Last checked at 7 May 2020 07:00
7 May 2020
Morgan Sindall Group plc
AGM statement: COVID-19 and trading update
Ahead of today's Annual General Meeting ('AGM'), Morgan Sindall Group plc ('the Group'), the construction and regeneration group, today announces an update on trading and COVID-19, following the Group's previous update released on 25 March 2020.
Current trading and the impact of COVID-19
The health and wellbeing of our people, partners and the public remains the Group's overriding priority. Where safe to operate, activity across the Group has continued with strict adherence to Government advice and that of the devolved administrations and public health authorities across the UK.
As previously announced, the Group continued to perform well in the first 10 weeks of the financial year, building on the significant positive momentum from last year. Since then, trading and activity have been impacted significantly across all divisions.
In Construction, c80% of sites are currently operational, however they are being impacted by lower levels of productivity, in part as a result of the limited availability of certain building materials on site.
Infrastructure has been able to maintain a reasonable level of activity following an initial period of reassessment of safety procedures which closed a number of its sites. With many of its projects being for larger public sector clients, c75% of sites are now operational and progress towards a reopening of all sites in the short term is expected. The exception is the Aviation business, based at Heathrow, where there has been a significant and immediate reduction in all current and future planned activity.
Fit Out has maintained a moderate level of project activity through April with a gradual increase in site openings in the latter part of the month, however the availability of certain specialist materials and skills in the supply chain impacted project progress. c70% of sites are now operational at varying levels of productivity.
In Property Services, activities on its local authority contracts have been limited to 'emergency' repairs only along with much reduced voids and planned activity, thereby reducing revenue by c80% from its normal operational levels.
Following the initial closure of most of Partnership Housing's construction sites, many are now reopening as the supply chain gradually restore their own operations back into production. All sales offices remain closed and the lower level of sales activity will inevitably impact returns from the division's mixed-tenure developments.
A number of Urban Regeneration's new schemes and developments have been delayed, with potential forward-funders of schemes re-evaluating their positions amid concerns over future viability and returns. In addition, progress on existing development schemes already on site has slowed thereby impacting the future expected returns generated. Many of the schemes within Investments' joint venture property partnerships and 'later living' business have also experienced slippage and delays to commencement.
The Board previously announced that it had suspended all forward guidance until such time that the overall impact of COVID-19 on the Group became clearer. Given the ongoing uncertainties, the Group is unable to reinstate financial guidance at the current time.
COVID-19 mitigating actions
In addition to the usual measures taken to reduce discretionary costs and improve cash flow, specific actions have included:
· The Chair, Non-Executive Directors, Executive Directors and Senior Management Team have all taken salary reductions of 20% as from 1 April for a period of 3 months;
· The Group has accessed the Government's Coronavirus Job Retention Scheme through its various operating divisions, with approximately 1,700 employees currently placed on furlough across the Group;
· The Group has taken advantage of permissions to defer VAT, PAYE and other tax payments which total c£47m to date;
· As previously announced, the final dividend for 2019 (c£17m) was cancelled.
Group cash and liquidity
The Group remains in a strong financial position.
The average daily net cash from 1 January to 31 March was £130m (of which £59m was held in jointly controlled operations or held for future payment to designated suppliers (JVs/PBAs)).
For the calendar month of April, the average daily net cash was £162m (including £61m in JVs/PBAs).
Net cash as at 5 May was £174m (including £55m in JVs/PBAs). In addition, the Group has committed bank facilities of £180m, extending out to 2022, which together provide total liquidity of £354m as at 5 May.
The cash impact of current trading is expected to be reflected in lower cash balances from the end of May onwards, with the maximum impact expected across the third quarter. Notwithstanding this, it is still expected that the Group will maintain an overall positive average daily net cash position for the full year.
Assuming there is no further deterioration in activity from current levels and that no additional restrictive measures are imposed on operations above those already in place, the Group expects to be able to operate comfortably within its existing cash and bank facilities at all times.
In addition, and as a precautionary measure, the Group has also been confirmed by the Bank of England as an eligible issuer for the Covid Corporate Financing Facility (CCFF). No drawings have been made and whilst the Group does not anticipate the need to utilise the CCFF scheme, the scheme is now available to the Group and could provide significant additional funding if required.
As such, the Board is confident that the Group has access to sufficient liquidity should this be required in the event of a further significant deterioration in market and general economic conditions.
Order book and outlook
The total Group secured workload as at 31 March 2020 was £7.6bn, level with the year end position. Of this total, the Construction secured order book was £3.5bn, down 5% from the year end, with the Regeneration secured order book up 4% at £4.1bn, driven by growth in Partnership Housing's order book of mixed-tenure partnership developments.
The Group remains focused on building long-term streams of work. Not yet included in the order book, Infrastructure has recently been appointed by Highways England, through joint venture, as one of six partners in the £4.5bn Smart Motorway Alliance, a newly created alliance which will transform the delivery of smart motorways and shape the digital roads of the future. In addition, Urban Regeneration has been appointed, through its English Cities Fund joint venture with Legal & General and Homes England, as the development partner for the £2.5bn Salford Crescent masterplan, with the joint venture now leading on the creation of a new 240-acre district in Salford over the next 10 to 15 years.
With this high-quality workload and with the balance sheet in good shape, the Group is well-positioned to successfully navigate through these current uncertain times and emerge primed for future success in the medium and longer term.
John Morgan, Chief Executive, said:
"These remain challenging times and our first priority remains the safety, health and wellbeing of all our people, our partners and the public. Our decentralised structure has allowed us to adapt quickly to these evolving circumstances and to rapidly adopt new ways of working, which will stand us in good stead for the future.
Our strategy remains unchanged, focused on building long-term workstreams in markets that remain attractive. Supported by a strong balance sheet, the actions taken put the Group on the best footing to ensure its continued success."
ENDS
ENQUIRIES:
Morgan Sindall Group plc Tel: 020 7307 9200
John Morgan, Chief Executive
Steve Crummett, Finance Director
Instinctif Partners Tel: 020 7457 2005
Matthew Smallwood
James Gray
Rosie Driscoll
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK construction and regeneration group with revenue of c£3bn, employing around 6,700 employees and operating in the public, regulated and private sectors. It operates through six divisions of Construction & Infrastructure, Fit Out, Property Services, Partnership Housing, Urban Regeneration and Investments.