Morgan Sindall Group Regulatory News (MGNS)

4 August 2014

MORGAN SINDALL GROUP PLC

('Morgan Sindall' or 'Group')

The Construction & Regeneration Group

RESULTS FOR THE HALF YEAR (HY) ENDED 30 JUNE 2014

Group highlights:

· Strong order book growth, up 14% since the year end reflecting increase in general market activity

· Strategic focus on Urban Regeneration delivering increased returns, with significant first half operating profit contribution of £3.5m (HY 2013: £0.4m); regeneration & development pipeline up 5%

· Improved margin performance in Fit Out, with continued margin pressure in Construction & Infrastructure and Affordable Housing likely to continue into the second half

· Adjusted operating profit down 6%, impacted by lower profit from the sale of investments

· Average net debt of £6m, with increasing investment planned through the rest of the year as the development of existing schemes accelerates. New £140m revolving loan facility in place

· Interim dividend of 12.0p per share, level with prior year

Commenting on today's results, Chief Executive, John Morgan said:

"The first half has seen an important shift in the balance of our profits, with an increase in the contribution from the Urban Regeneration business. This trend is expected to continue into the second half and beyond and reinforces our long-term strategy of focusing on both Construction and Regeneration activities.

For the remainder of 2014, the operating environment for general construction is expected to remain challenging with no easing of pressure on margins. However, with continued positive momentum anticipated within both Fit Out and Urban Regeneration, the Group remains on track to deliver results for the full year in line with the Board's expectations.

We are encouraged by the improvement in the quality of our order book reflecting the higher level of activity in the market, which positions us well for the medium to long term."

Presentation

1. There will be an analyst and investor presentation at Numis Securities Ltd's offices, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT today at 08.30. Coffee and registration will be from 08.15

2. A copy of these results is available at www.morgansindall.com

3. A recording of today's presentation of these results to investors and analysts will be available at www.morgansindall.com

Note to Editors

Morgan Sindall Group

Morgan Sindall Group plc is a leading UK Construction & Regeneration group with a turnover of £2.1bn, employing around 5,700 employees and operating in the public and commercial sectors. It operates through five divisions of Construction & Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and Investments.

Group Strategy

Morgan Sindall Group's strategy is focused on two distinct but complementary business activities: Construction and Regeneration.

Construction activities comprise the following operations:

· Construction & Infrastructure: Focused on the transport, commercial, defence, education, energy, healthcare, industrial, leisure, retail and water markets

· Fit Out: Focused mainly on London and Commercial office space with opportunities in commercial, central and local government offices, further education and retail banking

· Construction and Services work within Affordable Housing: Focused on new build contracting and planned and response maintenance

Regeneration activities include Urban Regeneration and Investments and mixed tenure development within Affordable Housing.

Basis of Preparation

Revenue for the period was 2% down on the prior year at £998.5m. The Group's committed order book* as at 30 June 2014 was £2.7bn, an increase of 14% since the previous year end, driven primarily by growth in the order books of Fit Out (up 57%), Affordable Housing (up 27%) and Construction & Infrastructure (up 9%). The regeneration & development pipeline** was £3.2bn, an increase on the previous year end of 5%.

Adjusted operating profit of £15.2m was 6% down on the prior year, with adjusted operating margin of 1.5% (HY 2013: 1.6%). This included profit from the sale of investments of £1.7m (HY 2013: £5.9m).

Net finance expense increased to £1.0m (HY 2013: £0.8m), impacted by lower interest received from joint ventures.

The reported tax rate of 14% remains lower than the UK statutory rate primarily because the profit on the sale of investments is treated as non-taxable.

Adjusted earnings per share of 28.6p was down 9% and fully diluted adjusted earnings per share of 28.0p was down 11% on the prior year.

There was an operating cash outflow of £37.1m in the period, which resulted in a free cash outflow of £39.8m (HY 2013: £21.1m). A key component of this was the expected increase in inventories of £21.6m, as investment is made in the regeneration activities of Affordable Housing and in Urban Regeneration.

