Morgan Sindall Group plc · LSE:MGNS
Morgan Sindall — FY2017 Earnings Presentation
57 slides from Morgan Sindall's earnings presentation, Feb 22, 2018
Slide 1: Full year results to 31 December 2017
Full year results to 31 December 2017 Morgan Sindall Group plc 22 February 2018
Slide 2: Agenda
Agenda • Introduction John Morgan • FY 2017 Financial and Operational Review Steve Crummett • Investments John Morgan 2
Slide 3: Summary
Summary Strong performance in 2017 2 Following a simple strategy of self-help and organic growth Good progress made against our medium-term targets 1 Strength of balance sheet gives flexibility to invest in the business 4 Positive momentum to deliver continued growth in 2018 and beyond 1 Medium-term
Slide 4: FY 2017 Financial and Operational Review
FY 2017 Financial and Operational Review Steve Crummett 4
Slide 5: Highlights
Highlights • Strong profit growth. PBT up 46% • Balance sheet in very good shape average daily net cash for the year of £118m closing net cash of £193m no pension concerns • High quality order book, up 6% to £3.8bn • Positive outlook for 2018 • Total dividend up 29% 5
Slide 6: Summary income statement
Summary income statement £m FY 2017 FY 2016 % change Revenue 2,793 2,562 +9% Operating profit1 68.6 48.8 +41% Operating margin1 2.5% 1.9% +60bps Profit before tax1 66.1 45.3 +46% Earnings per share1 121.1p 84.7p +43% Total dividend per share 45.0p 35.0p +29% 1 Before intangible amortisation of £1.2m
Slide 7: Divisional performance
Divisional performance £m Revenue Operating Operating Profit1 Margin1 FY 2017 % FY 2017 % FY 2017 bps Construction & Infrastructure 1,395 +6% 20.4 +129% 1.5% +80bps Fit Out 735 +16% 39.1 +42% 5.3% +100bps Property Services 66 +20% (1.3) n/a (2.0%) -330bps Partnership Housing 474 +9% 14.1 +5% 3.0% -1
Slide 8: Cash flow
Cash flow 10.2 (6.1) • Operating cash inflow of £41m £m 68.6 (37.8) 60% cash conversion after net investment of £40m in 6.1 41.0 (4.3) Regeneration (included in working (9.6) (9.6) capital outflow) 27.1 0 Operating Non-cash Net capex & Working Other 3 Operating Net interest Tax Free cash Profit
Slide 9: Working capital/trade payables
Working capital/trade payables Change in working capital • Increase in total ‘Trade & Other Payables’ of £112m in year £m ‘Trade & Other Payables’ of £864m at year end Inventories1 (78.7) mainly comprises contract and other accruals £573m (‘Other’) Receivables (71.3) • ‘Trade Payables’ at year e
Slide 10: Net cash movements
Net cash movements • Year end net cash of £193m 27.1 (16.8) (25.6) • Average daily net cash of £118m 208.7 £m 193.4 • Bank facilities renewed in year. Total of £180m, with main £150m facility expiring in May 2022 • Further investment in Regeneration expected through 2018 2018 average daily cash ex
Slide 11: Summary balance sheet
Summary balance sheet £m FY 2017 FY 2016 Intangibles 215.8 217.0 • Strong balance sheet PP&E 14.4 16.6 net cash and significant Investments (incl JVs) 83.9 63.5 undrawn committed facilities Shared equity loan receivables 15.6 18.4 pension scheme net surplus Net working capital (164.2) (203.6)
Slide 12: Order book
Order book £m • Group committed order book up 6% £3,849m to £3.8bn £3,637m projects only included in order book when signed contract or letter of intent does not include preferred bidder or 49% ‘prospectives’ 31% 51% for 2019 and beyond 20% FY 16 FY 17 2018 2019 2020 + Order book 12
Slide 13: Regeneration & development pipeline
Regeneration & development pipeline £m • Group regeneration & development £3,210m £3,233m pipeline up 1% at £3.2bn relevant to Regeneration businesses 67% only includes secured schemes (no preferred bidder or ‘prospectives’) our share of Gross Development Value of schemes provides long-term
Slide 14: Divisional Performances
MORGAN = — SINDALL GROUP Divisional Performances
Slide 15: Construction & Infrastructure
