of 1 January
2022 to 30 June 2022, Construction & Infrastructure, the
largest operating division by revenue, reported 26 days on average
to pay invoices, with 99% of its invoices paid within 60 days. Fit
Out reported its average time taken to pay invoices at 27 days,
with 96% of invoices paid within 60 days, while Property Services
reported an average of 41 days to pay invoices, with 97% of
invoices paid within 60 days. Partnership Housing reported 32 days
as its average time to pay, with 96% of its invoices paid within 60
days.
Balance sheet & cash
Operating cash for the period was an outflow of GBP40.4m (HY
2021: inflow of GBP44.1m). Operating cash for the last 12 months
was an inflow of GBP33.1m.
Net cash at the period end was GBP274m, a reduction of GBP63m on
the prior year (HY 2021: GBP337m). Of this total, GBP54m 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 GBP264m (including
GBP67m in JVs/PBAs) compared to GBP294m in the prior year
period.
Looking ahead, based upon the current anticipated cash movements
over the rest of the year, the Group expects that the average daily
net cash for the full year will be slightly lower than that
reported for the first half.
Building Safety
The new Building Safety Act received Royal Assent on 28 April
2022.
The main implication for the Group is the extension to the
limitation period for bringing claims relating to construction
under the Defective Premises Act to a retrospective 30-year period.
Partnership Housing and Urban Regeneration are the divisions in the
Group most directly impacted by this new legislation.
In addition, following the announcement by the Secretary of
State for the Department of Levelling Up, Housing and Communities
("DLUHC") on Building Safety on 10 January and following the
subsequent discussions coordinated by the Home Builders Federation
("HBF") acting on behalf of its members, Partnership Housing signed
the Developer Pledge Letter ("the Pledge") on 4 April 2022 which
sets out the principles under which life-critical fire-safety
issues on buildings that they have developed of 11 metres and above
are to be remediated. The requirements under the final contract
formalising the commitment with the Government are still being
finalised through coordination with the HBF.
The costs arising across the Group in relation to general fire
safety and the provisions of the new Building Safety Act have been
charged through trading results of the relevant division in the
ordinary course of business. These costs are not expected to be
material to the Group and will likely span a number of years.
In Urban Regeneration, a comprehensive review of historic
developments covering the extended limitation period under the new
Building Safety Act and any potential liabilities arising therefrom
is ongoing. In the Half Year, a provision of GBP7.0m has been
charged through its operating results in the ordinary course to
cover the liabilities identified to date.
The discussions referred to above between DLUHC and HBF
regarding the Pledge were restricted to a specific market sector
and included only Partnership Housing from within the Group.
Subsequent to the period end, on 18 July 2022 a letter was received
from DLUHC as part of its next wave of negotiations with industry
extending its reach to other developers, requesting that Urban
Regeneration 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.
One of the significant differences in respect of the Pledge over
and above the obligations of the Building Safety Act is the
requirement for the reimbursement of amounts provided by the
Building Safety Fund ("BSF") on developments where such claims had
already been made and were being/had been rectified.
In addition is the requirement to identify buildings that are
proposed to be remediated with funds from BSF and take over, fund
and complete these works as quickly as possible.
In most cases for Urban Regeneration (as is usual for a
mixed-use developer), contractual coverage and other remedies to
recover such costs are in place. However, because income from these
other third parties cannot be recognised until it is virtually
certain to be received, it is expected that the expense of
reimbursing the BSF or of funding works which would be proposed to
be remediated by the BSF will be required to be recognised in an
earlier period than the income recovering these costs. On this
basis and although the review remains ongoing, the initial
assessment of the charge to the Group should Urban Regeneration
also take on the obligations of the principles of the Pledge, is in
the range of GBP40m-GBP50m.
In this event, due to the nature and materiality of this item,
it is intended that the expenses related to the Pledge for both
Urban Regeneration and Partnership Housing would be shown
separately as an exceptional 'Developer's Pledge' provision/expense
and adjusted for when reporting the Group's adjusted (underlying)
trading performance.
Subsequent income received for recoveries from third parties
would similarly be presented separately as exceptional 'Developer's
Pledge' income.
Dividend
The interim dividend has been increased by 10% to 33.0p per
share (HY 2021: 30.0p). 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.
Outlook
Following the Group's strong first half performance and with the
current visibility there is of the rest of the year, the Group now
expects to deliver a result for the full year which is slightly
ahead of its previous expectations.
Divisional Review
The following Divisional Review is given on an adjusted basis,
unless otherwise stated. Refer to Note 3 of the consolidated
financial statements for appropriate reconciliations to the
comparable UK IAS measures.
Headline results by business segment (vs HY 2021)
Revenue Operating Operating
Profit Margin
GBPm Change GBPm Change % Change
------ ------- ------- ------- ----- -------
Construction & Infrastructure 764 -1% 24.1 +7% 3.2% +30bps
Fit Out 457 +20% 21.2 +10% 4.6% -50bps
Property Services 76 +10% 2.5 +4% 3.3% -20bps
Partnership Housing 284 +5% 13.9 +15% 4.9% +40bps
Urban Regeneration 126 +85% 7.3 -16% n/a n/a
Group/Eliminations (9) (12.1)
------ ------- ------- ------- ----- -------
Total 1,698 +9% 56.9 +4% 3.4% -10bps
------ ------- ------- ------- ----- -------
Group secured workload(1) by division
The Group's secured workload(1) at 30 June 2022 was GBP8,519m,
up 2% compared to the prior year and 1% lower than at the year end.
The divisional split is shown below.
HY 2022 HY 2021 Change FY 2021 Change
GBPm GBPm GBPm
------- ------- ------ ------- ------
Construction & Infrastructure 2,535 2,542 - 2,715 -7%
Fit Out 869 581 +50% 897 -3%
Property Services 1,279 973 +31% 945 +35%
------------------------------- ------- ------- ------ ------- ------
'Construction' secured
order book(2) 4,683 4,096 +14% 4,557 +3%
------------------------------- ------- ------- ------ ------- ------
Partnership Housing 1,633 1,478 +10% 1,498 +9%
Urban Regeneration 2,235 2,759 -19% 2,574 -13%
------------------------------- ------- ------- ------ ------- ------
'Regeneration' secured
order book(2) 3,868 4,237 -9% 4,072 -5%
------- ------- ------ ------- ------
Inter-divisional eliminations (32) (9) (15)
------- ------- ------ ------- ------
Group secured workload(1) 8,519 8,324 +2% 8,614 -1%
------- ------- ------ ------- ------
(1) The Group secured workload is the sum of the Construction
secured order book and the Regeneration secured order book, less
any inter-divisional eliminations
(2) The 'Secured order book' is the sum of the 'committed order
book', the 'framework order book' and (for the Regeneration
businesses only) 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 & Infrastructure
HY 2022 HY 2021 Change
GBPm GBPm
------------------ ------- ------- -------
Revenue 764 774 -1%
Operating profit 24.1 22.6 +7%
Operating margin 3.2% 2.9% +30bps
------------------ ------- ------- -------
Although revenue reduced slightly to GBP764m (HY 2021: GBP774m),
operating profit increased 7% to GBP24.1m (HY 2021: GBP22.6m).
Operating margin improved to 3.2%, up 30bps (HY 2021: 2.9%), driven
by the division's continuing disciplined focus on operational
delivery and contract selectivity. Both the Construction and
Infrastructure ( including Design)(1) activities improved their
respective margins.
Split by activity, Construction revenue increased 16% to GBP392m
(HY 2021: GBP339m) and accounted for 51% of divisional revenue.
Infrastructure revenue (49% of divisional revenue) reduced 14% to
GBP372m (HY 2021: GBP435m) as expected primarily due to the timing
and nature of its project workload.
Construction's operating margin for the period was 2.9%, up
50bps from 2.4% in the prior year period, with operating profit of
GBP11.3m, up a substantial 40% from GBP8.1m in the prior year.
Infrastructure's operating margin increased 10bps to 3.4% (HY 2021:
3.3%), although operating profit reduced by 12% to GBP12.8m (HY
2021: GBP14.5m) in line with the lower revenue.
The secured order book for the division at the period end was
GBP2,535m, level with the prior period end position (HY 2021:
GBP2,542m), however 7% lower than at the year-end (FY 2021:
GBP2,715m).
