Morgan Sindall Group Regulatory News (MGNS)

19 Feb 2008 07:01

Morgan Sindall PLC19 February 2008 MORGAN SINDALL plc ('Morgan Sindall' or 'the Group') Preliminary results for the year ended 31 December 2007 Morgan Sindall plc, the construction and regeneration group that operates fivedivisions; Fit Out, Construction, Infrastructure Services, Affordable Housingand Urban Regeneration today announces record preliminary results. 2007 2006Revenue £2,115m £1,497m + 41%Profit from operations £53.5m £46.2m + 16%Adjusted profit before tax(1) £62.1m £47.6m + 30%Profit before tax £57.6m £47.6m + 21%Net cash balance £219m £95m + 131%Adjusted earnings per share (1) 104.5p 78.2p + 34%Basic earnings per share 93.8p 78.2p + 20%Total dividend per share 38.0p 28.0p + 36% (1) Adjusted for amortisation of intangible assets Group highlights • Record set of preliminary results with profit up in all divisions • Strong cash generation • Acquisition strengthens market leading positions and adds urban regeneration division • Company ideally positioned to take advantage of challenges and opportunities in 2008 Divisional highlights Fit Out • Strong market throughout 2007 • Profit up 15% to £25.9m (2006: £22.6m) on revenue of £492m (2006: £426m) • Margin maintained at 5.3%, above 5% for third successive year • Forward order book of £179m (2006: £187m) Construction • Buoyant market conditions throughout 2007, driven particularly by growth in commercial sector and public spending • Profit up 44% to £4.9m (2006: £3.4m), after integration costs of £2.8m • Revenue growth of 81% to £621m (2006: £343m), with organic revenue growth to £442m, and £179m contributed by acquisition • Acquisition significantly increases range of services and geographical coverage • Extended sector coverage to include defence, retail, pharmaceuticals and manufacturing • Forward order book at £810m (2006: £491m) Infrastructure Services • Improved market conditions driven by increased infrastructure investment • Profit up 108% to £10.6m (2006: £5.1m) • Revenue growth of 77% to £575m (2006: £324m), with organic revenue growth to £475m, and £100m contributed by acquisition • Margin up to 2.1% as anticipated (2006: 1.6%) when profit adjusted for £1.4m of integration costs • Acquisition strengthens division's capabilities in tunnelling, water and piling • Forward order book at £1.7bn (2006: £1.2bn) Affordable Housing • Market driven by Government commitment to affordable housing • Profit up to £25.5m (2006: £24.0m) • Margin improvement for eighth successive year to 6.4% (2006: 5.9%) • Focus on mixed tenure opportunities key to continued success • Financial close of first mixed tenure PFI project at Miles Platting, Manchester • Forward order book at £1.5bn (2006: £1.4bn) Urban Regeneration • Newly formed division following acquisition • Five months profit (to 31 Dec 2007) of £4.2m • Strong margin at 16% • Four projects now at preferred bidder stage valued at £1.1bn • Forward development pipeline of £1.2bn John Morgan, Executive Chairman, commented: "Our business strategy has proved highly successful in helping us to achieverecord preliminary results, with all operating divisions delivering impressiveprofit growth. The businesses we acquired last year have been substantiallyintegrated and have extended our capabilities in Construction, InfrastructureServices and Urban Regeneration, thereby bringing an increasing balance to theGroup. "The Group has a strong net cash balance and each of our divisions is wellpositioned to meet both the challenges and opportunities we expect to see in2008." ENQUIRIES: Morgan Sindall plc Tel: 020 7307 9200 John Morgan, Executive ChairmanPaul Smith, Chief ExecutiveDavid Mulligan, Finance Director Blythe Weigh Communications Tel: 020 7138 3204 Tim Blythe Mobile: 07816 924626Paul Weigh Mobile: 07989 129658 Preliminary Statement We are pleased to report a year of significant progress and another set ofrecord results. Profit before tax and amortisation of intangible assets rose by30% to £62.1m (2006: £47.6m) on revenue that increased by 41% to £2.1bn (2006:£1.5bn). Adjusted earnings per share before amortisation increased by 34% to104.5p (2006: 78.2p). Profit before tax for the year (after amortisation of intangible assets) was£57.6m (2006: £47.6m). The Board recommends a final dividend of 28.0p (2006:20.0p) giving a total dividend for the year of 38.0p (2006: 28.0p), an increaseof 36%. Operating cash flow was particularly strong in 2007 with year end net cash of£219m (2006: £95m) driven by the increased profitability of the Group and animprovement in working capital management. Acquisition and performance Our strategy is to develop leading positions in each of our chosen sectorswithin the construction and regeneration markets. The acquisition in July of twobusinesses from Amec plc, Amec Developments (renamed Muse Developments) andAmec's Design and Project Services business ('DPS'), was driven by thisobjective. DPS' construction and civil engineering activities have beenintegrated into our existing Construction and Infrastructure Services divisions.The acquisition has been significant in strengthening the market positions ofboth these divisions. In addition, the acquisition of Muse Developments hascreated a