Construction & Infrastructure £m FY 2017 FY 2016 change Revenue 1,395 1,321 +6% Operating profit1 20.4 8.9 +129% Margin % 1.5% 0.7% +80bps • Revenue split: Construction 58%, Infrastructure 42% • Construction revenue up 2%, Infrastructure up 10% • Margin recovery well underway continued focus on op
Slide 16: Order Book - Construction & Infrastructure
Construction & Infrastructure • Divisional order book down 2% to £1,855m Order Book £m £1,886m £1,855m significant contract wins in Infrastructure, with order book up 6% to £1,377m £590m £478m Construction order book down 19% positive evidence of contract selectivity and focus on quality, not
Slide 17: Fit Out
Fit Out £m FY 2017 FY 2016 change Revenue 735 634 +16% Operating profit1 39.1 27.5 +42% Margin % 5.3% 4.3% +100bps • Another very strong performance. All key metrics showing further progress record revenue of £735m, up 16% operating profit up 42% to £39.1m margin up 100bps to 5.3% focus on o
Slide 18: Order Book - Fit Out
Fit Out • Order book of £500m Order Book £m £500m increase of 7% compared to previous year end down 12% from the half year position £466m 12 month forward order book 14% higher than last year £468m still relatively short term visibility £410m Positive outlook for 2018, another strong perform
Slide 19: Property Services
Property Services £m FY 2017 FY 2016 change Revenue 66 55 +20% Operating (loss)/profit1 (1.3) 0.7 n/a Margin % (2.0%) 1.3% -330bps • Revenue up 20% as new work mobilised • Operating loss of £1.3m includes closure of insurance business and exit from loss-making contracts • New work secured to suppo
Slide 20: Partnership Housing
Partnership Housing £m FY 2017 FY 2016 change Revenue 474 433 +9% Operating profit1 14.1 13.4 +5% Margin % 3.0% 3.1% -10bps • Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London; due to finish H1 2018 • Revenue increase driven
Slide 21: Partnership Housing
Partnership Housing £m FY 2017 FY 2016 • Capital employed at year end up £24m to Capital employed1 at year end 88.0 63.9 £88m LTM average capital employed1 99.7 110.8 but average capital down to £100m combination of turning non-performing • LTM ROCE2 of 14%, up from 12% prior year capital into c
Slide 22: Urban Regeneration
Urban Regeneration £m FY 2017 FY 2016 change Capital employed1 at year end 85.0 68.9 +23% LTM average capital employed1 88.5 80.0 +11% Revenue 175 156 +12% Operating profit2 10.0 13.4 -25% • Lower profit in year as expected. In line with scheduled development completions • Average capital employed i
Slide 23: Urban Regeneration
Urban Regeneration Development pipeline by region Development pipeline by sector • Regeneration & development pipeline down 8% to £2.1bn Scotland Other Yorks/NE 1% 2% preferred bidder > £200m GDV 17% Offices not included 30% South East broad geographic and sector split & London 44% Residential •
Slide 24: Investments
Investments £m FY 2017 FY 2016 change Operating profit/(loss)1 0.5 (2.0) n/a • Year of evolution for Investments role of securing work for other divisions in the Group c£135m of construction and regeneration work secured for future delivery across the Group now also expected to be a profit con
Slide 25: Accounting Policies
Accounting Policies IFRS 15 & 16 25
Slide 26: IFRS 15
IFRS 15 • IFRS 15 ‘Revenue from Contracts with Customers’ • Effective from 1 January 2018 • No impact on cash flow • No impact on lifetime profitability of contracts • Does not fundamentally change the way we report or operate not restating prior years instead adjustment to opening reserves ad
Slide 27: IFRS 16
IFRS 16 • ‘IFRS 16 Leases’ being adopted a year early to align with implementation of IFRS 15 requires all leases to be recognised on the balance sheet as a right of use asset with a corresponding lease liability. Estimated gross asset and liability on transition of c£40m-£45m mainly relates to
Slide 28: Summary and Outlook
MORGAN = — SINDALL GROUP Summary and Outlook