(i) Construction
In Construction, the focus remains on improving its overall
quality of earnings through contract selectivity and operational
delivery.
Construction's order book of GBP760m was up 17% from the prior
year (HY 2021: GBP648m) although down 6% from the year-end position
(FY 2021: GBP810m). All work is now derived through either
negotiated, framework or two-stage bidding procurement processes,
in line with the preferred risk profile of work undertaken. In
addition to this, Construction also had GBP701m of work at
preferred bidder stage, up 8% compared to the same time last year
(HY 2021: GBP648m in preferred bidder).
Work won in the period included: the GBP61m redevelopment of
King Henry VIII Secondary School in Abergavenny into a 1,900 place,
all-through school for Monmouthshire County Council; the GBP12.5m
Priscilla Bacon Hospice, a new state-of-the-art hospice on an
eight-acre site in Norwich; and two new Grade A, BREEAM
Excellent-rated office buildings in Birkenhead with a project total
of GBP40m, in partnership with Urban Regeneration. In addition,
Construction gained a place on the GBP9bn Procure 23 framework, a
partnership between Crown Commercial Services and NHS England and
Improvement (NHSE&I).
The medium-term target for Construction is an operating margin
of between 2.5% and 3% per annum and revenue of GBP1bn. For the
full year, it is expected that the margin will be around the top
end of this range and progress made towards its revenue target,
whilst maintaining its normal risk profile in its workload and
bidding discipline.
(ii) Infrastructure(1)
In Infrastructure, the focus remains on the key sectors of
highways, rail, nuclear, energy and water.
Infrastructure's order book of GBP1,775m was down 7% compared to
the year end (FY 2021: GBP1,905m) and down 6% from the prior year
(HY 2021: GBP1,894m). Around 95% of the order book value remains
derived through existing frameworks and with 78% of the order book
for 2023 and beyond, this demonstrates the long-term nature of the
work streams and client relationships.
In Highways, the division commenced the A11 Concrete Roads
scheme as part of National Highway's Concrete Roads Programme -
Reconstruction Works Framework, a four-year programme worth
cGBP130m to repair or replace the concrete surface of motorways or
major A roads in England. In addition, work was completed on the
A45 Sprint corridor for Transport for West Midlands (TfWM), a
cGBP40m scheme forming part of a bus priority corridor linking
Walsall with the centre of Birmingham, Solihull and Birmingham
Airport .
In Rail, work began on six new stations as part of an extension
to the Northumberland Line for Northumberland County Council, and
work continued to progress on the Network Rail Parsons Tunnel
rockfall shelter extension in Devon. In addition, work completed
(delivered in joint venture) on the Barking Riverside Extension
project for Transport for London.
In Nuclear, work continued for Sellafield Ltd on the
Infrastructure Strategic Alliance and the GBP1.6bn Programme and
Project Partners contract, while in Water, work continued as part
of the long-term AMP7 framework with Welsh Water.
In Energy, the division was awarded a place, in a joint venture,
on Scottish & Southern Electricity Networks (SSEN)'s RIIO-2
framework with an initial term of five years, with an option for a
two-year extension. The framework involves the construction,
refurbishment and decommissioning of both overhead lines,
underground cable systems and substations operating between 33kV to
400kV across SSEN's transmission network.
In the BakerHicks design business(1) , Whitechapel Station was
completed and opened to the public while projects underway included
multi-disciplinary design on the new HMP Highland in Inverness for
Scottish Prison Services.
The medium-term target for Infrastructure is an operating margin
of between 3.5% and 4% per annum and revenue of GBP1bn. For the
full year, based upon the current visible work mix and volumes
through its existing frameworks for the rest of the year, it is
expected that revenue will be lower than last year, however the
margin is expected to be towards the top end of its target range,
albeit lower than last year's very strong performance.
(1) D esign results are reported within Infrastructure
Fit Out
HY 2022 HY 2021 Change
GBPm GBPm
------------------ ------- ------- -------
Revenue 457 380 +20%
Operating profit 21.2 19.3 +10%
Operating margin 4.6% 5.1% -50bps
------------------ ------- ------- -------
Fit Out delivered another excellent result in the period, with
significant growth in revenue and profit. Revenue increased by 20%
to GBP457m (HY 2021: GBP380m), with operating profit up 10% to
GBP21.2m (HY 2021: GBP19.3m). The operating margin was still a
strong 4.6%, albeit lower than last year (HY 2021: 5.1%) as a
result of contract mix and type.
The division's focus on consistent operational delivery and
customer experience has again driven performance, complemented by a
high-quality workload and disciplined and focused bidding.
Geographically, the London region remained the division's
largest market, accounting for 62% of revenue (HY 2021: 54%) while
other regions accounted for 38% of revenue (HY 2021: 46%).
There was no significant change to the market sectors served.
The commercial office market remained the largest, contributing 78%
of revenue (HY 2021: 73%), 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 period, 86% related to
traditional fit out work (HY 2021: 80%), while 14% related to
'design and build' (HY 2021: 20%). The proportion of revenue
generated from the fit out of existing office space increased
slightly to 78% (HY 2021: 73%), with the fit out of new office
space reducing to 22% (HY 2021: 27%). Of the fit out of existing
office space, work was broadly split evenly between refurbishment
'in occupation' and non-occupied space. Again, this slight shift in
revenue balance is not indicative of any long-term market
trend.
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;
carbon-driven planning restrictions for new buildings and energy
efficiency of existing office space; and the re-purposing of office
space in the wake of the pandemic to enable new ways of working. At
the period end, the secured order book stood at GBP869m, an
increase of 50% from the prior year position (HY 2021: GBP581m) and
only slightly lower than the year end high position (FY 2021:
GBP897m).
Of the secured order book, GBP394m (45%) relates to the second
half of the year, which is 23% higher than the equivalent amount as
at 30 June 2021 of GBP321m. In addition, with GBP475m of the
current order book (55%) for 2023 and beyond, the division has
significantly better long-term visibility of workload than in
previous years. The comparable number at the same time last year
was GBP260m, 45% lower. This advantageous position has been driven
by the securing of a number of larger contracts which will generate
revenue over a number of years.
Major projects continuing onsite during the period included;
366,000 sq ft of office space at Five Bank Street, Canary Wharf;
200,000 sq ft for BP in North Colonnade, Canary Wharf; 200,000 sq
ft for BT in Bristol; the CAT 'A' fit out of 180,000 sq ft at
Campus Reading, one of the largest office developments in the
Thames Valley.
Projects won during the period included; the 57,000 sq ft CAT
'B' fit out for InterContinental Hotel Group in Windsor; the fit
out of CBRE Investment Management's offices in London; the design
and build fit out for Montagu Private Equity in London; and fit out
projects for the BBC in Newcastle, the Cambridge Design Partnership
in Cambridge and the Nottingham Central Library for Nottingham City
Council. In the Education sector, significant projects won during
the period included three projects for University College London,
totalling GBP35m; the GBP8m fit out and refurbishment of Middlesex
University's West Stand at StoneX Stadium and the fit out of the
School of Health at Leeds Beckett University.
Delivered under frameworks and corporate partnerships, projects
included; GBP25m of works carried out for The Mayor's Office for
Policing and Crime (MOPAC) (with a future order book of GBP33m); a
fit out of 60,000 sq ft for the University of Leicester via the
Pagabo framework; and 19 projects won under the division's
partnership for NatWest Group.
The medium-term target for Fit Out is for average annual
operating profit through the cycle of GBP40m-GBP45m. Looking ahead
to the second half, based upon the current order book and timing of
delivery, a further very strong performance is expected and
consequently, the division is expected to be materially ahead of
the top end of this range in 2022.
Property Services
HY 2022 HY 2021 Change
GBPm GBPm
--------------------- ------- ------- -------
Revenue 76 69 +10%
Operating profit(1) 2.5 2.4 +4%
Operating margin(1) 3.3% 3.5% -20bps
--------------------- ------- ------- -------
Property Services improved its performance in the period, with
revenue increasing 10% to GBP76m (HY 2021: GBP69m) and operating
profit(1) increasing 4% to GBP2.5m (HY 2021: GBP2.4m). Its
operating margin was slightly lower at 3.3% (HY 2021: 3.5%).