fifth division of the Group, Urban Regeneration. Muse Developments isa leader in inner city regeneration, specialising in complex, mixed use schemesin partnership with both private and public sector landowners. Overall theacquisition has delivered revenue for the five months to December of £305m andmade a positive contribution. During 2007, Fit Out benefited from its leading position in the commercialproperty sector with strong growth in revenue and profit from operations.Affordable Housing continued its focus on mixed tenure regeneration, improvingits operating margin for a fifth consecutive year. Construction's performanceimproved as anticipated. It has broadened its offering following the acquisitionof DPS to provide nationwide coverage across a full range of project sizes.Infrastructure Services increased its activity, as expected, and also benefitedfrom the acquisition of DPS, strengthening its market positions in the water andtransport sectors as well as enhancing its tunnelling expertise. The newlycreated Urban Regeneration division, created by the acquisition of MuseDevelopments, traded slightly ahead of expectations since its acquisition andsecured a number of key mixed use projects during the year. Board Changes We welcome back Geraldine Gallacher to the Board as a non-executive director.Geraldine's experience in the area of executive development will be valuable tothe Board as the Group continues to grow. Outlook The forward order book at the start of 2008 was £4.3bn compared with £3.3bn lastyear. It was boosted by £0.6bn from the acquisition of DPS, hence the organicgrowth, year on year, was 12%. In addition Muse Developments' forwarddevelopment pipeline, its share of regeneration projects in which it has aninterest, is valued at £1.2bn. In the coming year against a macro economic backdrop where there is a degree ofuncertainty, Fit Out is seeking to maintain its level of performance. The fitout market continues to be strong in the short term and we remain of the viewthat it will be robust at least until the second half of the year. Constructionand Infrastructure Services divisions are both experiencing positive marketconditions led by public sector investment. The Affordable Housing and UrbanRegeneration divisions will continue to target opportunities in the regenerationmarket, which remains a key Government priority. Overall the Group made a significant step forward during 2007 with continuedgrowth across all divisions and with the acquisition of DPS and MuseDevelopments. The Group has started 2008 with confidence and with the forwardorder book at £4.3bn it is well positioned to take advantage of challenges andopportunities in the coming year. Divisional performance and outlook Operating profit is the profit from operations for each division beforeamortisation of intangible assets. Fit Out 2007 2006Revenue £492m £426mOperating profit £25.9m £22.6mMargin 5.3% 5.3%Forward order book £179m £187m Fit Out provides fit out and refurbishment services to the financial, legal,public, leisure, education, hotel and retail sectors. The fit out market in 2007showed strong growth. Fit Out, with around a 20% share of the office fit outmarket, grew strongly with revenue increasing by 15% to £492m (2006: £426m) andthe division achieved a record operating profit of £25.9m (2006: £22.6m), anincrease of 15%. Margins were maintained above 5% for the third year insuccession at 5.3% (2006: 5.3%). Fit Out's activities are largely centred on London and the South East witharound 70% of its revenues derived from the West End and City of London.Projects range in size from £10,000 to £50m. The division is pursuing a strategyof building on its strength in the London commercial property market by openingoffices outside London and continuing to develop Vivid Interiors, a businessfocused on the hotel, retail, leisure and education sectors. During 2007 thedivision opened a new office in Birmingham and grew Vivid Interiors' revenue by51%. In addition, the division has been targeting larger projects (in excess of£20m) in order to develop its business. The immediate outlook to the middle of 2008 for Fit Out remains encouraging withthe forward order book at the start of the year at £179m, a similar level tothat at the start of 2007. The forward order book is usually not more than fourto five months in length in this division due to the short lead times forprojects. Consequently, longer term market predictions are more difficult tomake. Construction 2007 2006Revenue £621m £343mOperating profit* £4.9m £3.4mMargin 0.8% 1.0%Forward order book £810m £491m * After deducting £2.8m of integration costs The Construction division experienced positive market conditions in 2007 helpedin particular by growth in the commercial sector and by public sector spendingon education and health. The key highlight of the year was the acquisition ofthe Design and Project Services (DPS) business from Amec plc which added size,scale and additional capabilities to the division and was a significant steptowards delivering its strategy of market leadership in the general constructionsector. The business was subsequently rebranded as Morgan Ashurst (formerlyBluestone). The acquisition has also extended the sectors that the