Slide 29: Construction Activities: Progress against medium-term targets
Progress against medium-term targets1 Construction Activities Medium-term FY16 FY17 target1 Margin in Construction 2% 0% 1.3% Margin in Infrastructure 2.5% 1.6% 1.7% Maintain profits at Fit Out £25m-£30m p.a. £27.5m £39.1m Opnl leverage in Property Services >3% margin 1.1% (2.0%) 1 Medium-term targe
Slide 30: Regeneration Activities: Progress against medium-term targets
Progress against medium-term targets1 Regeneration Activities Medium-term target1 FY16 FY17 ROCE in Partnership Housing > 20% 12% 14% ROCE in Urban Regeneration Towards 20% 15% 9% ROCE in Investments Towards 20% 1% 1 Medium-term targets as set out in February 2017 30
Slide 31: Summary & Outlook for 2018
Summary & Outlook for 2018 • Strong set of results for FY 2017; profit, margin, cash all improved • Well-positioned for further growth in 2018 margin improvement in Construction & Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions schedu
Slide 32: Investments
MORGAN = — SINDALL GROUP Investments John Morgan
Slide 33: Group structure
Group structure Morgan Sindall Group today Construction Regeneration Construction Property Partnership Urban & Fit Out Services Housing Regeneration Infrastructure Investments Investments underpins Group activities 33
Slide 34: Our Regeneration businesses
Our Regeneration businesses “Investing cash generated from the Construction divisions into development partnerships with the public sector” Urban Regeneration Developer only; large mixed-use schemes; schemes have multi-phases; schemes of long duration Partnership Housing Builder and developer; hou
Slide 35: Investments today
Investments today £m FY 2017 FY 2016 change Operating profit/(loss) 0.5 (2.0) n/a 5 Average capital employed 30.7 public private 20.7 +48% partnerships 5 Public Private 2 Independent Partnerships Living JVs Potential £2.6bn GDV from current partnerships 1 Investment £143m Sister Partnership Fund Com
Slide 36: Investments today
Investments today • allows the Group to win work which individual divisions could not win Role of division in the • provides a long-term profit stream and visibility of work Group • provides high quality construction work for rest of the Group Who our partners are How we win work How we make money •
Slide 37: Investments today: characteristics we look for in partners
Investments today Characteristics we look for in partners • length of potential relationship : 15-25 year strategic partnership Large barriers to entry • a true 50:50 partnership • scale that justifies building a business Reputation and track record around the partnership count • political and Offic
Slide 38: Current partnerships within Investments
Current partnerships within Investments JV Property Strategic Estates Independent Fund Partnerships Partnerships Supported Living 38
Slide 39: Property Partnership JVs
Property Partnership JVs £1bn GDV Capital employed £10.5m • Manage all projects from inception to delivery £500m GDV using Group capabilities and resources as Capital employed appropriate £6.0m includes funding and investment expertise £400m GDV Capital employed £0.6m 39
Slide 40: Strategic Estates Partnerships
Strategic Estates Partnerships Two strategic estates property partnerships in early stages £60m GDV • Provide access to arrange and deliver private sector Capital employed capital to finance new projects A partnership with £0m • New projects may involve: capital and refurbishment works disposal
Slide 41: Independent Supported Living JVs
Independent Supported Living JVs 50% stakes held in two independent supported living JVs £250m GDV • Capital and resource is provided to deliver pipeline of Capital employed developments across the UK £5.6m • HBV specialise in providing independent supporting living for people with complex care need
Slide 42: The Fund