The division remains focused on delivering repairs and planned
maintenance with a strong social value offering, servicing public
sector housing through its integrated contracts with housing
associations and local authorities. During the period, there have
been continued delays to decision-making for some planned
maintenance programmes, leading to lower volumes. In addition,
margin has been impacted by the time lag between immediate labour
inflationary pressures and the administration of contractual
inflation-uplift mechanisms.
At the period end, the secured order book was GBP1,279m, up 31%
from the prior year (HY 2021: GBP973m) and up 35% from the full
year position (FY 2021: GBP945m). Of this total, over 80% is for
2024 and beyond.
Included in the secured order book are; a ten-year contract with
South East housing association, Moat, to provide services to 11,500
homes across south east London, Kent, Essex and Sussex, worth over
GBP200m and with the potential to be extended by a further five
years; a GBP80m contract with Longhurst Group, maintaining 6,500
homes in their East region for up to ten-years; and a ten-year
contract with Welwyn Hatfield Borough Council delivering
maintenance and planned works for 9,500 homes, worth GBP120m. All
three contracts will have mobilised and commenced operations by the
end of the year.
The medium-term target for Property Services is to generate
operating profit of GBP15m. With slightly higher revenue expected
in the second half due to contract phasing and mobilisations, the
division is on track to make progress towards this target in
2022.
(1) before intangible amortisation of GBP0.9m (HY 2021:
GBP0.7m)
Partnership Housing
HY 2022 HY 2021 Change
GBPm GBPm
------------------------------ ------- ------- ----------
Revenue 284 270 +5%
Operating profit 13.9 12.1 +15%
Operating margin 4.9% 4.5% +40bps
------------------------------ ------- ------- ----------
Average capital employed(1) 179.0 158.3 +GBP20.7m
(last 12 months)
Capital employed(1)
- at period end 190.9 146.3 +GBP44.6m
ROCE(2) (last 12 months) 20% 17%
------------------------------ ------- ------- ----------
Partnership Housing made progress in the period, with revenue up
5% to GBP284m (HY 2021: GBP270m). Split by type of activity,
Mixed-tenure revenue was 12% lower at GBP140m (49% of divisional
revenue), however Contracting revenue (including planned
maintenance and refurbishment) was up 30% to GBP144m (51% of
divisional total) compared to the prior year.
In Mixed-tenure, 755 units were completed across open market
sales and social housing (including through its joint ventures)
compared to 815 in the prior year period. The average sales price
was GBP261k compared to the prior year average of GBP232k. In line
with the division's strategy to increase the size of its
mixed-tenure sites, there was an average of 169 open market units
per site at the period end (up from 122 at the prior year period
end) across a total of 49 mixed-tenure sites at various stages of
construction and sales.
Operating profit of GBP13.9m was up 15% on the prior year (HY
2021: GBP12.1m). The increase in average selling price in
Mixed-tenure helped to offset the impact of build cost inflation
across both activities, with the operating margin increasing to
4.9% (HY 2021: 4.5%).
The secured order book at the period end was GBP1,633m, an
increase of 10% on the prior year (HY 2021: GBP1,478m) and 9%
higher than the year-end position (FY 2021: GBP1,498m). Of this
total, the order book relating to the Mixed-tenure activities was
up 9% on the prior year position and 1% lower than the year end at
GBP980m ( HY 2021: GBP896m, FY 2021: GBP992m). The Contracting
secured order book increased to GBP653m, up 12% on the prior year
(HY 2021: GBP582m) and up 29% on the year end (FY 2021: GBP506m).
In terms of progressing with the delivery of the order book, the
planning system has remained slow and has hindered the speed of
progress on some of its developments. In particular, the guidance
from Natural England to local authorities in relation to nutrient
neutrality is taking time to work through and has added an
additional layer of complexity and uncertainty to the planning
process.
In mixed-tenure, work secured included; cGBP35m of work within
the division's Compendium JV (joint venture with The Riverside
Group) at Ings (Hull) and Castleward (in Derby); a 398 unit scheme
in Queensferry, Edinburgh; and 156 units in Mayfield,
Midlothian.
Key contracting schemes awarded in the period included; a
GBP30m, 143 unit scheme at Barne Barton, Plymouth for Clarion; a
GBP15m, 90 unit scheme for Saffron Housing Trust on the old
Wymondham Rugby club site in South Norfolk; and the GBP20m, 124
unit Chartist Garden Village scheme for Pobl, the housing
association based in Newport.
The capital employed at period end was GBP190.9m, an increase of
GBP44.6m on the prior year (HY 2021: GBP146.3m) and GBP35.3m higher
than at the year end (FY 2021: GBP155.6m), reflecting the
significant amount of ongoing activity in the division. The average
capital employed for the last 12-month period was GBP179.0m (HY
2021: GBP158.3m), resulting in an overall ROCE of 20% for the last
12-month period. Average capital employed for the full year is
expected to be cGBP190m-GBP200m.
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% and looking ahead to the rest of the year,
continued progress is expected towards these targets.
(1) Capital Employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
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
Urban Regeneration
HY 2022 HY 2021 Change
GBPm GBPm
------------------------------ ------- ------- ----------
Revenue 126 68 +85%
Operating profit 7.3 8.7 -16%
------------------------------ ------- ------- ----------
Average capital employed(1) 91.9 110.0 -GBP18.1m
(last 12 months)
Capital employed(1)
at period end 99.4 96.6 +GBP2.8m
ROCE(2) (last 12 months) 12% 14%
ROCE(2) (average last
3 years) 12% 15%
------------------------------ ------- ------- ----------
Urban Regeneration delivered an operating profit of GBP7.3m in
the period, a reduction of 16% on prior year (HY 2021: GBP8.7m),
with a ROCE(2) for the last 12 months of 12% based on the average
capital employed(1) of GBP91.9m.
During the period, there was further good progress made on the
Lewisham Gateway, London, and New Victoria, Manchester,
developments which were both subject to forward funding deals
signed in 2020. Profits were also generated from the sale of 166
homes across the portfolio, including 115 sales at Atelier,
Salford, delivered by The English Cities Fund (a joint venture with
Legal & General and Homes England). Several other developments
were active within The English Cities Fund including Four New
Bailey, Salford, where a 20-year pre-let had been signed with BT
for 175,000 sq ft of Grade A office space, and Phase 1 Manor Road
Quarter, Canning Town, which will deliver 355 homes (177
affordable).
The operating result also included a provision of GBP7.0m to
cover potential liabilities identified in relation to building
safety. See separate section in Group Operating Review above.
Adjusting for the impact of this provision, the ROCE(2) for the
last 12 months would be 20%, which is more representative of the
underlying performance of the division.
At the period end, the division's regeneration order book
amounted to GBP2,235m, a reduction of 19% on the prior year period
(HY 2021: GBP2,759m) and 13% lower than the year end (FY 2021:
GBP2,574m). Activity levels remain good and there are a significant
number of sizeable schemes currently being bid and any short/medium
term reductions in the value of the order book are not indicative
of any wider trends or concerns.
Capital employed(1) at the period end was GBP99.4m, GBP2.8m
higher than the prior year (HY 2021: GBP96.6m), and GBP15.4m higher
than the year end (FY 2021: GBP84.0m). Based upon the current
profile and type of scheme activity across the portfolio, the
average capital employed(1) for the full year is expected to be
cGBP100m.
The medium-term target for Urban Regeneration is to increase its
rolling three-year average ROCE(2) up towards 20%. Based upon the
current profile of scheme completions throughout the second half,
ROCE(2) is expected to improve, with progress made towards its
target in the full year.
(1) Capital Employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
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
Other Financial Information
1. Net finance expense. The net finance expense was GBP2.3m, an
increase of GBP0.6m compared to HY 2021.
HY 2022 HY 2021 Change
GBPm GBPm GBPm
--------------------------------------- ------- ------- ------
Interest payable on drawings - - -
on bank facilities
Amortisation of bank fees &
non-utilisation fees (1.1) (1.3) 0.2
Interest expense on lease liabilities (1.0) (0.7) (0.3)
Interest from JVs - 0.4 (0.4)
Other (0.2) (0.1) (0.1)
Total net finance expense (2.3) (1.7) (0.6)
--------------------------------------- ------- ------- ------
2. Tax. A tax charge of GBP10.7m is shown for the period (HY
2021: GBP12.0m). This equates to an effective tax rate of 19.9% on
profit before tax. The adjusted tax charge is GBP10.9m (HY 2021:
GBP10.2m).