divisioncovers from health, education, light industrial and property services to includedefence, retail and the pharmaceutical and manufacturing sectors. In additionproject capabilities have been broadened to include projects over £300m and toprovide a nationwide construction and design service. Revenue derived from keyclient relationships, frameworks and negotiated arrangements remain key to thedivision's strategy. Overall the operating profit increased by 44% to £4.9m (2006: £3.4m) on revenueof £621m (2006: £343m), an increase of 81%. The acquisition contributed revenueof £179m, with organic revenue growth of 29% to £442m (2006: £343m). Theoperating profit is stated after £2.8m of integration costs. Adjusting theoperating profit for these integration costs gives an operating margin of 1.2%for the year (2006: 1.0%). In addition, the division made a significantcontribution to the overall improvement in the Group's operating cash flowduring 2007. Other highlights from 2007 include securing the construction contract for afifth NHS LIFT concession at Bury, Tameside and Glossop as well as for theDorset Emergency Services and Police Initiative PFI project. Also, the divisiondeveloped its presence in the education sector with the construction contractfor the East Dunbartonshire Schools PFI project. The division begins 2008 with a forward order book of £810m (2006: £491m).Overall the outlook for the general construction sector remains positive,supported by the Government's commitments to education and health. The priorityfor the division remains to improve the quality of its margins and to fullyrealise the benefits of the integrated business following the acquisition. Infrastructure Services 2007 2006Revenue £575m £324mOperating profit* £10.6m £5.1mMargin 1.8% 1.6%Forward order book £1.7bn £1.2bn * After deducting £1.4m of integration costs The infrastructure services market experienced further improved marketconditions during 2007 driven in particular by increased investment by keyclients such as the Scottish Executive, Network Rail and the Highways Agency.The division also benefited from the acquisition of DPS which complemented thegrowth in the underlying business. The acquisition introduced new clients to the division such as BAA, DefenceEstates and Welsh Water. In addition the acquisition strengthened the division'stunnelling capabilities, creating the UK's leading tunnelling business. Overall revenue increased by 77% to £575m (2006: £324m) and delivered anoperating profit of £10.6m (2006: £5.1m), an increase of 108% on the previousyear. The acquisition contributed revenue of £100m, with organic revenue growthof 47% to £475m (2006: £324m). The operating profit is stated after £1.4m of integration costs. Adjusting theoperating profit for these integration costs gives an operating margin of 2.1%for the year (2006: 1.6%) and was in line with the expected improvement in themargin for the year. The division also made an important contribution to theimprovement in the Group's operating cash flow through its improvedprofitability and management of its working capital. After securing £800m of new orders in 2006, the division prioritised operationaldelivery of its key projects, which have progressed well during 2007. In 2007 italso secured framework contracts across the utilities sector as well as majorroad projects such as the M1 widening at junctions 25 to 28 for the HighwaysAgency and the A1073 project for Lincolnshire County Council, both under theEarly Contractor Involvement (ECI) procurement process. The division started 2008 with a forward order book of £1.7bn (2006: £1.2bn).The overall outlook for the division remains positive with further growth in themarket expected in 2008. In January 2008, the division completed the acquisitionof the isolations and possessions business of Elec-Track Installations for £1m,which will strengthen its electrical capabilities in the rail sector. Affordable Housing 2007 2006Revenue £398m £404mOperating profit £25.5m £24.0mMargin 6.4% 5.9%Forward order book £1.5bn £1.4bn The Affordable Housing division, Lovell, continued with its focus on mixedtenure developments with profits rising by 6% to £25.5m (2006: £24.0m) onrevenue of £398m (2006: £404m). The focus on mixed tenure developments (schemesincluding both social housing for rent and houses built for sale on the openmarket) helped to increase the margins for the eighth year in succession to 6.4%(2006: 5.9%). A highlight in 2007 was the division achieving financial close of its first PFIhousing and refurbishment project at Miles Platting in Manchester. This was animportant milestone as PFI will be an important method of procurement to enablethe Government to meet its housing regeneration agenda in the coming years. Inaddition, the division secured notable new opportunities at Coalville inStoke-on-Trent (via its Compendium joint venture with Riverside HousingAssociation) and at Mildmay in Islington. The Decent Homes programme alsocontinues to provide new refurbishment framework opportunities. The Government's commitment to the affordable housing and regeneration sectorwas reiterated with the announcement in 2007 of the target to build 70,000 newsocial houses per annum by 2010, from around 25,000 