Morgan Sindall Group Plc · LSE:MGNS
Morgan Sindall — FY2023 Earnings Presentation
61 slides from Morgan Sindall's earnings presentation, Feb 22, 2024
Slide 1: Full year results
Full year results 22nd February 2024 to 31st December 2023
Slide 2: Agenda
Agenda • Introduction / John Morgan • Financial & operational review / Steve Crummett • Construction / Pat Boyle • Property Services / Pat Boyle • Capital allocation, markets & outlook / John Morgan FY Results 2023 2
Slide 3: Introduction
Introduction • Record FY performance demonstrates the breadth of the Group’s operations • Balance sheet strength and significant daily cash • High-quality order book with good prospects in the pipeline • Decentralised and empowered structure gives us agility and flexibility through the cycle • Well-
Slide 4: Financial & operational review
Financial & operational review Steve Crummett
Slide 5: Summary of Group results
Summary of Group results Adjusted1 basis £m FY 23 FY 22 Change Revenue 4,118 3,612 +14% Operating profit 141.3 139.2 +2% Operating margin 3.4% 3.9% -50bps Net interest 3.3 (3.0) +£6.3m Profit before tax 144.6 136.2 +6% Tax (29.9) (27.0) -£2.9m Profit after tax 114.7 109.2 +5% Earnings per share (p)
Slide 6: Summary by division
Summary by division Operating Operating Revenue Profit/(Loss)1 Margin1 £m change £m change % change Construction 967 +18%2 25.9 +15% 2.7% -10bps2 Infrastructure 887 +15%2 38.5 +31% 4.3% +50bps2 Fit Out 1,105 +14% 71.8 +38% 6.5% +110bps Property Services 185 +13% (16.8) -491% -9.1% -1170bps Partnersh
Slide 7: Operating cash flow
Operating cash flow 59.7 2.5 189.0 • Operating cash inflow of £ 189.0m 19.3 • Conversion of 134% of operating profit 141.3 -33.8 • Net working capital inflow of £59.7m Reflects the benefit of revenue increase in D Construction, Infrastructure & Fit Out No change to underlying profile of debtors/
Slide 8: Daily net cash balance
Daily net cash balance 550 500 450 MAX: £475m • Average daily net cash £ 282m (FY 2022: £256m) 400 461m 350 • Year end net cash £ 300 £m 250 200 (FY 2022: £355m) 150 MIN: £195m 100 D • FY 2024 average daily net cash 50 - (50) 1 Jan 30 Jun 31 Dec expected to be in excess of £300m (100) (150) (200) (2
Slide 9: Secured order book
Secured order book £8.9bn £m vs FY 2022 Group secured order book Construction 796 -1% Infrastructure 1,689 -6% Includes only: Fit Out 1,098 +31% • projects with signed contract or letter of intent Property Services 1,478 +23% in place Partnership Housing 2,034 +3% • expected share of revenue Urban R
Slide 10: Reminder of our ESG credentials
Reminder of our ESG credentials ‘AAA’ MSCI ESG rating maintained CDP score of ‘A’ for leadership on climate change maintained in 2023 – fourth year On track to achieve 2030 ‘operational net zero’ target for Scopes 1,2 & operational 3 emissions Payment practices to the supply chain Delivering ‘Social
Slide 11: Divisional performances
Divisional performances
Slide 12: Construction
Construction £m FY 23 Change2 15% Revenue 967 +18% Private sector Operating profit1 25.9 +15% Public Operating margin1 2.7% -10bps sector Secured order book 796 -1% • Market remains active Revenue up 18%, order book down only 1% despite revenue growth Preferred bidder c£1.3bn. 69% higher than th
Slide 13: Infrastructure
Infrastructure FY 23 by revenue £m FY 23 Change1 Design Revenue 887 +15% 14% 86% Operating profit 38.5 +31% Infrastructure Operating margin 4.3% +50bps services Secured order book 1,689 -6% • Strong project delivery and type/phasing of workload driving revenue and margin growth • Good growth in nucl
Slide 14: Fit Out
Fit Out £m FY 23 Change Commercial offices Revenue 1,105 +14% 80% of revenue Operating profit 71.8 +38% Operating margin 6.5% +110bps London region Secured order book 1,098 +31% 64% of revenue • Excellent performance and another record result. Again driven by 60% of revenue ‘Traditional’ fit out wor
Slide 15: Property Services
Property Services £m FY 23 Change Long-term order book Revenue 185 +13% 1 c85% by value for 2025+ Operating profit (16.8) -491% Operating margin1 -9.1% -1170bps Secured order book 1,478 +23% • Poor performance in difficult trading environment • Operational contract delivery issues. Inefficiencies th
Slide 16: Partnership Housing