The average daily net debt for the period was £6m (HY 2013: £32m), of which £14m (HY 2013: £2m) was non-recourse debt. The Group had net cash of £34m as at 30 June 2014 (HY 2013: £40m), which included £18m of non-recourse debt (HY 2013: £5m).

Following the period end in July 2014, the Group signed a new £140m committed revolving loan facility with four banks, which will mature in September 2018. Together with £30m of facilities signed in 2013 and which mature in 2016, this leaves the Group securely financed with good headroom over and above anticipated funding requirements.

The interim dividend of 12.0p per share has been held level with the prior year (HY 2013: 12.0p).

For the remainder of 2014, the operating environment for general construction is expected to remain challenging with no easing of pressure on margins. However, with continued positive momentum anticipated within both Fit Out and Urban Regeneration, the Group remains on track to deliver results for the full year in line with the Board's expectations.

The following Business Review is given on an adjusted basis, unless otherwise stated.

Order book and regeneration & development pipeline

The Group's committed order book* at 30 June 2014 was £2.7bn, an increase of 14% from the previous year end. The divisional split is shown below.

* "Committed order book" comprises the secured order book and framework order book. The secured order book represents the Group's share of future revenue that will be derived from signed contracts or letters of intent. The framework order book represents the Group's expected share of revenue from the frameworks on which the Group has been appointed. This excludes prospects where confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.

In addition, the Group's regeneration & development pipeline** was £3.2bn, an increase of 5% from the previous year end.

** "Regeneration & development pipeline" represents the Group's share of the gross development value of secured schemes including the development value of open market housing schemes.

The overall trading environment for Construction & Infrastructure has remained difficult throughout the period. The combination of lower margins from work tendered in 2012-2013 and cost inflation, both at a time of improving general market activity, has provided some significant on-going challenges particularly in the construction activities.

Divisional revenue of £567m was down 4% on the prior year (HY 2013: £593m), primarily driven by lower construction revenue resulting from the on-going selectivity and focus on operational delivery and margin improvement. This level of activity is against a committed order book of £1,639m, up 9% since the start of the year. Of this committed order book, 34% is committed for the second half of the year and 38% for 2015. Operating margin of 1.0% (HY 2013: 1.1%) resulted in operating profit of £5.9m (HY 2013: £6.4m).

The largest market sector for the division remained Transport (Highways, Aviation, Rail) at 33% of divisional revenue, with other significant markets served being Education (19%) and Water (12%).

Within the Transport sector, the division has had further success in Aviation, with its selection as one of four partners to deliver a £1.5bn programme of upgrades and improvements at Heathrow Airport over the next five years. This is in addition to the continuing work on the rehabilitation of the northern runway following the successful completion of the rehabilitation of the southern runway in 2013. Within Highways, wins in the period include the appointment, in joint venture and as one of four delivery partners, to the Highways Agency's £184m contract which will upgrade 17 miles of the M60 and M62 into a smart motorway, whilst further progress in Rail was demonstrated with the award of a £20m project, in joint venture, from Network Rail to refurbish roof spans one to three at Paddington Station. In addition for the same customer, the period saw the successful completion and hand over of the £19.7m Rail Operating Centre in Manchester.

Highlights for the division within Energy include the formal appointment in joint venture to a five year framework agreement for electricity transmission overhead line work with SHE (Scottish Hydro Electric) Transmission plc, part of the SSE plc group. Projects involve the design, supply, installation and commissioning of new-build overhead lines as well as the refurbishment and upgrade of existing lines in northern Scotland.

Notable projects in Education include a circa £14m contract to upgrade six primary schools for the London Borough of Newham, this being on top of the £11.9m contract to expand three primary schools in the borough last year and a £13m development of student accommodation for the University of Roehampton. In Water, the division has been confirmed on the AMP6 framework for Welsh Water, adding to the previously announced AMP6 frameworks for Severn Trent Water and Yorkshire Water.