currently. Whilst the impactof the 'credit crunch' on the housing sector has been widely reported the affecton Lovell has been limited as open market sales represent only 30% of thedivision's revenues (and only around 5% of the Group's revenue). The divisionexperienced a modest fall in demand for open market sales during the lastquarter of 2007, but this was compensated for by resilient refurbishment and newbuild social housing work. The division started 2008 with an order book of £1.5bn (2006: £1.4bn). Thepriority for the division will be to continue to develop its mixed tenurecapabilities and secure larger scale regeneration schemes including those withcommercial, retail and leisure components, which we believe to be anincreasingly important part of the market moving forward. Urban Regeneration 2007Revenue £26mOperating profit £4.2mMargin 16%Forward development pipeline £1.2bn The newly formed fifth division, Urban Regeneration, was created following theacquisition of Amec Developments in July 2007, which has been renamed MuseDevelopments. The division is a leading mixed use property development and urbanregeneration business. 2007 was a success for Muse Developments. For the five months to December 2007the division achieved an operating profit of £4.2m on revenue of £26m. Inaddition, in 2007 the division was appointed as preferred bidder for four largeurban regeneration schemes in Swindon, Doncaster, Manchester and Blackpool witha combined development value of £1.1bn. The division also successfully completedschemes at Wakefield, Bromley and Durham. The division starts 2008 with interests in 30 projects with a projected futurevalue of £2.6bn, of which the division's share is £1.2bn. In addition, thedivision will be seeking to finalise and sign development agreements for thefour projects referred to above, which are currently being negotiated, and theopportunities for the division remain encouraging. With its focus on long termstrategic partnership arrangements the division is well placed with a secureforward development pipeline and limited exposure to the revaluation issuescurrently affecting the property sector. Financial review Revenue and profit from operations Revenue increased by 41% to £2.1bn (2006: £1.5bn), of which £305m was attributedto businesses acquired from Amec plc in July 2007, otherwise the increase wasdriven primarily by growth in the Fit Out, Construction and InfrastructureServices divisions. Fit Out revenue increased by 15% to £492m, Construction by81% to £621m (of which £179m was from the acquired business) and InfrastructureServices by 77% to £575m (of which £100m was from the acquired business). TheUrban Regeneration division made a first time revenue contribution of £26m.Affordable Housing's revenue dropped by 1% to £398m. Group profit from operations increased by 26% to £58.0m (2006: £46.2m) prior tothe amortisation of intangible assets of £4.5m. This improvement was due tostrong growth in all divisions. Fit Out increased its profit from operations by15% to £25.9m, Construction by 44% to £4.9m, Infrastructure Services by 108% to£10.6m and Affordable Housing by 6% to £25.5m. Urban Regeneration's profit fromoperations (for the five month period since acquisition) was £4.2m. The cost ofGroup Activities increased by 47% to £13.1m (2006: £8.9m) reflecting principallythe increased costs of information technology and acquisition related costs. Profit before and after tax Profit before tax and amortisation of intangible assets of £62.1m was 30% aheadof last year's £47.6m. This includes net finance income of £4.1m (2006: £1.4m).Profit after tax was £39.4m (2006: £32.8m). The tax charge was £18.2m (2006:£14.8m) giving an effective tax rate of 32% (2006: 31%). Earnings per share and dividends Basic earnings per share was 93.8p (2006: 78.2p). Adjusted earnings per share(adjusted for amortisation of intangible assets) increased by 34% to 104.5p(2006: 78.2p). The final dividend is proposed at 28.0p (2006: 20.0p) giving atotal dividend for the year of 38.0p which is 36% higher than last year (2006:28.0p). Adjusted earnings cover the dividend 2.8 times (2006: 2.8 times). The Group's dividend policy is to progressively grow the dividend in line withthe growth in earnings, aiming to cover the dividend by earnings of between 2.5times and 3 times. Equity and capital structure Shareholders' equity increased to £165.7m (2006: £141.9m). The number of sharesin issue at 31 December 2007 was 42,801,848 (2006: 42,520,090). The increase of281,758 shares was due to the exercise of options under employee share optionschemes. Each year the Company seeks the normal authority allot shares with a nominalvalue of up to one third of the issued share capital of the Company, with thepower to allot up to 5% of the issued share capital for cash on a nonpre-emptive basis. In addition this year the Group has included a resolutionwhich gives the directors authority to repurchase up to 10% of the Company'sshares either for cancellation or to be held in treasury. Whilst the directorshave no current intention to use this authority, it would give them theflexibility to make purchases of shares if it considered that this would be inthe best interests of the Company and shareholders and