HY 2022 HY 2021
GBPm GBPm
--------------------------------------------- ------- -------
Profit before tax 53.7 52.4
Less: share of net profit in joint ventures (3.1) (5.7)
Profit before tax excluding joint ventures 50.6 46.7
Statutory tax rate 19.0% 19.0%
Current tax charge at statutory rate (9.6) (8.9)
Tax on joint venture profits (1) (0.6) (1.0)
Effect of change in tax rate used to
calculate deferred tax - (1.9)
Residential Property Developer Tax (0.4) -
Other adjustments (0.1) (0.2)
Tax charge as reported (10.7) (12.0)
Tax on amortisation (0.2) (0.1)
Effect of change in tax rate used to
calculate deferred tax - 1.9
Adjusted tax charge (10.9) (10.2)
--------------------------------------------- ------- -------
(1) 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.
Change
HY 2022 HY 2021(3) GBPm
GBPm GBPm
--------------------------- ------- ----------
Inventories 333.9 284.8 +49.1
Trade & Other Receivables
(1) 574.4 479.9 +94.5
Trade & Other Payables(2) (977.7) (957.5) -20.2
Net working capital (69.4) (192.8) +123.4
--------------------------- ------- ---------- -------
(1) Adjusted to exclude capitalised arrangement fees of GBP0.6m
(HY 2021: GBP0.9m) and accrued interest receivable of GBP0.1m (HY
2021: GBPnil)
(2) Adjusted to exclude accrued interest payable of GBP0.5m (HY
2021: GBP0.4m)
(3) Includes the restatement to correct an historic error - see
Note 1 of the consolidated financial statements
4. Cash flow. The o perating cash flow for the 12 months to 30
June 2022 was an inflow of GBP33.1m and a free cash inflow of
GBP0.1m. For the half year period, there was an operating cash
outflow of GBP40.4m (HY 2021: inflow of GBP44.1m).
HY 2022 HY 2021 Last 12
GBPm GBPm months
-------------------------------------- ------- -------- -------
Operating profit - adjusted 56.9 54.8 133.4
Depreciation 10.8 10.0 21.3
Share option expense 4.2 4.6 11.7
Movement in fair value of shared
equity loans - - 1.9
Share of net loss/(profit)
of joint ventures (3.1) (5.7) (2.8)
Other operating items (1) (12.3) 2.5 16.3
Change in working capital (2) (84.7) (13.2) (124.2)
Net capital expenditure (including
repayment of finance leases) (12.2) (9.3) (24.7)
Dividends and interest received
from joint ventures - 0.4 0.2
Operating cash flow (40.4) 44.1 33.1
Income taxes paid (14.9) (11.3) (31.9)
Net interest paid (non-joint
venture) (0.4) (1.0) (1.1)
Free cash flow (55.7) 31.8 0.1
-------------------------------------- ------- -------- -------
(1) 'Other operating items' includes decrease in provisions
(GBP12.7m) and gains on disposals (GBP0.9m), less shared equity
redemptions (GBP1.0m) and impairment of investments (GBP0.3m)
(2) The cash flow due to change in working capital for the
12-month period excludes GBP0.8m of non-cash movements relating to
the unwinding of discounting on land creditors and other non-cash
working capital movements
5. Net cash. Net cash at the period end was GBP273.5m.
GBPm
------
Net cash as at 1 January
2022 358.0
Free cash flow (as above) (55.7)
Dividends (28.3)
Other(1) (0.5)
Net cash as at 30 June 2022 273.5
-------------------------------- ------
(1) 'Other' includes the purchase of shares in the Company by
the employee benefit trust (GBP15.6m) less proceeds from the issue
of new shares (GBP7.7m), proceeds from the disposal of investments
(GBP0.6m), net loan receipts from joint ventures (GBP5.4m) and
proceeds from the exercise of share options (GBP1.4m).
6. Capital employed by strategic activity. An analysis of the
capital employed in the Construction activities shows an increase
of GBP49.6m since the prior period, split as follows:
Capital employed(1) in Construction HY 2022 HY 2021(2) Change
GBPm GBPm GBPm
-------- -----------
Construction & Infrastructure (244.7) (288.7) +44.0
Fit Out (80.0) (68.5) -11.5
Property Services 47.9 30.8 +17.1
(276.8) (326.4) +49.6
------------------------------------- -------- ----------- -------
An analysis of capital employed in the Regeneration activities
shows an increase of GBP47.4m since the prior period, split as
follows:
Capital employed in Regeneration HY 2022 HY 2021 Change
GBPm GBPm GBPm
-------- --------
Partnership Housing 190.9 146.3 +44.6
Urban Regeneration 99.4 96.6 +2.8
290.3 242.9 +47.4
---------------------------------- -------- -------- -------
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 Includes the restatement to correct an historic error - see
Note 1 of the consolidated financial statements
7. Dividends. The Board of Directors has proposed an interim
dividend of 33.0p per share, an increase of 10% on the prior year
interim dividend. This will be paid on 26 October 2022 to
shareholders on the register at 7 October 2022. The ex-dividend
date will be 6 October 2022.
8. Building Safety. See Note 12 'Contingent liabilities' in the
financial statements
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 2021 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).
However, since compiling these the following additional matters
should be noted when considering the Group's risk profile:
Conflict in Ukraine - Has exacerbated inflationary pressures and
could impact business confidence later in the year. However, the
Group's predominantly public sector and largely negotiated
orderbook provides resilience.
Building Safety Act - The Group needs to ensure that its future
buildings comply with the Act and that related issues in completed
projects are identified, appropriate provisions made, and
rectification strategies implemented.
Summary of principal risks as per 2021 Annual Report:
Economic change and uncertainty - There could be fewer or less
profitable opportunities in the Group's chosen markets including a
decline in construction activity caused by macroeconomic weakness
and/or further UK lockdowns. Allocating resources and capital to
declining markets or less attractive opportunities would reduce its
profitability and cash generation.
Exposure to UK housing marke t - The UK housing sector is
strongly influenced by government stimulus and consumer confidence.
Inflationary pressures could challenge scheme viability, slowing
down its secured order book conversion. If mortgage availability,
affordability or consumer confidence is reduced, this could impact
on demand, make existing schemes difficult to sell and future
developments unviable, reducing profitability and tying up
capital.
Health and safety - If the Group fails to protect the health,
safety and wellbeing of its key stakeholders, individuals could be
hurt which could damage the Group's reputation as a responsible
employer and affect its ability to secure future work.
Climate change - Failure to protect the environment in which the
Group works by reducing carbon emissions and waste and to fully
consider potential environmental risks on projects could cause
delays to projects and damage the Group's reputation.
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 - An insolvency could disrupt project works, cause
delay and incur the costs of finding a replacement, resulting in
significant financial loss. There is a risk that credit checks
undertaken in the past may no longer be valid.
Inadequate funding - A lack of liquidity could impact the
Group's ability to continue to trade or restrict its ability to
achieve market growth or invest in regeneration schemes.
Mismanagement of working capital and investments - Poor
management of working capital and investments leads to insufficient
liquidity and funding problems.
Poor contract selection and/or bidding - Failure to fully
understand the risks on projects may lead the Group to accepting
work outside its core competencies or for which the Group has
insufficient resources, leading to poor delivery, a reduction in
gross margin and ultimately result in reputational damage and loss
of opportunities.
Poor project delivery (including changes to contracts and
contract disputes) - Failure to meet client expectations could lead
to disputes and incur costs that erode profit margins, lead to the
withholding of cash payments and impact working capital. It may
also result in reduction of repeat business and client
referrals.
UK cyber activity and failure to invest in information
technology - Investment in IT is necessary to meet the future needs
of the business in terms of expected growth, security, and
innovation, and enables its long-term success. It is also essential
in order to avoid reputational and operational impacts and loss of
data that could result in significant fines and/or prosecution.
