Morgan Sindall Group Regulatory News (MGNS)

22 Feb 2006 07:01

Morgan Sindall PLC22 February 2006 MORGAN SINDALL plc('Morgan Sindall' or 'the Group') Preliminary Results for the year ended 31 December 2005 Morgan Sindall today announces record preliminary results for the year to 31December 2005. 2005 2004Revenue £1,296.7m £1,219.3m + 6%Profit before tax £41.7m £33.8m + 23%Basic earnings per share 70.74p 57.61p + 23%Diluted earnings per share 68.83p 56.54p + 22%Total dividend per share 25.00p 18.50p + 35% Group Highlights • Affordable Housing and Fit Out divisions underpin another strong performance from the Group• Overall margin increased to 3.2% (2004: 2.8%)• Profit before tax includes £1.4m (2004: £2.5m) joint venture revaluation gain on change to IFRS• Forward order book increased to £2.80bn (2004: £2.26bn)• Cash at bank £72.0m (2004: £73.4m) Divisional Highlights Fit Out • Record operating profit £16.4m (2004: £11.2m) with margin rising to 5.1% (2004: 4.5%)• Geographic expansion in Birmingham and Manchester delivering results• Forward order book increased to £134m (2004: £98m) Construction • Operating profit increased to £3.2m (2004: £1.3m) with margin doubled to 1%• Order book £504m (2004: £197m)• 2 NHS LIFT contracts secured in period Infrastructure Services • Reduced operating profit of £6.0m (2004: £7.8m) on anticipated reduced revenue of £248m (2004: £332m)• Margin maintained• Record forward order book of £824m (2004: £626m) Affordable Housing • Record performance with operating profit of £18.7m (2004: £13.4m) with margin rising to 4.8% (2004: 3.7%)• Strong position in market with particular expertise in mixed tenure schemes• Order book of £1.34bn over next ten years (2004: £1.34bn) John Morgan, Executive Chairman, commented: "We entered 2005 in good shape. We are now in even better shape and are excitedby our prospects for the coming year." 22 February 2006 ENQUIRIES: Morgan Sindall plc Tel: 020 7307 9200John Morgan, Executive ChairmanPaul Smith, Chief ExecutiveDavid Mulligan, Finance Director College Hill Tel: 020 7457 2020Alex WaltersMatthew Smallwood Preliminary Statement We are pleased to announce another set of record results. In 2005 profit beforetax increased by 23% to £41.7m (2004: £33.8m) on revenue that increased by 6% to£1.30bn (2004: £1.22bn). Earnings per share increased by 23% to 70.7p (2004:57.6p). Accordingly the Board recommends an increase in the final dividend to18.0p (2004: 13.3p) giving a total for the year of 25.0p (2004: 18.5p). This strong performance was achieved through our strategy of creating anddeveloping leading positions in our chosen market sectors. In particular, FitOut and Affordable Housing grew strongly through the year while Constructionalso made good progress. Meanwhile, the profit margin was maintained byInfrastructure Services despite its expected reduction in workload. Our overallmargin increased to 3.2% (2004: 2.8%) as we continued our focus on marginimprovement. Cash balances have been maintained at a time when the Groupcontinues to invest resources in the growth of the Affordable Housing division. Outlook Morgan Sindall has begun 2006 in an excellent position. The order book nowstands at £2.80bn against £2.26bn last year and we anticipate further stronggrowth in the fit out and affordable housing markets in particular. In 2006 Fit Out will further develop its geographic coverage; its larger scaleoffice fit out projects; and its work in the hotel, retail, leisure andentertainment sectors. The Construction division will continue its focus on thehealth and education sectors where significant investment continues to be madeby the Government. Infrastructure Services' workload in the utilities sectorwill increase as a result of a number of large contracts secured during 2005,although we expect the civil engineering market to remain subdued. Finally, theoutlook for Affordable Housing remains very positive with strong market growthexpected to continue in the medium term. Overall, we are very excited by the Group's outlook and prospects and lookforward to reporting on further developments as the year progresses. Operating and Financial Review Operating Review It should be noted that all figures and their comparatives are presented on thebasis of applying International Financial Reporting Standards ('IFRS'). In 2005 profit before tax increased by 23% to £41.7m (2004: £33.8m) on revenuethat increased by 6% to £1.30bn (2004: £1.22bn). Earnings per share increasedby 23% to 70.7p (2004: 57.6p). Accordingly the Board recommends an increase inthe final dividend to 18.0p (2004: 13.3p) giving a total for the year of 25.0p(2004: 18.5p). Cash at the year end was maintained at £72.0m (2004: £73.4m) with the averagecash balance during the year at a level higher than the previous year. Thisreflects investment in work in progress by the Affordable Housing divisionoffset by working capital improvements elsewhere in the Group. The forward order book increased to £2.80bn (2004: £2.26bn) reflecting growth,in particular, in the Infrastructure Services and Construction divisions. Divisional performance Fit Out The Fit Out division provides fit out, refurbishment and furniture services tothe commercial property, hotel, retail, leisure and entertainment sectors. Itoperates through four businesses, namely Overbury, Morgan Lovell, VividInteriors and Backbone Furniture. Overbury (£269m revenue) is the largestbusiness and is focused solely on the commercial property sector where its bluechip client base employs its own professional teams of architects and projectmanagers. This contrasts with Morgan Lovell (£42m revenue) whose focus is alsoon the commercial property sector but through the provision of both design andbuild services. Morgan Lovell's approach involves working more closely with theclient on the development of the design solution as well as delivery of theproject. Its clients tend to be small and medium size enterprises and itstypical project would be smaller than that delivered by Overbury. VividInteriors (£11m revenue) was established in 2002 and works in the hotel, retail,leisure and entertainment sectors. Backbone Furniture (£1m revenue) providesinnovative commercial furniture solutions. The division's offices cover London,the South East, the Midlands and the North of England. In 2005 Fit Out had an excellent year with operating profit of £16.4m (2004:£11.2m) on revenue of £323m (2004: £252m) achieving an operating margin of 5.1%(2004: 4.5%) which is above average historic levels of 4.5%. The division's growth in 2005 was due to further market penetration by Overburyas well as steady improvement in the commercial property market. The geographicexpansion started at the end of 2004 continues to be successful with the officesin Manchester and Birmingham making a positive contribution. The division starts the year with a forward order book which has increased to£134m (2004: £98m). Its priorities for 2006 are further geographic expansion,developing its larger project capability and the growth of Vivid Interiors. Construction Construction's business, Bluestone, has national coverage in England and Walesand operates through seven regions and a network of 25 local offices. It hasthe capability to deliver projects up to £20m in value. It focuses on thehealth, education and light industrial sectors and primarily delivers throughnegotiated and framework contracts. This has helped it to move away from andreduce the inherent risks associated with competitively tendered contracts. Inaddition it provides smaller scale repeat works to a number of key clientsacross the country. Bluestone's focus continues to underpin a steady improvement in the division'sperformance. In 2005 Bluestone increased its operating profit significantly to£3.2m (2004: £1.3m) on revenue of £336m (2004: £271m) with the operating margindoubling to 1.0% (2004: 0.5%). During the year the division secured two further NHS LIFTs ('Local ImprovementFinance Trust') in South East Hampshire and Doncaster bringing the total tofour. NHS LIFTs are partnerships between the public and private sectors withthe aim of delivering primary health and social care facilities in defined areasfor a period of typically 25 years. The division also made progress in securingfurther workload in its chosen sectors, which now comprise around two thirds ofits total revenue. It has also increased the amount of work delivered throughkey client, negotiated and framework contracts, which is now around 50% of totalrevenue compared to half that four years ago. In December 2004 the division acquired the trade of three offices from BensonLimited. This acquisition is now fully integrated and has been earningsenhancing in 2005. Bluestone starts 2006 with a forward order book of £504m compared to £197m ayear ago. The order book has strengthened significantly due to the securing offurther framework and investment led opportunities. The focus for the divisioncontinues to be on margin improvement and on developing its offering to itschosen sectors. Infrastructure Services Infrastructure Services operates through Morgan Est and is a leading provider ofcivil engineering and utilities solutions to the water, gas, electricity andtransport sectors. The division is based in Rugby and has offices providingservices across the United Kingdom aligned with its client and projectcommitments. In 2005 the division delivered an operating profit of £6.0m (2004: £7.8m) on ananticipated reduced revenue of £248m (2004: £332m). Margin has been maintainedat 2.4% which is consistent with historic levels of 2.0% to 2.5%. During 2005 the division has commenced major utility framework contracts,including a water and electricity contract with United Utilities in the NorthWest (anticipated to be worth £450m over five years) and a gas utility contractwith National Grid in the Midlands (anticipated to be worth £320m over eightyears). The division begins the year with a record