would result in anincrease in earnings per share. Cash flow and treasury Net cash from operating activities was £158.1m (2006: £47.9m) as a result ofincreased profitability and an improvement in working capital management. Thenet payment to acquire subsidiaries was £11.3m (2006: £18.2m), capitalexpenditure was £8.0m (2006: £3.2m) and payments to increase interests in jointventures were £5.0m (2006: £0.9m), reflecting ongoing investment in thebusiness. After payments for tax, dividends and servicing of finance the netincrease in cash and cash equivalents was £123.5m resulting in a year endbalance of £218.9m. It is anticipated that these resources will be used for thecontinued growth of the Group's businesses either through acquisitions orinvestment in working capital as required. In addition to its cash resources, the Group has a £25m, three-year revolvingfacility available until November 2009, a further £25m, three-year revolvingfacility available until June 2010, a £25m, 364-day revolving facility availableuntil June 2008 and a £10m overdraft facility with its main clearing bankers.The overdraft facility is reviewed annually. Banking facilities are subject tonormal financial covenants, all of which have been met in the year. The Group has established treasury policies which set out clear guidelines as tothe use of counterparties and the maximum period of borrowings and deposits.Deposits are for periods of no longer than three months and are at ratesprevailing on the day of the transaction. The Group has very limited exposure toforeign exchange risk because its operations are based almost entirely in the UK, where non-UK suppliers are used only occasionally. Although the Group does not use derivatives, some of its joint venturebusinesses use interest rate swaps to hedge floating interest rate exposures anda Retail Price Index swap to hedge inflation exposure. The Group considers thatits exposure to interest rate and inflation movements is appropriately managed. Forward-looking statements This business review has been prepared solely to assist shareholders to assessthe Board's strategies and their potential to succeed. It should not be reliedon by any other party for other purposes. Forward-looking statements have beenmade by the directors in good faith using information available up until thedate of this announcement. Forward looking statements should be regarded withcaution because of the inherent uncertainties in economic trends and businessrisks. Consolidated income statement (unaudited) For the year ended 31 December 2007 Notes 2007 2006 £m £m Continuing operationsRevenue 1 2,114.6 1,496.8 Cost of sales (1,892.9) (1,331.4) ------------ ------------ Gross profit 221.7 165.4 ------------ ------------Other administrative expenses (168.4) (118.4) Amortisation of intangible assets (4.5) - ------------ ------------ Total administrative expenses (172.9) (118.4) Share of net profit/(loss) of equityaccounted 4.7 (0.8)joint ventures ------------ ------------ Profit from operations 53.5 46.2 Finance income 8.5 3.8 Finance expenses (4.4) (2.4) ------------ ------------ Net finance income 4.1 1.4 Profit before income tax expense 1 57.6 47.6 Income tax expense 2 (18.2) (14.8) ------------ ------------ Profit for the year from attributable toequity 39.4 32.8holders of the parent company ============ ============ Earnings per share From continuing operations Basic 4 93.8p 78.2p ============ ============ Diluted 4 91.7p 76.3p ============ ============ Consolidated balance sheet (unaudited) At 31 December 2007 2007 2006 Notes £m £m Non current assetsProperty, plant and equipment 24.0 16.6Goodwill 5 122.8 72.7Other intangible assets 5 35.2 -Investments in equity accounted joint ventures 38.1 5.3Investments 0.1 0.1Deferred tax assets 5.0 3.6 ------------ ------------ 225.2 98.3 ------------ ------------Current assetsInventories 128.8 86.8Amounts recoverable on construction contracts 209.1 145.9Trade and other receivables 238.3 134.9Cash and cash equivalents 218.9 95.4 ------------ ------------ 795.1 463.0 ------------ ------------ Total assets 1,020.3 561.3 ============ ============ Current liabilitiesTrade and other payables (756.5) (379.4)Amounts received in advance on construction (67.4) (27.3)contractsCurrent tax liabilities (10.6) (6.4)Finance lease liabilities (1.4) (1.3) ------------ ------------ (835.9) (414.4) ------------ ------------ Net current (liabilities)/assets (40.8) 48.6 ------------ ------------ Non current liabilitiesTrade and other payables (12.2) -Retirement benefit obligation (3.3) (2.5)Finance lease liabilities (3.2) (2.5) ------------ ------------ (18.7) (5.0) ------------ ------------ Total liabilities (854.6) (419.4) ============ ============ Net assets 165.7 141.9 ============ ============ EquityShare capital 6 2.1 2.1Share premium account 6 26.3 26.2Capital redemption reserve 6 0.6 0.6Own shares 6 (5.5) (3.4)Hedging reserve 6 (2.2) (0.8)Retained earnings 6 144.4 117.2 ------------ ------------ Total equity 165.7 141.9 ============ ============ Consolidated statement of recognised income and expense (unaudited) For year ended 31 December 2007 2007 2006 £m £m Actuarial (losses)/gains arising on defined benefit (0.9) 0.7plan Income tax credit in respect of share