By type of activity, Infrastructure accounted for 47% of divisional revenue (HY 2013: 44%) whilst Construction accounted for 53% (HY 2013: 56%). Infrastructure revenue was up 3% on prior year, with strong continued growth from Tunnelling. The Construction activities though have had a difficult period, with inflationary and delivery pressures particularly in the London and South regions providing significant management challenges, the impact of which have been offset by further overhead cost savings and provision movements. Whilst current activity in London, the South and Scotland has lagged prior year, primarily as a result of greater contract selectivity, the North has performed well ahead, with overall Construction revenue down 10% on prior year.

Looking ahead, no significant improvement in performance and margin is expected in the second half and the on-going challenges are expected to remain. However, the growing proportion of contract procurement through negotiated, framework and two-stage tendering in the market provides confidence of a higher quality of future work in the medium and longer term.

1 Restated to include inter-company revenue

Fit Out has delivered a strong and improved performance in the period, with an increase in operating margin to 2.8% resulting in operating profit of £5.5m, up 10%. The increase in margin has been mainly driven by operational efficiency in project delivery rather than through higher tender margins in the marketplace, which still remain competitive.

Although revenue was down by 8%, the committed order book has grown significantly, up 57% from the year end position to £223m, which together with the quantity and quality of outstanding tenders and prospects is evidence of more positive prevailing market conditions. Additionally, the division is experiencing a higher level of contract procurement through more favourable routes, which also provides support for further profit growth.

The London office market accounted for 75% of revenue with other regions at 25%. All regions are showing increased signs of activity. 35% of revenue related to refurbishment work, compared to 65% which was new office fit out. Split by work-type, 79% of revenue was traditional fit out work, compared to 21% of 'design & build'.

Notable projects won in the period include the £30m refurbishment of the Canadian High Commission in London and the appointment by KPMG to fit out in occupation 215,000 sq ft of office space in Canary Wharf, along with client and executive areas at its London W1 premises, with a combined project value of over £40m.

Looking ahead, the division is well-placed to take advantage of the more positive market conditions which are being driven by general market confidence, lease expiries and general commercial activity and it is therefore anticipated that the second half will deliver revenue growth as well as continued margin enhancement.

1 Restated to include inter-company revenue

Total divisional revenue of £193m was up 4% (HY 2013: £186m), whilst operating profit of £2.7m was level with prior year (HY 2013: £2.7m). An improved margin in the Regeneration activities was offset by continued pressure on construction margins in the Construction & Services activities.

Regeneration (25% of divisional revenue - £47.8m), which is the key strategic focus of the division through its mixed-tenure activities, has focused on the development and building out of existing schemes. Within these mixed-tenure activities, approximately 75% of the revenue relates to open market sales, with 25% relating to the social housing contracting element. Open market sales completions were 233 (HY 2013: 224) and have been constrained by the timing of construction completions which is expected to continue through the second half.

The regeneration & development pipeline of £765m was an increase of 7%, providing confidence in the future profit potential of this part of the division.

Within Construction & Services (75% of divisional revenue - £145.6m), new build housing contracting revenue of £57.0m was up 36%, although the margin was impacted by adverse material and localised subcontractor availability and inflationary pressures. Important tender wins in the period included the £38m contract with West Lothian Council to construct 443 homes as part of the council's new build housing programme, with all homes being for affordable rent.

In Planned Maintenance, revenue declined 14% to £55.1m although margin was held level to the prior year. During the period, the division was awarded a contract to refurbish 2,000 homes for Sandwell Council, through a £50m framework shared with two other contractors to deliver a range of refurbishment works over a three year period.

Response Maintenance revenue of £33.5m represented a 2% decline on prior year and which resulted in a net operating loss of £1.7m (HY 2013: loss £1.5m).

As part of the repositioning and turnaround of the Response Maintenance business, a new and sector-experienced external management team has been recruited. Opportunities for growth and improvement in the Response Maintenance market remain attractive, as well as the opportunity to widen the service offering to include other property services and facilities management for other divisions within the Group and their clients.