forward order book of £824m (2004:£626m) and has secured two major civil engineering contracts at King's Cross forMetronet and at Croydon for National Grid. Despite a subdued civil engineeringmarket the outlook for the division is improving and it is anticipated that thisyear's performance will be broadly similar to that achieved in 2005, butimproving thereafter when the benefits of recent contract wins are fullyrealised. Affordable Housing The Affordable Housing division operates through Lovell and is the UK's leadingprovider of affordable housing. The division delivers new build social housing,new build open market housing and refurbishment for complex regeneration schemesby working closely with local authorities, arms length management organisationsand housing associations. Lovell's particular expertise is in mixed tenuredevelopments which combine new homes for public ownership as well as open marketproperties for sale and may also include refurbishment of existing propertieswithin a development. The division achieved another record result in 2005 with an operating profit of£18.7m (2004: £13.4m) on an increased revenue of £390m (2004: £364m). Thedivision has again performed strongly in a market that continues to expand,driven by the Government's affordable housing priorities. In particular Lovellhas seen significant expansion of its refurbishment operations, which nowaccount for around half its revenue. Refurbishments are typically large schemesencompassing improvements to kitchens, bathrooms, building exteriors and publicareas. Lovell begins 2006 with a forward order book of £1.34bn stretching out over thenext 10 years. The Government's Decent Homes Standard programme is expected tocontinue beyond the target date of 2010 and the shortage of affordable housingcontinues to grow, which provides a very positive outlook for the division. Financial review Revenue and operating profit Revenue increased by 6% to £1.30bn (2004: £1.22bn). The increase was due to FitOut up 28% to £323m, Construction up 24% to £336m and Affordable Housing up 7%to £390m. This growth is offset by a reduction in revenue of 25% atInfrastructure Services to £248m. Group operating profit was up 21% to £39.9m (2004: £32.9m). This improvementwas due to strong growth at Affordable Housing and Fit Out with progress alsomade by Construction, offset by an anticipated reduction in profit atInfrastructure Services. Fit Out increased its operating profit by 46% to£16.4m (2004: £11.2m) and Affordable Housing by 39% to £18.7m (2004: £13.4m).Construction more than doubled its operating profit taking it to £3.2m (2004:£1.3m). Infrastructure Services' operating profit reduced in line with revenueto £6.0m (2004: £7.8m). The cost of Group activities was £4.8m (2004: £3.7m)reflecting growth in headcount and operating costs. The share of results ofjoint ventures was £0.4m (2004: £2.8m). Profit before and after tax Profit before tax of £41.7m was 23% ahead of last year's £33.8m. This includesnet interest of £1.8m (2004: £0.8m) reflecting a strong average cash performanceduring the year. Profit after tax was £29.6m (2004: £24.0m). The tax charge was £12.1m (2004:£9.7m) giving an effective tax rate of 29%. Earnings per share and dividends Basic earnings per share have increased by 23% to 70.7p (2004: 57.6p). Thefinal dividend is proposed at 18.0p (2004: 13.3p) giving a total dividend forthe year of 25.0p up 35% on last year (2004: 18.5p). Earnings cover thedividend 2.8 times (2004: 3.1 times). Equity and capital structure Equity has increased to £116.6m (2004: £98.2m). The number of shares in issueat 31 December 2005 was 42.3m. The increase of 169,000 shares is due to theexercise of options under employee share option schemes. There were no othernew issues during the year. At 31 December 2005 the directors held interests over 18% of the shares of theCompany and further details will be disclosed in the report of the directors inthe 2005 report and accounts. Cash flow and treasury Net cash from operating activities was £14.5m (2004: £70.3m). Capitalexpenditure was £4.7m (2004: £4.3m) and payments to acquire interests in jointventures were £6.2m (2004: nil) reflecting ongoing investment in the business.After payments for tax, dividends and servicing of finance the net decrease incash and cash equivalents was £1.4m resulting in a year end balance of £72.0m.It is anticipated that these resources will be made available for the continuedgrowth of the Group's businesses, particularly Affordable Housing. In addition to its cash resources the Group has a £25m three year revolvingfacility available until June 2006 and a £30m overdraft facility with its mainclearing bankers, which 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 setting 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 no exposure to foreignexchange risk because its operations are based solely in the United Kingdom. Although the Group does not use derivatives, some of our joint venturebusinesses