Cautionary forward-looking statement
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from any future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Group accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Condensed consolidated income statement
For the six months ended 30 June 2022
Six months Six months
to to Year ended
30 June
2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------- ----- ----------- ------------ -----------
Revenue 2 1,697.5 1,558.6 3,212.8
Cost of sales (1,504.7) (1,383.0) (2,830.0)
------------------------------------- ----- ----------- ------------ -----------
Gross profit 192.8 175.6 382.8
Administrative expenses (139.6) (126.5) (258.3)
Share of net profit of joint
ventures 7 3.1 5.7 5.4
Other gains and losses 0.6 - 1.4
------------------------------------- ----- ----------- ------------ -----------
Operating profit before amortisation
of intangible assets 56.9 54.8 131.3
------------------------------------- ----- ----------- ------------ -----------
Amortisation of intangible assets (0.9) (0.7) (1.5)
------------------------------------- ----- ----------- ------------ -----------
Operating profit 56.0 54.1 129.8
Finance income 0.4 0.4 0.6
Finance costs (2.7) (2.1) (4.2)
------------------------------------- ----- ----------- ------------ -----------
Profit before tax 53.7 52.4 126.2
Tax 4 (10.7) (12.0) (28.3)
------------------------------------- ----- ----------- ------------ -----------
Profit for the period 43.0 40.4 97.9
------------------------------------- ----- ----------- ------------ -----------
Attributable to:
Owners of the Company 43.0 40.4 97.9
------------------------------------- ----- ----------- ------------ -----------
Earnings per share
Basic 6 94.3p 87.6p 212.4p
Diluted 6 91.9p 85.1p 204.4p
------------------------------------- ----- ----------- ------------ -----------
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 2022
Six months Six months
to to Year ended
30 June
2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------- ----------- ------------ -----------
Profit for the period 43.0 40.4 97.9
Items that may be reclassified
subsequently to profit or loss:
Gain/(loss) arising during the
period on translation of investments
in foreign operations 0.8 (0.5) (0.2)
--------------------------------------- ----------- ------------ -----------
Other comprehensive income/(expense) 0.8 (0.5) (0.2)
--------------------------------------- ----------- ------------ -----------
Total comprehensive income 43.8 39.9 97.7
--------------------------------------- ----------- ------------ -----------
Attributable to:
Owners of the Company 43.8 39.9 97.7
--------------------------------------- ----------- ------------ -----------
Condensed consolidated statement of financial position
At 30 June 2022
30 June
2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
restated(1)
Notes GBPm GBPm GBPm
------------------------------- ----- ----------- ------------ -----------
Assets
Goodwill and other intangible
assets 221.5 222.2 221.9
Property, plant and equipment 66.9 62.7 66.6
Investment property 0.8 1.1 0.8
Investments in joint ventures 7 91.8 95.4 94.1
Shared equity loan receivables - 4.4 -
Non-current assets 381.0 385.8 383.4
------------------------------- ----- ----------- ------------ -----------
Inventories 333.9 284.8 288.5
Contract assets 281.5 213.5 232.6
Trade and other receivables 8 293.6 267.3 328.3
Current tax assets 8.9 0.2 4.7
Shared equity loan receivables 0.5 - 1.5
Cash and cash equivalents 9 352.3 414.2 468.6
Current assets 1,270.7 1,180.0 1,324.2
------------------------------- ----- ----------- ------------ -----------
Total assets 1,651.7 1,565.8 1,707.6
------------------------------- ----- ----------- ------------ -----------
Liabilities
Contract liabilities (70.3) (53.9) (78.5)
Trade and other payables 10 (878.2) (904.0) (891.4)
Lease liabilities (14.2) (12.1) (13.4)
Borrowings 9 (78.4) (76.7) (110.2)
Provisions 11 (18.2) (3.4) (33.4)
------------------------------- ----- ----------- ------------ -----------
Current liabilities (1,059.3) (1,050.1) (1,126.9)
------------------------------- ----- ----------- ------------ -----------
Net current assets 211.4 129.9 197.3
------------------------------- ----- ----------- ------------ -----------
Trade and other payables 10 (29.7) - (32.6)
Lease liabilities (38.3) (37.8) (39.4)
Borrowings 9 (0.4) (0.4) (0.4)
Retirement benefit obligation (0.2) (0.2) (0.2)
Deferred tax liabilities (10.0) (14.4) (10.0)
Provisions 11 (26.4) (27.5) (23.9)
------------------------------- ----- ----------- ------------ -----------
Non-current liabilities (105.0) (80.3) (106.5)
------------------------------- ----- ----------- ------------ -----------
Total liabilities (1,164.3) (1,130.4) (1,233.4)
------------------------------- ----- ----------- ------------ -----------
Net assets 487.4 435.4 474.2
------------------------------- ----- ----------- ------------ -----------
Equity
Share capital 2.4 2.3 2.3
Share premium account 53.4 45.6 45.8
Other reserves (0.2) (1.3) (1.0)
Retained earnings 431.8 388.8 427.1
------------------------------- ----- ----------- ------------ -----------
Equity attributable to owners
of the Company 487.4 435.4 474.2
Total equity 487.4 435.4 474.2
------------------------------- ----- ----------- ------------ -----------
(1) The prior period balances for Trade and other payables and
Retained earnings have been restated as described in the basis
of preparation, along with their respective totals.
Condensed consolidated cash flow statement
For the six months ended 30 June 2022
Six months Six months
to to Year ended
30 June
2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
----------------------------------- ----- ----------- ------------ -----------
Operating activities
Operating profit 56.0 54.1 129.8
Adjusted for:
Amortisation of intangible
assets 0.9 0.7 1.5
Share of net profit of equity
accounted joint ventures 7 (3.1) (5.7) (5.4)
Depreciation 10.8 10.0 20.5
Share option expense 4.2 4.6 12.1
Gain on disposal of investments (0.6) - -
Gain on disposal of property,
plant and equipment (0.3) (0.2) (0.5)
Movement in fair value of shared
equity loan receivables - - 1.9
Impairment of investments 0.3 - 1.2
Proceeds on disposal of investment
properties - 1.6 1.9
Repayment of shared equity loan
receivables 1.0 1.1 2.1
(Decrease)/increase in provisions 11 (12.7) - 26.4
Operating cash inflow before
movements in working capital 56.5 66.2 191.5
(Increase)/decrease in inventories (45.7) 9.4 5.7
Increase in contract assets (48.9) (41.7) (60.8)
Decrease/(increase) in receivables 34.4 (33.0) (94.0)
(Decrease)/increase in contract
liabilities (8.2) (1.7) 22.9
(Decrease)/increase in payables (16.3) 53.8 73.5
----------------------------------- ----- ----------- ------------ -----------
Movements in working capital (84.7) (13.2) (52.7)
----------------------------------- ----- ----------- ------------ -----------
Cash (outflow)/inflow from
operations (28.2) 53.0 138.8
----------------------------------- ----- ----------- ------------ -----------
Income taxes paid (14.9) (11.3) (28.3)
----------------------------------- ----- ----------- ------------ -----------
Net cash (outflow)/inflow from
operating activities (43.1) 41.7 110.5
----------------------------------- ----- ----------- ------------ -----------
Investing activities
Interest received 0.3 0.4 0.6
Proceeds on disposal of property,
plant and equipment 0.3 0.6 1.4
Purchases of property, plant
and equipment (3.9) (1.7) (6.7)
Purchases of intangible fixed
assets (0.5) (0.8) (1.3)
Net decrease in loans to joint
ventures 7 5.4 1.7 1.5
Proceeds from the disposal of
investments 0.6 - -
----------------------------------- ----- ----------- ------------ -----------
Net cash inflow/(outflow) from
investing activities 2.2 0.2 (4.5)
----------------------------------- ----- ----------- ------------ -----------
Financing activities
Interest paid (0.7) (1.0) (1.7)
Dividends paid 5 (28.3) (18.5) (32.3)
Repayments of lease liabilities (8.1) (7.4) (15.2)
Proceeds on issue of share capital 7.7 0.1 0.3
Payments by the Trust to acquire
shares in the Company (15.6) (12.3) (33.6)
Proceeds on exercise of share
options 1.4 1.5 1.7
----------------------------------- ----- ----------- ------------ -----------
Net cash outflow from financing
activities (43.6) (37.6) (80.8)
----------------------------------- ----- ----------- ------------ -----------
Net (decrease)/increase in cash
and cash equivalents (84.5) 4.3 25.2
Cash and cash equivalents at
the beginning of the period 358.4 333.2 333.2
----------------------------------- ----- ----------- ------------ -----------
Cash and cash equivalents at
the end of the period 9 273.9 337.5 358.4
----------------------------------- ----- ----------- ------------ -----------
Cash and cash equivalents presented in the consolidated cash
flow statement include bank overdrafts. See note 9 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 2022