A key focus for Response Maintenance will continue to be on business development, which has led to a number of contract wins in the period, most notably one for Estuary Housing (Repairs & Voids - £22m over 5 years), although a higher level of new business wins is required to provide the business with the appropriate level of critical mass as well as the successful negotiation of extensions to a number of existing contracts. Additionally, operational inefficiencies continue to impact performance and as part of addressing poor contract performance and setting up the business for profitable growth, the business will make a £2m investment over an 18 month period in transforming its underlying business systems.

Looking ahead for the division as a whole, the second half of 2014 will see an increase in investment in the Regeneration activities required to develop the newer and more profitable mixed-tenure schemes, although these will not benefit profit until 2015 and beyond. Overall short term divisional performance will be impacted by the continued underperformance of Response Maintenance, in part as incremental revenue investment is made in people and processes to support its repositioning and turnaround.

1 Capital employed is restated to be calculated as total assets (excluding goodwill, intangibles and cash) less current liabilities less non-recourse debt (£18m) (HY 2013: non-recourse debt £5m)

Urban Regeneration has delivered a significant increase in operating profit in the period, up to £3.5m compared to £0.4m in the prior year. This is reflective of the level of activity across the division's portfolio of schemes and their various stages of completion and mix. At the same time, the regeneration & development pipeline has also increased, up 12%.

Key contributors to the higher profit within the period include the achievement of Practical Completion on both The Council Office and a J Sainsbury's store in Blackpool, a residential apartment block in Brentford (of which a proportion of units were pre-sold) and a multi-storey car park in Stockport.

Other major milestones include site starts in Lewisham (including the forward sale of a number of units), planning consents for John Lewis at Home and Waitrose stores in Basingstoke and Phase 3 (216 residential units) at Canning Town, and the exchange of contracts on the previously announced Lambeth Development Agreement, a project across three sites in Brixton town centre, with a value of circa £140m.

Average capital employed through the period was £71m. The average capital employed is calculated after deducting the non-recourse project specific debt. As activity continues to increase across the full range of schemes, significant capital will be required for investment in the division through the second half of the year and into 2015 and beyond.

As profit is recognised only at practical completion for most developments, short term profit performance is dependent upon construction completions and the achievement of construction timetables. Based upon the current construction programmes in place across the portfolio, continued improvement in profitability is expected in the second half with the division progressing towards its targeted return on capital employed of 15%.

1 Capital employed = Total assets (excluding goodwill, intangibles and cash) less current liabilities

Note: Directors' valuation of investments can only be made in circumstances where future cash-flows are near certain. The Investments division also holds a number of interests in developments, arrangements and schemes which are included in "capital employed". Where directors' valuation is appropriate, current valuation is £4.1m (HY 2013: £24.0m) relating to 3 (HY 2013: 5) investments with carrying value of £4.1m (HY 2013: £13.1m).

During the period, the division has disposed of its interests in the Hull BSF ('Building Schools for the Future') programme for £5.9m, resulting in a profit of £1.7m. This compares to profit on the sale of investments in the first half of 2013 of £5.9m. No further material sales of investments are expected in the second half.

The strategic rationale for the Investments division remains the creation of investments which will provide prime long-term construction opportunities for other divisions within the Group working with both the public and private sector. Continued progress has been made with the key regeneration schemes through the Slough and Bournemouth LABVs, with other projects in the Healthcare and Education sectors providing attractive construction work for the Construction & Infrastructure and Affordable Housing divisions.

Through the second half, revenue and profit will continue to be generated from its existing management and service agreements for two portfolios of national health centres through the division's Community Solutions business and from fees derived from the division's capabilities in project finance, development and asset management.