The Fund Manager of a fund holding supported housing property investments • JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP) • Committed £100m to SHIP • USS providing 95% of the capital. Investments retain 5% • Finan
Slide 43: Projects
MORGAN = — SINDALL GROUP Projects gs |
Slide 44: Slough Urban Renewal
Slough Urban Renewal • Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration • Term: 25 year partnership, currently in year 5 • 8 developments completed: library, schools, housing , sports and community facilities • 9 developmen
Slide 45: Bournemouth Development Company
Bournemouth Development Company • Objective to deliver 20 year town centre vision • Term: 20 year partnership, currently in year 6 • Completed schemes: Student accommodation Multi-storey car park Residential and retail • On site: 113 unit private rental scheme • In planning : mixed-use sch
Slide 46: HB Villages
HB Villages • JV to provide specialised living for vulnerable adults allowing them to live in an independent setting • Delivered 36 schemes to date • Expect to deliver another 40 schemes over the next two/three years • Average size of each development - £3m GDV Example development in Leamington Spa
Slide 47: Investments: Looking ahead
Investments Looking ahead 47
Slide 48: Prospects
Prospects • Investments is an important part of our Regeneration strategy • Maximise benefit from existing portfolio pipeline of opportunities from current developments is very strong indicates a potential investment of up to £50m in medium term • Medium-term target is to increase ROCE up toward
Slide 49: Group Summary
Group Summary Strong performance in 2017 2 Following a simple strategy of self-help and organic growth Good progress made against our medium-term targets 1 Strength of balance sheet gives flexibility to invest in the business 4 Positive momentum to deliver continued growth in 2018 and beyond 1 Mediu
Slide 50: Questions
MORGAN = — SINDALL GROUP Questions Thank you
Slide 51: Appendices
MORGAN = — SINDALL GROUP Appendices
Slide 52: Net finance expense
Net finance expense £m FY 2017 FY 2016 Interest payable on project financing & other debt (0.9) (1.8) Amortisation of fees & non-utilisation fees (2.6) (2.1) Interest from JVs 1.3 1.1 Other (0.3) (0.7) Total (2.5) (3.5) 52
Slide 53: Tax
Tax £m FY 2017 FY 2016 Profit before tax 64.9 43.9 Less: share of net JV profit1 (4.1) (7.4) Profit subject to tax 60.8 36.5 Statutory tax rate 19.25% 20.0% Current tax charge at statutory rate (11.7) (7.3) Tax of joint venture profits1 (0.6) (1.2) Effect of tax rate change on deferred tax - 0.7 Oth
Slide 54: Adjusted earnings per share
Adjusted earnings per share £m FY 2017 FY 2016 Profit after tax and minority interest 52.4 36.8 Adjusted for: Amortisation of intangibles (net of tax) 1.0 1.1 Deferred tax credit 1 - (0.7) Adjusted earnings 53.4 37.2 Average number of shares 44.1m 43.9m Adjusted earnings per share 121.1p 84.7p 1 Due
Slide 55: Capital employed in Regeneration at year end
Capital employed in Regeneration at year end £m Partnership Urban Regeneration Housing Regeneration Total net land & regeneration WIP 263 154 109 Unsold completed units (excl JVs) 8 7 1 Amounts invested in joint ventures 40 2 38 Shared equity loans and investment properties 22 22 - Other working cap
Slide 56: IFRS 15: Areas of difference for Group
IFRS 15 Areas of difference for Group: • Recognition of uncertain revenue: ‘probable’ vs ‘highly probable’ (Construction, Infrastructure, Partnership Housing) deduction from revenue of liquidated damages where contractually-entitled formalised tests to meet higher threshold • Recognition of reve
Slide 57: IFRS 15 adjustment to opening reserves in 2018
IFRS 15 adjustment to opening reserves in 2018 Estimated £m adjustment at 1 Jan 2018 Recognition of uncertain revenue (£6m) Recognition of revenue for forward-sold, pre-let developments £1m Costs of fulfilment (£3m) Tax effect of the above £1m Increase/(decrease) in opening equity (£7m) 57