optionsrecognised - 0.9directly in equityDeferred tax on retirement benefit obligationrecognised 0.3 (0.3)directly in equityMovement on hedged items on cash flow hedges inequity accounted (1.4) 1.4joint ventures ------------ ------------ Net (expense)/income recognised directly in equity (2.0) 2.7 Profit for the year 39.4 32.8 ------------ ------------ Total recognised income and expense for the yearattributable to 37.4 35.5equity holders of the parent company ============ ============ Consolidated cash flow statement (unaudited) For the year ended 31 December 2007 Notes 2007 2006 £m £m Net cash inflow from operating activities 8 158.1 47.9 ----------- ------------ Cash flows from investing activitiesInterest received 8.4 3.8Dividends received from joint ventures - 7.2Proceeds on disposal of property, plant and 0.6 1.1equipmentPurchases of property, plant and equipment (8.0) (3.2)Payments to acquire interests in joint ventures (5.0) (0.9)Payment for the acquisition of a subsidiary (25.5) (23.0)Net cash acquired on acquisition of a 14.2 4.8subsidiary ----------- ------------ Net cash outflow from investing activities (15.3) (10.2) ----------- ------------ Cash flows from financing activitiesPayments to acquire own shares (2.1) (1.6)Dividends paid (12.6) (10.9)Repayments of obligations under finance leases (4.7) (1.9)Repayment of loan notes - (0.1)Proceeds on issue of share capital 0.1 0.2 ----------- ------------ Net cash outflow from financing activities (19.3) (14.3) ----------- ------------ Net increase in cash and cash equivalents 123.5 23.4 Cash and cash equivalents at beginning of year 95.4 72.0 ----------- ------------ Cash and cash equivalents at end of yearBank balances and cash 218.9 95.4 =========== ============ Notes (unaudited) For the year ended 31 December 2007 1. Business segments For management purposes, the Group is organised into five operating divisions:Fit Out, Construction, Infrastructure Services, Affordable Housing and UrbanRegeneration. The divisions are the basis on which the Group reports its primarysegment information. Segment information about the Group's continuing operationsis presented below: 2007 Fit Out Cnstrn Infra Afford Urban Group Total Serv Housing Regen Activities £m £m £m £m £m £m £mRevenue 491.7 621.4 575.4 398.0 25.9 2.2 2,114.6 Operatingprofitbefore 25.9 4.9 10.6 25.5 0.9 (14.5) 53.3amortisationShare ofresults ofassociatesandjoint - - - - 3.3 1.4 4.7ventures ------- ------- ------ ------- ------- ------- ------after taxProfit fromoperationsbeforeamortisation 25.9 4.9 10.6 25.5 4.2 (13.1) 58.0Amortisationofintangible - (1.0) (0.3) - (3.2) - (4.5)assets ------- ------- ------ ------- ------- ------- ------Profit fromoperations 25.9 3.9 10.3 25.5 1.0 (13.1) 53.5 ======= ======= ====== ======= ======= =======Net financeincome 4.1 ------Profitbefore 57.6tax ====== 2006 Fit Out Cnstrn Infra Afford Urban Group Total Serv Housing Regen Activites £m £m £m £m £m £m £mRevenue 425.6 343.3 323.7 404.2 - - 1,496.8 Operatingprofitbefore 22.6 3.4 5.1 24.0 - (8.1) 47.0amortisationShare ofresults ofassociatesandjoint - - - - - (0.8) (0.8)ventures ------- ------- ------ ------- ------- ------- ------after taxProfit fromoperationsbeforeamortisation 22.6 3.4 5.1 24.0 - (8.9) 46.2Amortisation - - - - - - -of ------- ------- ------ ------- -------- ------- ------intangibleassetsProfit fromoperations 22.6 3.4 5.1 24.0 - (8.9) 46.2 ======= ======= ====== ======= ========= =======Net financeincome 1.4 ------Profitbefore 47.6tax ====== The Group's operations are principally carried out in the United Kingdom. Notes continued (unaudited) For the year ended 31 December 2007 2. Income tax expense 2007 2006 £m £m Current tax expense:UK corporation tax 19.7 14.7Adjustment in respect of prior years 0.3 0.5 --------- -------- 20.0 15.2 --------- -------- Deferred tax expense:Current year (0.1) (0.1)Adjustment in respect of prior years (1.7) (0.3) --------- -------- Income tax expense for the year 18.2 14.8 ========= ======== Corporation tax is calculated at 30% (2006: 30%) of the estimated assessableprofit for the year. The charge for the year can be reconciled to the profit per the income statementas follows: 2007 2006 £m % £m % Profit before tax 57.6 47.6 ======= ======= Income tax expense at UK corporationtax rate 17.3 30.0 14.3 30.0 Tax effect of:Share of net profit of equityaccounted joint ventures (1.4) (2.4) 0.2 0.5Expenses that are not deductible indetermining taxable profits 3.7 6.4 0.2 0.5Movements not reflected in incomestatement (0.3) (0.5) (0.1) (0.4)Adjustments in respect of prior years (1.4) (2.4) 0.2 0.5Effects of rate change 0.3 0.5 - - ------- ------ ------- ------ Income tax expense and effective taxrate for the year 18.2 31.6 14.8 31.1 ======= ====== ======= ====== Notes continued (unaudited) For the year ended 31 December 2007 3. Dividends 2007 2006 £m £m Amounts recognised as distributions to equity holders inthe period: Final dividend for the year ended 31 December 2006 of 8.4 7.520.00p(2005: 18.00p) per share --------- ---------Interim dividend for the year ended 31 December 2007 of 4.2 3.410.00p(2006: 8.00p) per share --------- --------- 12.6 10.9 ========= ========= Proposed final dividend for the year ended 31 December2007 of 12.0 