Net finance expense. Net finance expense was £1.0m, a £0.2m increase versus HY 2013 which is broken down as follows:

Tax. A tax charge of £1.8m is shown for the six month period (HY 2013: credit of £1.2m). No tax liability is expected upon the gains on disposals of investments which occurred during the year. The remaining net income will attract tax at an effective tax rate approximating to the UK statutory rate.

Net working capital. 'Net Working Capital' is defined as 'Inventories plus Trade & Other Receivables, less Trade & Other Payables, adjusted to exclude deferred consideration payable, accrued interest receivable and capitalised arrangement fees.

Cash flow. Operating cash flow was an outflow of £37.1m, with a free cash outflow of £39.8m.

Net cash. Net cash at the end of the period was £34.1m, a reduction of £35.6m from 1 January 2014.

Dividends. The Board of Directors has approved an interim dividend of 12.0p per share (HY 2013: 12.0p), level with the prior year.

Principal risks and uncertainties.

The Group has a clear and established risk framework in place for managing its risks. The framework is designed and operated to identify, control and mitigate any threat to the Group achieving its goals. The framework and the risks including details of the mitigations taken to manage them are set out more fully in the risk review in the Group's 2013 annual report. The principal risks and uncertainties that the directors consider may have a material impact on the Group's performance are:

· People: The Group's health, safety and environmental (HSE) performance and business conduct affects employees, subcontractors and the public and, in turn, can affect its reputation and commercial performance. Additionally in an improving economic environment, it is becoming increasingly difficult to retain key employees and attract the best people to grow the business.

· Markets: The markets in which the Group operates are affected to varying degrees by general macro-economic conditions. The Group's strategy remains focused upon responding to the UK's economic growth as it continues to take hold, but is sensitive to any uncertainty in Government priorities ahead of the 2015 election.

· Winning in our markets: The Group undertakes several hundred contracts each year and it is important that as economic conditions improve that we remain focused on selecting opportunities in our markets that have the potential to provide repeat business and sustainable levels of return.

· Maximise efficiency: The Group has a unique and differentiating approach to its delivery. There is a risk that if employees are not properly engaged with the culture of the business, clients are less likely to receive exceptional levels of service.

· Disciplined use of capital: In a rising market with increasing levels of opportunity there is a risk that we overinvest in schemes without having sufficient capital. In these circumstances the Group's ability to meet its liabilities as they fall due would be compromised, which could ultimately lead to its failure as a going concern.

· Pursue innovation: The Group is committed to offering clients innovative and cost effective solutions. If it fails to encourage an innovative approach across the Group it will become less effective and attractive to work with.

· Commodity availability: In a rising market we must recognise the additional pressures on our supply chain including availability, cost increases and overtrading, that if not managed properly could impact the Group's performance.

Cautionary forward-looking statement

These results contain forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from any future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document. The Group accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Condensed consolidated income statement

For the six months ended 30 June 2014

 There were no discontinued operations in either the current or comparative periods.

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2014

Condensed consolidated balance sheet

At 30 June 2014

Condensed consolidated cash flow statement

For the six months ended 30 June 2014

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2014

Other reserves

Other reserves include:

· Capital redemption reserve of £0.6m (30 June 2013: £0.6m, 31 December 2013: £0.6m) which was created on the redemption of preference shares in 2003.

· Hedging reserve of (£0.7m) (30 June 2013: (£0.9m), 31 December 2013: (£0.6m)) arising under cash flow hedge accounting. Movements on the effective portion of hedges are recognised through the hedging reserve, whilst any ineffectiveness is taken to the income statement. Cumulative movements recognised through the hedging reserve are recycled through the income statement on disposal of the associated joint ventures.

· Translation reserve of (£0.5m) (30 June 2013: £nil, 31 December 2013: (£0.4m)) arising on the translation of overseas operations into the Group's functional currency.

Retained earnings

Retained earnings include shares that are held as 'treasury shares' and represent the cost to Morgan Sindall Group plc of shares purchased in the market and held by the Morgan Sindall Employee Benefit Trust (the 'Trust') to satisfy options under the Group's share incentive schemes. The number of shares held by the Trust at 30 June 2014 was 545,767 (30 June 2013: 641,618, 31 December 2013: 575,397) with a cost of £4.1m (30 June 2013: £4.8m, 31 December 2013: £4.3m).