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------------- --------- --------- -------
1 January 2022 2.3 45.8 (1.0) 427.1 474.2
Profit for the period - - - 43.0 43.0
Other comprehensive income - - 0.8 - 0.8
------------------------------- -------- ------------- --------- --------- -------
Total comprehensive income - - 0.8 43.0 43.8
Share option expense - - - 4.2 4.2
Issue of shares at a premium 0.1 7.6 - - 7.7
Exercise of share options - - - 1.4 1.4
Purchase of shares in
the Company by the Trust - - - (15.6) (15.6)
Dividends paid - - - (28.3) (28.3)
------------------------------- -------- ------------- --------- --------- -------
30 June 2022 (unaudited) 2.4 53.4 (0.2) 431.8 487.4
------------------------------- -------- ------------- --------- --------- -------
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------------- --------- --------- -------
1 January 2021 2.3 45.5 (0.8) 383.0 430.0
Adjustment for correction
of an historic error (see
basis of preparation) - - - (9.9) (9.9)
--------------------------------------- -------- ------------- --------- --------- -------
1 January 2021 (restated) 2.3 45.5 (0.8) 373.1 420.1
Profit for the period - - - 40.4 40.4
Other comprehensive expense - - (0.5) - (0.5)
--------------------------------------- -------- ------------- --------- --------- -------
Total comprehensive (expense)/income - - (0.5) 40.4 39.9
Share option expense - - - 4.6 4.6
Issue of shares at a premium - 0.1 - - 0.1
Exercise of share options - - - 1.5 1.5
Purchase of shares in
the Company by the Trust - - - (12.3) (12.3)
Dividends paid - - - (18.5) (18.5)
--------------------------------------- -------- ------------- --------- --------- -------
30 June 2021 (unaudited) 2.3 45.6 (1.3) 388.8 435.4
--------------------------------------- -------- ------------- --------- --------- -------
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------------- --------- --------- -------
1 January 2021 (restated) 2.3 45.5 (0.8) 373.1 420.1
Profit for the year - - - 97.9 97.9
Other comprehensive expense - - (0.2) - (0.2)
--------------------------------------- -------- ------------- --------- --------- -------
Total comprehensive (expense)/income - - (0.2) 97.9 97.7
Share option expense - - - 12.1 12.1
Tax relating to share
option expense - - - 8.2 8.2
Issue of shares at a premium - 0.3 - - 0.3
Exercise of share options - - - 1.7 1.7
Purchase of shares in
the Company by the Trust - - - (33.6) (33.6)
Dividends paid - - - (32.3) (32.3)
--------------------------------------- -------- ------------- --------- --------- -------
31 December 2021 (audited) 2.3 45.8 (1.0) 427.1 474.2
--------------------------------------- -------- ------------- --------- --------- -------
Other reserves
Other reserves include:
-- Capital redemption reserve of GBP0.6m (30 June 2021: GBP0.6m,
31 December 2021: GBP0.6m) which was created on the redemption of
preference shares in 2003.
-- Hedging reserve of (GBP0.8m) (30 June 2021: (GBP1.0m), 31
December 2021: (GBP0.8m)) arising under cash flow hedge accounting.
Movements on the effective portion of hedges are recognised through
the hedging reserve, whilst any ineffectiveness is taken to the
income statement.
-- Translation reserve of nil (30 June 2021: (GBP0.9m), 31
December 2021: (GBP0.8m)) 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 2022 was
1,157,029 (30 June 2021: 271,678, 31 December 2021: 1,051,664) with
a cost of GBP26.6m (30 June 2021: GBP6.3m, 31 December 2021:
GBP25.3m).
Notes to the condensed consolidated financial statements
For the six months ended 30 June 2022
1 Basis of preparation
General information
The financial information for the year ended 31 December 2021
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
2022 and 2021 and for the six months ended 30 June 2022 and 2021
are therefore unaudited.
Basis of preparation
The annual financial statements of Morgan Sindall Group plc are
prepared in accordance with UK adopted International Accounting
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 2022 , the Group had cash of GBP352.3m and total
loans and borrowings of GBP78.8m, including GBP78.4m of overdrafts
repayable on demand (together net cash of GBP273.5m). Should
further funding be required the Group has total committed banking
facilities of GBP180m 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 2022 financial statements through to 4 August 2023.
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 4 August
2023. Accordingly, they continue to adopt the going concern basis
in preparing the condensed consolidated financial statements.
Tax
A tax charge of GBP10.7m is shown for the six-month period (six
months to 30 June 2021: GBP12.0m, year ended 31 December 2021:
GBP28.3m). 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
2021.
Correction of an historic error
On 27 July 2007 the Group acquired Amec Developments Limited and
certain assets and businesses carried on by Amec Investments
Limited and the assets, liabilities and contracts relating to the
Design and Project Services ('DPS') division of Amec plc, save for
certain excluded assets and liabilities (together 'Amec').
A difference was identified relating to the acquired business of
Amec. This error was an historic unsubstantiated asset of GBP9.9m
that continued to be recorded on the consolidated statement of
financial position in accrued expenses within Trade and other
payables. The error was corrected as at 31 December 2021 by
restating each of the affected financial statements line items for
the prior periods and this effected the prior year comparative for
30 June 2021 as follows:
Impact on equity ((decrease) in equity)
30 June 2021
GBPm
Trade and other payables 9.9
Total liabilities 9.9
Net impact on equity (9.9)
The change has no impact on the consolidated income statement,
consolidated statement of comprehensive income, basic and diluted
earnings per share or the Group's operating, investing and
financing cash flows for each period presented. In accordance with
IAS 1, a restated balance sheet at 30 June 2021 has been
presented.
Seasonality
The Group's activities are generally not subject to significant
seasonal variation.
2 Revenue
An analysis of the Group's revenue is as follows:
Six months Six months Year ended
to 30 June to 30 June 31 Dec 2021
2022 2021
GBPm GBPm GBPm
-------------------------------- ------------------- -------------------- -----------------------
Construction 392.2 338.6 693.5
Infrastructure and design 372.1 435.4 826.1
-------------------------------- ------------------- -------------------- -----------------------
Construction and Infrastructure 764.3 774.0 1,519.6
Traditional fit out 392.6 303.3 634.7
Design and build 64.4 77.1 160.7
-------------------------------- ------------------- -------------------- -----------------------
Fit Out 457.0 380.4 795.4
Property Services 75.9 69.4 133.8
Contracting 144.3 111.1 249.2
Mixed tenure 139.4 158.9 323.0
-------------------------------- ------------------- -------------------- -----------------------
Partnership Housing 283.7 270.0 572.2
Urban Regeneration 126.1 68.0 202.5
Inter-segment revenue (9.5) (3.2) (10.7)
-------------------------------- ------------------- -------------------- -----------------------
Total revenue 1,697.5 1,558.6 3,212.8
-------------------------------- ------------------- -------------------- -----------------------
3 Business segments
For management purposes, the Group is organised into five
operating divisions: Construction & Infrastructure, Fit Out,
Property Services, Partnership Housing and Urban Regeneration, and
this is the structure of segment information reviewed by the Chief
Operating Decision Maker (CODM). The divisions' activities are as
follows:
-- Construction & Infrastructure: Morgan Sindall
Construction & Infrastructure Ltd provides construction
services in the education, healthcare, commercial, defence,
industrial, leisure and retail markets and delivers infrastructure
projects in the highways, rail, energy, water and nuclear markets.
Infrastructure also includes the BakerHicks Limited design
activities based in the UK and Switzerland.
-- Fit Out: Overbury plc specialises in fit out and
refurbishment in commercial, central and local government offices,
as well as further education. Morgan Lovell plc provides office
interior design and build services direct to occupiers.
-- Property Services: Morgan Sindall Property Services Limited
provides responsive repairs and planned maintenance for social
housing and the wider public sector.
-- Partnership Housing: Lovell Partnerships Limited works in
partnerships with local authorities and housing associations.
Activities include mixed-tenure developments, building and
developing homes or open market sale and for social/affordable
rent, design and build house contracting and planned maintenance
and refurbishment.
-- Urban Regeneration: Muse Developments Limited focuses 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.