Partnership Housing £m FY 23 Change Contracting revenue up 44% (at £473m) Revenue 838 +20% Mixed-tenure revenue down Operating profit 30.5 -18% 1% (at £365m) Operating margin 3.6% -180bps 1,923 mixed-tenure units completed (incl JVs) (FY 2022: 1,936) Secured order book 2,034 +3% Includes 830 open ma
Slide 17: Urban Regeneration
Urban Regeneration £m FY 23 Change £79.7m capital employed at Revenue 185 -24% year end (£20.7m lower than 1 prior year) Operating profit 14.8 -22% Secured order book 1,825 -1% c£80m-£90m average capital 2 Average capital employed - last 12 months 98.6 +£2.1m employed for FY 24 ROCE2 – last 12 month
Slide 18: Summary
Summary • Good performance. PBT1 up 6% • Strong cash position and operating cash generation • High-quality and growing order book • ESG is fundamental to how we win work and excel in our markets • Total dividend up 13% 1 Adjusted = before intangible amortisation of £2.9m and exceptional building saf
Slide 19: Construction
Construction Pat Boyle
Slide 20: What We Do
What We Do Main contractor delivering design and build construction solutions to public and private sector clients, in multiple market segments, across the UK. FY 2023 revenue Public Sector - Frameworks £967m Private Sector Private Sector 15% Public Sector 85% FY Results 2023 20
Slide 21: Operational structure
Operational structure • 5 well established regional businesses with 14 area teams • Wide geographical coverage • Strong relationships with regional customers • Local supply chain partners • Teams who are connected to the communities in which they work • National Frameworks managed with core team • D
Slide 22: Markets served
Markets served % of order book • Public sector remains the focus generating c.85% of revenue Other • ‘Education’ sector accounted for 49% of revenue in FY 2023 Residential 6% and remains largest customer sector across all regions 13% 4% Commercial 5% nationally Design & Build Industrial 5% • Health,
Slide 23: Case study: Kenilworth Secondary School & Sixth Form
Case study: Kenilworth Secondary School & Sixth Form Client Kenilworth Multi Academy Trust Location Kenilworth, Warwickshire Size 195,900 sq ft £££ Value £44.5m The new school is one of the largest in the UK and has created 2,220 much-needed places for the area. Across the c.33 acre site there are f
Slide 24: Case study: Molecular Science Building
Case study: Molecular Science Building Client University of Birmingham Location Birmingham Size 120,870 sq ft £££ Value £59.7m The building is the new home of the School of Chemistry and School of Geography, Earth and Environmental Sciences departments. It will strengthen the University's ambitions
Slide 25: Case study: Wirral Growth Company Offices
Case study: Wirral Growth Company Offices Client Wirral Growth Company (JV between Muse & Wirral Council) Location Birkenhead Size 150,000 sq ft £££ Value £39.8m The BREEAM Excellent office buildings are only the second Grade A office development in the area. One of the two five-storey buildings wil
Slide 26: Construction: Where we've come from
Construction Where we’ve come from
Slide 27: Operational transformation based on discipline
Operational transformation based on discipline 2014 The business today 🗸🗸 c100% of order book now procured through 2-stage 🗸🗸 • Higher risk order book comprising c90% single processes or frameworks. Much lower volatility stage contracts Represented on most chosen frameworks across UK 🗸🗸 • Not…
Slide 28: Financial track-record
Financial track-record1 £m £m 2.8% 3.2% 2.8% 2.7% Covid • Significant losses made in 2014-2016 • Last 5 years show consistent performance (excl London jobs Covid year 2020) Plus ‘exceptional’ losses shown in accounts Consistent and sustainable margins Cash drain Cash-backed profit 1 Design
Slide 29: Construction: The way forward
Construction The way forward
Slide 30: Order book and pipeline
Order book and pipeline • Secured order Book of £796m. 1% lower despite revenue in Orderbook & Preferred bidder year… (FY 2023) • ….But in addition, £1.28bn of Preferred Bidder 1000 69% higher than prior year 13% 900 323 • Good visibility of projects into 2025 and beyond 800 Design & Build 700 • S
Slide 31: Key growth opportunities