8.428.00p (2006: 20.00p) per share ========= ========= The proposed final dividend is subject to approval by shareholders at the annualgeneral meeting and has not been included as a liability in the financialstatements. The proposed dividend will be paid on 6 May 2008 to shareholders onthe register at 11 April 2008. The ex-dividend date will be 9 April 2008. Notes continued (unaudited) For the year ended 31 December 2007 4. Earnings per share There are no discontinued operations in either the current or prior year. The calculation of the basic and diluted earnings per share is based on thefollowing data: Earnings 2007 2006 £m £m Earnings before taxation 57.6 47.6Deduct taxation expense per the income statement (18.2) (14.8) ---------- ----------Earnings for the purposes of basic and dilutive earningspershare being net profit attributable to equity holders of 39.4 32.8theparent companyAdd back current year's amortisation expense 4.5 - ---------- ----------Earnings for the purposes of basic and dilutive earningspershare adjusted for amortisation expense being 43.9 32.8attributable ========== ==========to equity holders of the parent company Number of shares 2007 2006 No. '000s No. '000s Weighted average number of ordinary shares for thepurposes of basic earnings per share 41,989 41,949 Effect of dilutive potential ordinary shares: Share options 720 877 Conditional shares not vested 239 179 ---------- ---------- Weighted average number of ordinary shares for thepurposes of diluted earnings per share 42,948 43,005 ========== ========== Earnings per share as calculated in accordance with IAS 33 'Earnings per Share'are disclosed below: 2007 2006 Basic earnings per share 93.8p 78.2pDiluted earnings per share 91.7p 76.3p Basic and diluted earnings per share adjusted for amortisationexpense: Basic earnings per share excluding amortisation expense 104.5p 78.2pDiluted earnings per share excluding amortisation expense 102.2p 76.3p Notes continued (unaudited) For the year ended 31 December 2007 5. Intangible assets Secured Other contracts Software Non-compete Goodwill Total customer and related agreement contracts relationships £m £m £m £m £m £mCost orvaluationAt 1 January2006 - - - - 56.7 56.7Additionsthroughacquisitions - - - - 16.0 16.0 -------- ---------- -------- -------- -------- -------At 1 January2007 - - - - 72.7 72.7Additionsthroughacquisitions 3.1 30.7 0.9 5.0 50.1 89.8 -------- ---------- -------- -------- -------- -------At 31December 3.1 30.7 0.9 5.0 122.8 162.52007 ======== ========== ======== ======== ======== =======AccumulatedamortisationAt 1 January - - - - - -2006Charge for - - - - - -the year -------- ---------- -------- -------- -------- -------At 1 January - - - - - -2007Charge forthe (0.8) (2.8) (0.2) (0.7) - (4.5)year -------- ---------- -------- -------- -------- -------At 31December (0.8) (2.8) (0.2) (0.7) - (4.5)2007 ======== ========== ======== ======== ======== =======Carryingamount at 31December 2.3 27.9 0.7 4.3 122.8 158.02007 ======== ========== ======== ======== ======== =======Carryingamount at 31December - - - - 72.7 72.72006 The carrying amounts of goodwill by business segment are as follows: 2007 2006 Fit Out - -Construction 29.7 6.6Infrastructure Services 64.5 50.7Affordable Housing 15.4 15.4Urban Regeneration 13.2 -Group Activities - - ---------- ---------- 122.8 72.7 ========== ========== Amortisation charges in respect of intangible assets with a finite life arerecorded within administration expenses in the income statement. Notes continued (unaudited) For the year ended 31 December 2007 6. Reserves Share Share Capital Reserve Cash Retained Total Capital Premium Redemption for own flow earnings Equity Account Reserve shares hedging held reserve £m £m £m £m £m £m £mBalance at 1January 2006 2.1 26.0 0.6 (1.8) (2.2) 91.9 116.6Totalrecognisedincome andexpense - - - - 1.4 34.1 35.5Share basedpayments - - - - - 1.0 1.0Issue ofshares at apremium - 0.2 - - - - 0.2Exercise of - - - - - - -share optionsDeferred taxasset on sharebased payments - - - - - 1.1 1.1Own sharesbought back - - - (1.6) - - (1.6)Dividends paidFinal dividend- 2005 - - - - - (7.5) (7.5)Interimdividend -2006 - - - - - (3.4) (3.4) ------ ------- ------ ------ ------- ------ -------Balance at 31December 2006 2.1 26.2 0.6 (3.4) (0.8) 117.2 141.9 ------ ------- ------ ------ ------- ------ -------Balance at 1January 2007 2.1 26.2 0.6 (3.4) (0.8) 117.2 141.9Totalrecognisedincome andexpense - - - - (1.4) 38.8 37.4Share basedpayments - - - - - 1.7 1.7Issue ofshares at apremium - 0.1 - - - - 0.1Exercise of - - - - - - -share optionsDeferred tax(liability) onshare basedpayments - - - - - (0.7) (0.7)Own sharesbought back - - - (2.1) - - (2.1)Dividends paidFinal dividend - 2006 - - - - - (8.4) (8.4)Interimdividend -2007 - - - - - (4.2) (4.2) ------ ------- -------- ------- ------ -------- -----Balance at 31December 2007 2.1 26.3 0.6 (5.5) (2.2) 144.4 165.7 ====== ======= ======== ======= ====== ======== ===== Cash flow hedging reserve Under cash flow hedge accounting, movements on the effective portion of thehedges are recognised through the hedging reserve, while any ineffectiveness istaken to the income statement. Notes continued (unaudited) For the year ended 31 December 2007 7. Acquisitions