Adjusted Performance Measures
The divisions are the basis on which the Group reports its
segmental information as presented. 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. 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 which are referred to in
the disclosure of the results for the 6 months ended 30 June 2022,
which are:
'Adjusted' In all cases the term 'adjusted' excludes the
impact of intangible amortisation of GBP0.9m
(six months to 30 June 2021: GBP0.7m, year ended
31 December 2021: GBP1.5m). 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.
The below segmental analysis reconciles the
statutory operating profit measure to the 'adjusted'
measure and is used in reviewing the segmental
performance. Adjusted profit before tax is used
only in monitoring the Group's performance which
is the statutory measure excluding the impact
of intangible amortisation of GBP0.9m (six months
to 30 June 2021: GBP0.7m, year ended 31 December
2021: GBP1.5m). Adjusted basic earnings per
share and adjusted diluted earnings per share
is the statutory measure excluding the post-tax
impact of intangible amortisation of GBP0.7m
(six months to 30 June 2021: GBP0.6m, year ended
31 December 2021: GBP1.2m) and the deferred
tax charge arising due to changes in UK corporation
tax rates of GBPnil (six months to 30 June 2021:
GBP1.9m, year ended 31 December 2021: GBP5.1m).
See note 6 for a detailed reconciliation of
the adjusted EPS measures.
'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 9. 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 end of day balances of the net cash over
the course of the reporting period.
'Operating cashflow' Management use an adjusted measure for operating
cashflow as it encompasses other cashflows 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. The figures can be
derived from the consolidated cash flow statement
being: Cash outflow from operations (GBP28.2m)
plus repayments of lease liabilities (GBP8.1m),
purchase of property, plant and equipment (GBP3.9m),
and purchase of intangible assets (GBP0.5m)
less dividend from joint ventures (GBPnil),
interest received from joint ventures (GBPnil)
and proceeds from the disposal of property,
plant and equipment (GBP0.3m). Operating cash
flow conversion is operating cashflow as defined
above divided by adjusted operating profit as
defined above.
'Return on capital Management use return on capital employed (ROCE)
employed' in assessing the performance and efficient use
of capital within the Regeneration 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, intangibles and cash) less
total liabilities (excluding corporation tax,
deferred tax, intercompany financing and overdrafts).
The Group reports its segmental information as presented
below:
Six months
to 30 June 2022
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Construction Fit Property Partnership Urban Group
& Infrastructure Out Services Housing Regeneration Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
External revenue 754.8 457.0 75.9 283.7 126.1 - - 1,697.5
Inter-segment
revenue 9.5 - - - (9.5) -
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Total revenue 764.3 457.0 75.9 283.7 126.1 - (9.5) 1,697.5
Operating
profit/(loss)
before
amortisation
of intangible
assets 24.1 21.2 2.5 13.9 7.3 (12.1) - 56.9
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Amortisation
of intangible
assets - - (0.9) - - - - (0.9)
Operating
profit/(loss) 24.1 21.2 1.6 13.9 7.3 (12.1) - 56.0
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Finance income 0.4
Finance expense (2.7)
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Profit before
tax 53.7
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Six months to 30
June 2021
---------------------------------- ------- --------- ----------- ------------- ----------- ------------ -------
Construction Property Partnership Urban Group
& Infrastructure Fit Out Services Housing Regeneration Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
External revenue 770.9 380.3 69.4 270.0 68.0 - - 1,558.6
Inter-segment
revenue 3.1 0.1 - - - - (3.2) -
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Total revenue 774.0 380.4 69.4 270.0 68.0 - (3.2) 1,558.6
Operating
profit/(loss)
before
amortisation
of intangible
assets 22.6 19.3 2.4 12.1 8.7 (10.3) - 54.8
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Amortisation
of intangible
assets - - (0.7) - - - - (0.7)
Operating
profit/(loss) 22.6 19.3 1.7 12.1 8.7 (10.3) - 54.1
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Finance income 0.4
Finance expense (2.1)
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Profit before
tax 52.4
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Year ended 31 December
2021
------------------------------------------- --------- ----------- ------------- ----------- ------------ -------
Construction Property Partnership Urban Group
& Infrastructure Fit Out Services Housing Regeneration Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
External revenue 1,509.0 795.3 133.8 572.2 202.5 - - 3,212.8
Inter-segment
revenue 10.6 0.1 - - - - (10.7) -
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Total revenue 1,519.6 795.4 133.8 572.2 202.5 - (10.7) 3,212.8
Operating
profit/(loss)
before
amortisation
of intangible
assets 58.1 44.2 4.1 33.2 12.1 (20.4) - 131.3
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Amortisation
of intangible
assets - - (1.5) - - - - (1.5)
Operating
profit/(loss) 58.1 44.2 2.6 33.2 12.1 (20.4) - 129.8
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Finance income 0.6
Finance expense (4.2)
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
Profit before
tax 126.2
---------------- ---------------- ------- --------- ----------- ------------- ----------- ------------ -------
During the period ended 30 June 2022, the period ended 30 June
2021 and the year ended 31 December 2021, inter-segment sales were
charged at prevailing market prices and significantly all of the
Group's operations were carried out in the UK.
4 Tax
The effective tax rate applied for the period was 19.9% (six
months to 30 June 2021: 22.9%, year ended 31 December 2021: 22.4%).
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. This is higher
than the statutory rate of 19.0% mainly due to the expected
liability arising from Residential Property Developer Tax ("RPDT")
which applies from 2022.
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. In 2021, the effective tax rate included the
effect of increases in deferred tax liabilities arising due to the
announcement of the increase to the rate of UK statutory tax from
19% to 25% from 1 April 2023.
The adjusted effective tax rate for the period was 20.0% (six
months to 30 June 2021: 19.2%, year ended 31 December 2021: 18.4%)
with the difference between the reported and adjusted rates
reflecting adjustments to exclude the impact of the amortisation of
intangibles and the effect of the change in tax rate used to
calculate deferred tax.
5 Dividends
Amounts recognised as distributions to equity
holders in the period:
-------------------------------------------------- ------------ -----------
Six months Six months
to to Year ended
30 June
2022 30 June 2021 31 Dec 2021
GBPm GBPm GBPm
-------------------------------------- ---------- ------------ -----------
Final dividend for the year ended
31 December 2021 of 62.0p per share 28.3 - -
Final dividend for the year ended
31 December 2020 of 40.0p per share - 18.5 18.5
Interim dividend for the year ended
31 December 2021 of 30.0p per share - - 13.8
-------------------------------------- ---------- ------------ -----------
28.3 18.5 32.3
-------------------------------------- ---------- ------------ -----------
A proposed interim dividend of 33.0p per share for 2022 was
approved by the Board on 4 August 2022 and will be paid on 26
October 2022 to shareholders on the register at 7 October 2022. The
ex-dividend date is 6 October 2022.
6 Earnings per share
Six months Six months
to to Year ended
30 June
2022 30 June 2021 31 Dec 2021
GBPm GBPm GBPm
----------------------------------- ---------- ------------ -----------
Profit attributable to the owners
of the Company 43.0 40.4 97.9
Adjustments:
Amortisation of intangible assets
net of tax 0.7 0.6 1.2
Deferred tax charge arising
due to change in UK corporation
tax rates - 1.9 5.1
------------------------------------ ---------- ------------ -----------
Adjusted earnings 43.7 42.9 104.2
------------------------------------ ---------- ------------ -----------
Basic weighted average ordinary
shares (m) 45.6 46.1 46.1
Dilutive effect of share options
and conditional shares not vested
(m) 1.2 1.4 1.8
------------------------------------ ---------- ------------ -----------
Diluted weighted average ordinary
shares (m) 46.8 47.5 47.9
------------------------------------ ---------- ------------ -----------
Basic earnings per share 94.3p 87.6p 212.4p
Diluted earnings per share 91.9p 85.1p 204.4p
Adjusted earnings per share 95.8p 93.1p 226.0p
Diluted adjusted earnings per
share 93.4p 90.3p 217.5p
------------------------------------ ---------- ------------ -----------
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 GBP21.77 (30 June 2021: GBP18.76, 31 December
2021: GBP21.39).
A total of 712,103 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 2022 (30
June 2021: 2,497,229, 31 December 2021: 865,271).