use interest rate swaps to hedge floating interest rate exposures.These arrangements meet the hedging rules under International AccountingStandard 39 and hence the Group's share of the movement on these derivatives isaccounted for as a movement on reserves. The hedging reserve at 31 December2005 was £2.2m. Overall, the Group considers that its exposure to interest ratemovements is appropriately managed. Consolidated income statement (unaudited)For the year ended 31 December 2005 Notes 2005 2004 £'000s £'000s Continuing operationsRevenue 1 1,296,708 1,219,297 Cost of sales (1,154,118) (1,095,932) Gross profit 142,590 123,365 Administrative expenses (103,109) (93,227) Share of results of joint ventures 425 2,810 Operating profit 1 39,906 32,948 Investment revenues 3,661 3,235 Finance costs (1,867) (2,413) Profit before tax 41,700 33,770 Tax 2 (12,125) (9,736)Profit for the year from continuing operations attributableto equity holders of the parent company 29,575 24,034 Earnings per share From continuing operations Basic 4 70.74p 57.61p Diluted 4 68.83p 56.54p There are no discontinued activities in either the current or preceding year. Consolidated balance sheet (unaudited)At 31 December 2005 2005 2004 £'000s £'000s Non current assetsProperty, plant and equipment 16,403 14,890Goodwill 56,729 55,961 Interests in joint ventures 10,881 6,840Investments 103 103Deferred tax 2,485 1,512 86,601 79,306Current assetsInventories 87,571 60,817Trade and other receivables 235,056 203,093Cash and cash equivalents 72,018 73,447 394,645 337,357 Total assets 481,246 416,663 Current liabilitiesTrade and other payables (352,156) (308,517)Current tax liabilities (6,295) (5,572)Obligations under finance leases (766) (483) (359,217) (314,572) Net current assets 35,428 22,785 Non current liabilitiesRetirement benefit obligation (3,351) (2,225)Obligations under finance leases (2,059) (1,707) (5,410) (3,932) Total liabilities (364,627) (318,504) Net assets 116,619 98,159 EquityShare capital 2,116 2,107Share premium account 26,014 25,679Capital redemption reserve 623 623Own shares (1,775) (993)Equity reserve 1,052 39Hedging reserve (2,238) -Retained earnings 90,827 70,704 Total equity 116,619 98,159 Consolidated statement of recognised income and expense (unaudited)For year ended 31 December 2005 2005 2004 £'000s £'000s Actuarial losses on defined pension schemes (1,284) (1,493) Tax on items taken directly to equity 312 448 Transferred to the initial carrying amount of hedged itemson cash flow hedges (2,238) - Net expense recognised directly in equity (3,210) (1,045) Profit for the year from continuing operations 29,575 24,034 Total recognised income and expense for the year attributable to 26,365 22,989equity shareholders Consolidated cash flow statement (unaudited)For the year ended 31 December 2005 Notes 2005 2004 £'000s £'000s Net cash from operating activities 5 14,477 70,290 Investing activitiesInterest received 3,686 3,217Dividends received from joint ventures 336 335Proceeds on disposal of property, plant and equipment 1,433 501Purchases of property, plant and equipment (4,680) (4,296)Payments to acquire interest in joint ventures (6,190) -Acquisition of business - (3,409) Net cash used in investing activities (5,415) (3,652) Financing activitiesPayments to acquire own shares (782) (48)Dividends paid (8,459) (7,099)Repayments of obligations under finance leases (1,354) (951)Repayment of loan notes (240) -Proceeds on issue of share capital 344 294 Net cash used in financing activities (10,491) (7,804) Net (decrease)/increase in cash and cash equivalents (1,429) 58,834 Cash and cash equivalents at beginning of year 73,447 14,613 Cash and cash equivalents at end of yearBank balances and cash 72,018 73,447 Notes (unaudited)For the year ended 31 December 2005 1. Business segments For management purposes, the Group is organised into four operatingdivisions: Fit Out, Construction, Infrastructure Services and AffordableHousing. The divisions are the basis on which the Group reports its primarysegment information. Segment information about the Group's continuing operations ispresented below: 2005 2004 Revenue Operating Revenue Operating profit/(loss) profit/(loss) £'000s £'000s £'000s £'000s Fit Out 322,618 16,398 251,594 11,238Construction 335,750 3,214 271,113 1,301Infrastructure Services 247,938 5,974 332,283 7,841Affordable Housing 390,402 18,682 364,307 13,445Group activities - (4,787) - (3,687) 1,296,708 39,481 1,219,297 30,138 Share of results of joint ventures 425 2,810Operating profit 39,906 32,948Investment revenues 3,661 3,235Finance costs (1,867) (2,413) Profit before tax 41,700 33,770Tax (12,125) (9,736) Profit for the year from 29,575 24,034continuing operations Other information: 2005 2004 Capital Depreciation Capital Depreciation additions additions £'000s £'000s £'000s £'000s Fit Out 1,050 543 631 481Construction 1,349 1,250 962 608Infrastructure Services 3,096 1,841 2,089 1,682Affordable Housing 408 