On 27 July 2007, the Group acquired Amec Developments Ltd and certain assets andbusiness carried on by Amec Investments Limited and the assets, liabilities andcontracts relating to the Design and Project Services ('DPS') division of Amecplc, save for certain excluded assets and liabilities. Details of the net assets acquired and goodwill arising are as follows: £mPurchase consideration:Cash paid 23.7Costs directly attributable to the acquisition 1.8 ---------Total purchase consideration 25.5Net liabilities acquired (24.6) ---------Goodwill 50.1 ========= Acquiree's Provisional Fair value carrying amount fair value adjustments £m £m £mCash and cashequivalents 14.2 - 14.2Intangible fixed assets:Securecustomercontracts - 3.1 3.1Othercontracts andrelatedrelationships - 30.7 30.7Software - 0.9 0.9Non-competeagreement - 5.0 5.0Tangible fixedassets 2.0 0.2 2.2Investments injoint venturesand associates 28.7 (4.2) 24.5Inventories 33.6 (2.0) 31.6Tradereceivables 149.8 (16.7) 133.1Trade payables (251.6) (18.3) (269.9) --------- --------- ---------Netliabilitiesacquired (23.3) (1.3) (24.6) ========= ========= =========Purchaseconsiderationsettled incash 23.7Directlyattributableacquisitioncosts 1.8Cash and cashequivalentsacquired (14.2) ---------Cash outflowon acquisition 11.3 ========= The goodwill is attributable to the workforce of the acquired businessesexpertise and the anticipated operating synergies expected to arise after theacquisition. Notes continued (unaudited) For the year ended 31 December 2007 7. Acquisitions (continued) At 31 December 2007, certain fair value adjustments in relation to theacquisition were subject to finalisation. Further fair value adjustments mayoccur as a result of final settlements in respect of certain constructioncontracts novated to the Group on acquisition and from the subsequent revisionof estimates made at the acquisition date. The Group has twelve months from theacquisition date to finalise these values. Any adjustment to the provisionalfair values of net assets acquired will result in an adjustment to intangibleassets or, where the purchase consideration changes, to the net liabilitiesacquired and goodwill. Impact of the acquisition on the Group's revenue and operating profit The acquired Urban Regeneration business (now Muse Developments) and theacquired DPS business contributed £304.7m of revenue in the period between 27July 2007 and 31 December 2007. Due to the fact that DPS has been integratedinto our existing construction and infrastructure services divisions, it isimpracticable to disclose the amount of DPS profit that is included in theGroup's results or for the full year. 8. Cash flows from operating activities 2007 2006 £m £mCash flows from operating activities Profit from operations for the year 53.5 46.2 Adjusted for:Amortisation of fixed life intangible assets 4.5 -Share of net (profit)/loss of equity accounted joint (4.7) 0.8venturesDepreciation of property, plant and equipment 6.3 5.0Expense in respect of share options 1.7 1.0Defined benefit pension payment (0.2) (0.2)Defined benefit pension charge 0.1 0.1Loss/(gain) on disposal of property, plant and equipment 1.2 (0.2) --------- --------- Operating cash flows before movements in working capital 62.4 52.7 Decrease/(increase) in inventories (10.4) 0.8(Increase) in receivables (33.3) (35.8)Increase in payables 159.2 46.4 --------- --------- Cash generated from operations 177.9 64.1 Income taxes paid (15.8) (13.9)Interest paid (4.0) (2.3) --------- ---------Net cash inflow from operating activities 158.1 47.9 ========= ========= Additions to property, plant and equipment during the year amounting to £2.9m(2006: £2.1m) and additions to leasehold property amounting to £2.3m (2006:£0.5m) were financed by new finance leases. Cash and cash equivalents (which arepresented as a single class of assets on the face of the balance sheet) comprisecash at bank and other short-term highly liquid investments with a maturity ofthree months or less. Notes continued (unaudited) For the year ended 31 December 2007 9. Accounting policies This announcement is prepared on the basis of the significant accountingpolicies as stated in the financial statements for the year ended 31 December2006. The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2007 or 2006. Thefinancial statements for the year ended 31 December 2006 have been delivered tothe Registrar of Companies. The auditors reported on those accounts; theirreport was unqualified and did not contain a statement under s237(2) or (3)Companies Act 1985. No accounts for the Company in respect of the year ended 31 December 2007 havebeen delivered to the Registrar of Companies, nor have the auditors of theCompany made a report under Section 236 of the Companies Act 1985 in respect ofany accounts for that financial year. The statutory accounts for the year ended 31 December 2007 will be finalised onthe basis of the financial information presented by the directors in thispreliminary announcement, will be posted to shareholders on or about the 17March 2008 and will be delivered to the Registrar of Companies following theCompany's annual general meeting. This information is provided by RNS The company news service from the London Stock Exchange EN