Key growth opportunities • Continued delivery of English, Welsh and Scottish new build schools programme. Increased opportunity from refurbishment and decarbonisation • Increase share of work through existing Health, Defence and Justice sectors 13% • Secure an increased share of Higher Education inv
Slide 32: Medium-term target & 2024 outlook
Medium-term target & 2024 outlook • Medium-term target for Construction is: Operating margin within the range of 2.5%-3.0% per annum 13% Increase revenue to £1bn per annum Design & Build • For 2024, expectation is to meet both these targets 87% Traditional Fit Out FY Results 2023 32
Slide 33: Property Services
MORGAN SINDALL GROUP
Slide 34: What We Do
What We Do Provide responsive repairs and planned maintenance services for housing associations and local authorities Services provided to over 200,000 properties FY 2023 revenue £185m Local Authorities Housing Associations Private Sector 15%25% 85%75% FY Results 2023 34
Slide 35: Our Hub Locations
MORGAN SINDALL Our Hub Locations enouP London Offices * Ashford Borough Council + Basildon Borough + Asra + Cheshire Extra Care + East + Grove Village + South Essex Homes + Home Group + Moat Homes * Lilac + North Tyneside Council + Yorkshire Housing Central * Longhurst Group London + Banbury * Londo
Slide 36: Market proposition
Market proposition What do clients want from a property services partner? • Operatives with technical competence and capability • Certainty of delivery, quality and value • Collaborative proactive partner • Commitment to the communities we work in • Financial strength 36
Slide 37: Case study – Basildon Borough Council
Case study – Basildon Borough Council Scope Integrated Contract – repairs, void and planned works Term 15 years Value £504m Property Services’ strategic focus on long-term partnerships ensures a sustainable secured forward order book and steady pipeline of work. The integrated asset management contr
Slide 38: Case study – Westminster City Council
Case study – Westminster City Council Scope Repairs, void and retrofit works plus ad hoc planned work Term 10 years Value £141m Under this contract, Property Services delivers the council’s decarbonisation and retrofit programme. To date, we have installed 1,866 measures to c. 1,000 Westminster prop
Slide 39: Case study – London and Quadrant
Case study – London and Quadrant Scope Major improvement works Term 15 years Value £450m Under this, Property Services’ largest contract to date, the division is delivering major improvement works to around 21,500 L&Q properties, located mainly in London and the south. The programme includes estate
Slide 40: What went wrong and what we're doing about it
Property Services What went wrong and what we’re doing about it
Slide 41: What went wrong
What went wrong £m FY 23 Revenue 185 Operating profit1 (16.8) • Significant increase in demand for repairs resulting from Covid and poor state of housing stock Ramp up in volumes has strained the organisation • Cost inflation significantly above contract rates. Contract pricing mechanisms inadequate
Slide 42: Remediation plan
Remediation plan • New management team. MD, FD, Commercial, Partnership and Contract leads • Discussions with clients re pricing, KPIs and (in some cases) duration • Address internal inefficiency • Optimise operative scheduling • Cultural change to focus back on the basics Quality of delivery Ow
Slide 43: Property Services: Looking ahead
Property Services Looking ahead
Slide 44: Order book and market drivers
Order book and market drivers Order book Opportunities • Long-term order book at £1.5bn, up 23% • Ageing and degrading Housing Stock across the UK £180m of revenue for 2024 secured Regulation driving minimum standards £1.3bn orders for 2025 and beyond • Environmental & Social agenda – social •
Slide 45: Medium-term target & 2024 outlook
Medium-term target & 2024 outlook • Medium-term target was reduced to an annual operating profit of £7.5m in mid-2023 to reflect the current challenges the business is facing • Target is not the limit of ambitions or a ceiling 13% on what is the business’s capability Design & Build • But the remedia
Slide 46: Capital allocation, markets & outlook
Capital allocation, markets & outlook John Morgan
Slide 47: Capital allocation policy