7 Investments in joint ventures
Investments in equity accounted joint ventures are as
follows:
Six months Six months
to 30 June to 30 June Year ended
2022 2021 31 Dec 2021
GBPm GBPm GBPm
-------------------------------------- ----------- ----------- ------------
1 January 94.1 91.4 91.4
Equity accounted share of net profits 3.1 5.7 5.4
Loans advanced to joint ventures 10.9 16.0 28.1
Loans repaid to joint ventures (16.3) (17.7) (29.6)
Non-cash impairment - - (1.2)
End of period 91.8 95.4 94.1
-------------------------------------- ----------- ----------- ------------
8 Trade and other receivables
30 June
2022 30 June 2021 31 Dec 2021
GBPm GBPm GBPm
------------------------------------ --------- ------------- ------------
Trade receivables 232.6 219.5 250.2
Amounts owed by joint ventures 0.4 0.3 13.5
Prepayments 20.2 22.4 13.2
Insurance receivables 10.9 - 30.4
Other receivables 29.5 25.1 21.0
------------------------------------- --------- ------------- ------------
293.6 267.3 328.3
------------------------------------ --------- ------------- ------------
The Group holds third party insurances that may mitigate the contract
and legal liabilities described in note 11 - Provisions. Insurance
receivables are recognised when reimbursement from insurers is
virtually certain.
9 Net cash
30 June
2022 30 June 2021 31 Dec 2021
GBPm GBPm GBPm
----------------------------------- ------- ------------ -----------
Cash and cash equivalents 352.3 414.2 468.6
Bank overdrafts presented as
borrowings due within one year (78.4) (76.7) (110.2)
------------------------------------ ------- ------------ -----------
Cash and cash equivalents reported
in the consolidated cash flow
statement 273.9 337.5 358.4
Borrowings due between two and
five years (0.4) (0.4) (0.4)
Net cash 273.5 337.1 358.0
------------------------------------ ------- ------------ -----------
Included within cash and cash equivalents is GBP50.1m which is
the Group's share of cash held within jointly controlled operations
(30 June 2021: GBP61.3m, 31 December 2021: GBP55.7m). There is
GBP8.6m included within cash and cash equivalents held for future
payments to designated suppliers (30 June 2021: GBP8.0m, 31
December 2021: GBP6.4m).
The Group has GBP180m of committed loan facilities maturing more
than one year from the balance sheet date, of which GBP15m matures
in March 2024 and GBP165m in October 2024. These facilities are
undrawn at 30 June 2022. The Group has a further facility of
GBP0.4m that was drawn down in full during 2021 and the six-month
period to 30 June 2022, and matures in July 2025.
10 Trade and other payables
30 June 30 June
2022 2021 31 Dec 2021
restated(1)
GBPm GBPm GBPm
---------------------------------- -------- ----------- -----------
Trade payables 191.3 172.9 157.6
Amounts owed to joint ventures 0.2 0.2 0.2
Other tax and social security 83.5 97.4 107.5
Accrued expenses 581.4 600.3 602.7
Deferred income 2.8 15.4 8.9
Other payables 19.0 17.8 14.5
----------------------------------- -------- ----------- -----------
Current 878.2 904.0 891.4
----------------------------------- -------- ----------- -----------
Other payables 29.7 - 32.6
----------------------------------- -------- ----------- -----------
Non-current 29.7 - 32.6
----------------------------------- -------- ----------- -----------
(1) The prior period balances for Accrued expenses within Trade
and other payables have been restated as described in note 1
- Basis of preparation, along with their respective totals.
11 Provisions
Contract
Self-insurance & legal Other Total
GBPm GBPm GBPm GBPm
------------------------ ---------------- --------- ----- ------
1 January 2021 22.8 - 8.1 30.9
Utilised (0.4) - (2.0) (2.4)
Additions 3.0 - - 3.0
Released - - (0.6) (0.6)
------------------------ ---------------- --------- ----- ------
30 June 2021 25.4 - 5.5 30.9
Utilised (1.2) - (3.0) (4.2)
Additions 1.5 22.7 0.2 24.4
Reclassifications(1) - 10.7 - 10.7
Released (4.5) - - (4.5)
------------------------ ---------------- --------- ----- ------
1 January 2022 21.2 33.4 2.7 57.3
Utilised (0.7) - - (0.7)
Additions 3.1 8.9 0.6 12.6
Released - (24.1) (0.5) (24.6)
------------------------ ---------------- --------- ----- ------
30 June 2022 23.6 18.2 2.8 44.6
------------------------ ---------------- --------- ----- ------
Current - 18.2 - 18.2
Non-current 23.6 - 2.8 26.4
------------------------ ---------------- --------- ----- ------
30 June 2022 23.6 18.2 2.8 44.6
------------------------ ---------------- --------- ----- ------
(1) A number of items previously presented as accruals were
reclassified to provisions in the prior year.
Self-insurance provisions
Self-insurance provisions comprise the Group's self-insurance of
certain risks and include GBP11.1m (30 June 2021: GBP13.5m, 31
December 2021: GBP10.8m) held in the Group's captive insurance
company, Newman Insurance Company Limited.
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.
The majority of the provisions are expected to be utilised
within 10 years.
12 Contingent liabilities
Building Safety
The new Building Safety Act received Royal Assent on 28 April
2022.
The main implication for the Group is the extension to the
limitation period to bring claims relating to construction under
the Defective Premises Act to a retrospective 30-year period.
Partnership Housing and Urban Regeneration are the divisions in the
Group most directly impacted by this new legislation.
In addition, following the announcement by the Secretary of
State for the Department of Levelling Up, Housing and Communities
("DLUHC") on Building Safety on 10 January and following the
subsequent discussions coordinated by the Home Builders Federation
("HBF") acting on behalf of its members, Partnership Housing signed
the Developer Pledge Letter ("the Pledge") on 4 April 2022 which
sets out the principles under which life-critical fire-safety
issues on buildings that they have developed of 11 metres and above
are to be remediated. The requirements under the final contract
formalising the commitment with the Government are still being
finalised through coordination with the HBF.
The costs arising across the Group in relation to general fire
safety and the provisions of the new Building Safety Act have been
charged through trading results of the relevant division in the
ordinary course. These costs are not expected to be material to the
Group and will likely span a number of years.
In Urban Regeneration, a comprehensive review of historic
developments covering the extended limitation period under the new
Building Safety Act and any potential liabilities arising therefrom
is ongoing. In the Half Year, a provision of GBP7.0m has been
charged through its trading results in the ordinary course to cover
such identified liabilities to date.
The discussions referred to above between DLUHC and HBF
regarding the Pledge were restricted to a specific market sector
and included only Partnership Housing from within the Group.
Subsequent to the period end, on 18 July 2022, a letter was
received from DLUHC requesting information to assess whether it may
be appropriate for Urban Regeneration 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.
One of the significant differences in respect of the Pledge over
and above the obligations of the Building Safety Act is the
requirement for the immediate re-imbursement of grants provided by
the Building Safety Fund ("BSF") on developments where such claims
had already been made and were being/had been rectified.
In addition is the requirement to identify buildings that are
proposed to be remediated with funds from BSF and take over, fund
and complete these works as quickly as possible.
In most cases for Urban Regeneration (as is usual for a
mixed-use developer), contractual coverage and other remedies to
recover such costs are in place. However, because income from these
other third parties cannot be recognised until it is virtually
certain to be received, it is expected that the expense of
reimbursing the BSF or of funding works which would be proposed to
be remediated by the BSF will be required to be recognised in an
earlier period than the income recovering these costs. On this
basis and although the review remains ongoing, the initial
assessment of the charge to the Group should Urban Regeneration
also take on the obligations of the principles of the Pledge, is in
the range of GBP40m-GBP50m.
In this event, due to the nature and materiality of this item,
it is intended that the expenses related to the Pledge for both
Urban Regeneration and Partnership Housing would be shown
separately as an exceptional 'Developer's Pledge' provision/expense
and adjusted for when reporting the Group's adjusted (underlying)
trading performance.
Subsequent income received for recoveries from third parties
would similarly be presented separately as exceptional 'Developer's
Pledge' income.
13 Subsequent events
The only significant subsequent event was the receipt of the
letter from DLUHC by Urban Regeneration on 18 July 2022 as
described in note 12 'Contingent liabilities'. This was considered
a non-adjusting subsequent event in the financial statements for
the six months ended 30 June 2022.
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)
This responsibility statement was approved by the Board on 4(th)
August 2022 and is signed on its behalf by:
John Morgan Steve Crummett
Chief Executive Finance Director
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END
IR FLFITTDIVIIF
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