338 126 374Group activities 629 533 1,693 320 6,532 4,505 5,501 3,465 Balance sheet analysis of business segments: 2005 2004 Assets Liabilities Net Assets Liabilities Net assets assets £'000s £'000s £'000s £'000s £'000s £'000s Fit Out 97,397 (78,937) 18,460 71,318 (58,825) 12,493Construction 117,544 (83,228) 34,316 105,751 (74,087) 31,664Infrastructure Services 118,124 (71,827) 46,297 122,584 (78,030) 44,554Affordable Housing 149,697 (124,940) 24,757 126,682 (104,070) 22,612Group activities 30,404 (37,615) (7,211) 31,368 (44,532) (13,164)Group eliminations (31,920) 31,920 - (41,040) 41,040 - 481,246 (364,627) 116,619 416,663 (318,504) 98,159 All the Group's operations are carried out in the United Kingdom and the ChannelIslands 2. Tax 2005 2004 £'000s £'000s Current tax:UK corporation tax 12,241 9,822Adjustment in respect of prior years 140 (302) 12,381 9,520 Deferred tax:Current year (214) 216Adjustment in respect of prior years (42) - Income tax expense for the year 12,125 9,736 Corporation tax is calculated at 30% (2004: 30%) of the estimated assessableprofit for the year. The charge for the year can be reconciled to the profit per the income statementas follows: 2005 2004 £'000s % £'000s % Profit before tax 41,700 33,770 Income tax expense at standard rate 12,510 30.0 10,131 30.0 Tax effect of:Share of results of associates (128) (0.3) (843) (2.5)Expenses that are not deductible in determining taxable 708 2.1profits 107 0.3Utilisation of tax losses not previously recognised (462) (1.1) - 0.0Adjustments in respect of prior years 98 0.2 (260) (0.8) Income tax expense and effective tax rate for the year 12,125 29.1 9,736 28.8 The total amount of deferred tax assets that are not recognised in the financialstatements in relation to losses carried forward amount to £402,000 (2004:£706,000) due to the uncertainty of the availability of future profits againstwhich the losses can be recovered. 3. Dividends 2005 2004 £'000s £'000s Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 of 13.25p 5,551 4,824(2003: 11.75p) per share. Interim dividend for the year ended 31 December 2005 of 7.00p 2,929 2,188(2004: 5.25p) per share. 8,480 7,012 Proposed final dividend for the year ended 31 December 2005 of 18.00p (2004: 7,617 5,55113.25p) 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 these financialstatements. The proposed dividend will be paid on 5 May 2006 to shareholders onthe register at 7 April 2006. The ex-dividend date is 5 April 2006. 4. Earnings per share From continuing and discontinued operations 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 2005 2004 £'000s £'000s Earnings for the purposes of basic and dilutive earnings per share being 29,575 24,034net profit attributable to equity holders of the parent company Number of shares 2005 2004 '000s '000s Weighted average number of ordinary shares for the purposes of basic 41,810 41,718earnings per share Effect of dilutive potential ordinary shares:Share options 893 597Long Term Incentive Plan shares 265 191 Weighted average number of ordinary shares for the purposes of diluted 42,968 42,506earnings per share 5. Reconciliation of operating profit to net cash from operatingactivities 2005 2004 £'000s £'000s Operating profit 39,906 32,948 Adjusted for:Share of results of joint ventures (425) (2,810)Depreciation of property, plant and equipment 4,505 3,465Expense in respect of share options 589 33Defined benefit pension payment (240) -Defined benefit pension charge/(credit) 82 (4)(Gain)/loss on disposal of property, plant and equipment (919) 20 Operating cash flows before movements in working capital 43,498 33,652 (Increase)/decrease in inventories (26,754) 4,594Increase in receivables (31,969) (5,784)Increase in payables 43,118 46,271 Cash generated from operations 27,893 78,733 Income taxes paid (11,658) (6,134)Interest paid (1,758) (2,309)Net cash from operating activities 14,477 70,290 Additions to plant, property and equipment during the year amounting to £1.3mwere financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 6. Accounting policies This announcement is prepared on the basis of accounting policies as stated inthe 2005 interim report and the financial statements for the year ended 31December 2005. While the financial information included in this preliminaryannouncement has been computed in accordance with International FinancialReporting Standards ('IFRS') including the restatement of the 2004 comparatives,this announcement does not itself contain sufficient information to comply withIFRS. The Company intends to publish full financial statements that comply withIFRS. The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2005 or 2004. Thefinancial statements for the year ended 31 December 2004 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 2005 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 2005 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 14March 2006 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