Capital allocation policy Overarching principle to hold significant net cash balances at all times Cash generation and maintain strong • Enhance competitive advantage and win future work balance sheet • Ensure downside protection. Maintain a buffer Maximise investment in current • Partnership Housin
Slide 48: Market conditions by division
Market conditions by division Good visibility of work through established frameworks mainly with the public sector Construction Education, our largest market, is particularly strong Strong pipeline of new projects especially in defence, energy and nuclear Infrastructure Slower getting preferred bidd
Slide 49: Outlook by division
Outlook by division Medium-term target: operating margin of 2.5%-3% pa, revenue of £1bn Construction 2024: Expect to meet both targets Medium-term target: operating margin of 3.5%-4% pa, revenue of £1bn Infrastructure 2024: Expect margin around top end of range. Significant progress towards £1bn rev
Slide 50: Summary
Summary • Group is in good shape • Financial stability of supply chain remains a challenge • Continue to keep a strong balance sheet and significant net cash balance at all times • Focus on long-term workstreams and long-term client relationships • Need to fix Property Services but other divisions a
Slide 51: Appendices
MORGAN SINDALL GROUP
Slide 52: Net finance expense
Net finance expense £m FY 23 FY 22 Interest income on bank deposits 10.8 2.3 Amortisation of fees & non-utilisation fees (2.0) (2.2) Interest expense on lease liabilities (IFRS 16) (2.5) (1.9) Discount on unwind of deferred land payments (3.0) (1.2) Total 3.3 (3.0) FY Results 2023 52
Slide 53: Adjusted earnings per share
Adjusted earnings per share £m FY 23 FY 22 Profit after tax 117.7 60.9 Adjusted for: Exceptional Building safety credit/charge (net of tax) (5.2) 46.7 Amortisation of intangibles (net of tax) 2.2 1.6 Adjusted earnings 114.7 109.2 Basic average number of shares 46.3m 45.9m Adjusted earnings per share
Slide 54: Exceptional building safety credit
Exceptional building safety credit £m Exceptional building safety provisions additions/(releases) 18.4 Insurance and recoveries recognised in receivables (16.5) Exceptional building safety (credit)/charge within cost of sales 1.9 Exceptional building safety (credit)/charge within JVs (4.1) Total exc
Slide 55: Tax
Tax £m FY 23 FY 22 Profit before tax 143.9 85.3 Less: share of underlying1 net profit in JVs (14.1) (14.3) Profit subject to tax 129.6 71.0 Statutory tax rate 23.50% 19.0% Current tax charge at statutory rate (30.5) (13.5) Tax on underlying1 joint venture profits2 (2.6) (2.6) Non-deductible portion
Slide 56: Payment practices
Payment practices 6m to 31st December 2023 Invoices not Average time Invoices paid to pay invoices paid within within 60 days • Note that Construction and agreed terms Infrastructure report their payment practices data under 25 days 3% 98% Construction & Infrastructure the same legal entity 1 day 1%
Slide 57: Net cash movement
Net cash movement 171.4 • Year end net cash of £ 460.7m 460.7 -48.1 -17.2 Operating cash flow (Slide 7) (£189.0m) 354.6 Tax (£25.2m) Interest (non-JV) £7.6m D Free cash flow (A) (£171.4m) Opening A B C Closing net cash net cash A = Free cash flow. See table B = Dividends C = Other. Includes net capi
Slide 58: Summary balance sheet
Summary balance sheet £m 31 Dec 23 31 Dec 22 Intangibles 218.6 221.2 PP&E 86.0 74.8 Investments (including JVs)1 107.4 84.8 Net working capital2 (136.0) (89.9) Current and deferred tax (10.6) (12.4) Net cash 460.7 354.6 Lease liabilities (63.8) (56.9) Provisions1 (96.1) (76.9) Other3 1.9 (3.1) Net a
Slide 59: Provisions
Provisions £m Provisions as at 1 January 2023 76.9 Additions: Exceptional Building safety (non-JV element) 26.3 Net increase in Other 15.3 Building Safety provisions of Less: £18.4m (see Slide 55) Exceptional Building safety (non-JV) – released (7.9) Exceptional Building safety (non-JV) – utilised/r
Slide 60: Capital employed in Regeneration
Capital employed1 in Regeneration £m Total Partnership Urban Regeneration Housing Regeneration Total net land & regeneration WIP 270.1 226.0 44.1 Unsold completed units (excl. joint ventures) 27.4 26.2 1.2 Amounts invested in joint ventures1 112.3 68.1 44.2 Shared equity loans and investment propert
Slide 61: Morgan Sindall Group
MORGAN SINDALL GROUP