Notes to the condensed consolidated financial statements

For the six months ended 30 June 2014

1 Basis of preparation

General information

The financial information set out in this half year report does not constitute the Company's statutory accounts for the year ended 31 December 2013 as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year was delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. This half year report has not been audited or reviewed by the auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information. Figures as at 30 June 2014 and 2013 and for the six months ended 30 June 2014 and 2013 are therefore unaudited.

Basis of preparation

The annual financial statements of Morgan Sindall Group plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial statements included in this half year report were prepared in accordance with IAS 34 'Interim Financial Reporting'. While the financial information included in this half year report was prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this half year report does not itself contain sufficient information to comply with IFRS.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

Changes in accounting policies

In the current financial year, the Group has adopted IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements' and IAS 28 (revised 2011) 'Investments in Associates and Joint Ventures' none of which has had a material impact on the Group's results. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest annual audited financial statements.

Tax

A tax charge of £1.8m is shown for the six month period (six months to 30 June 2013: credit of £1.2m, year ended 31 December 2013: credit of £1.1m). This tax charge is recognised based upon the best estimate of the average income tax rate on profit before tax expected for the full financial year.

Seasonality

The Group's activities are generally not subject to significant seasonal variation.

2 Business segments

For management purposes, the Group is organised into five operating divisions: Construction & Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and Investments. The divisions' activities are as follows:

· Construction & Infrastructure: offers national design, construction and infrastructure services to private and public sector clients. The division works on projects, and in frameworks and strategic alliances of all sizes across a broad range of markets including transport, commercial, defence, education, energy, healthcare, industrial, leisure, retail and water.

· Fit Out: specialises in fit out and refurbishment projects in the commercial, central and local government office, further education and retail banking markets. Overbury operates as a national fit out company through multiple procurement routes and Morgan Lovell offers a turnkey design and build service in office interior design, fit out and refurbishment.

· Affordable Housing: specialises in the design and build, planned and response maintenance of homes and the regeneration of communities across the UK. The division operates a full mixed-tenure model creating homes for rent, shared ownership and open market sale.

· Urban Regeneration: works with landowners and public sector partners to unlock value from under-developed assets to bring about sustainable regeneration and urban renewal through the delivery of mixed-use and residential-led projects. Typically creates commercial, retail, residential, leisure and public realm facilities.

· Investments: realises the potential for under-utilised property assets and promotes economic growth, primarily through strategic partnerships with the public sector, by providing flexible structuring and funding solutions and development

expertise. The division covers a wide range of markets including asset backed, education, health and social care, residential, student accommodation, leisure and infrastructure.

Group Activities represents costs and income arising from corporate activities which cannot be meaningfully allocated to the operating segments. These include costs such as treasury management, corporate tax coordination, insurance management and company secretarial services. The divisions are the basis on which the Group reports its segmental information as presented below:

During the six months to 30 June 2014, six months to 30 June 2013 and the year ended 31 December 2013, inter-segment sales were charged at prevailing market prices and significantly all of the Group's operations were carried out in the UK.

3 Exceptional operating items

During 2013 an exceptional impairment charge of £14.7m (six months to 30 June 2013: £13.0m) was taken against trade and other receivables in relation to four older construction contracts.

4 Dividends

The proposed interim dividend of 12.0p per share was approved by the Board on 4 August 2014 and will be paid on 23 October 2014 to shareholders on the register at 3 October 2014. The ex-dividend date will be 1 October 2014.

5 Earnings per share

The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options and long-term incentive plan shares was based on quoted market prices for the period that the options were outstanding. The weighted average share price for the period was £7.89 (30 June 2013: £5.59, 31 December 2013: £6.46).

A total of 276,056 share options that could potentially dilute earnings per share in the future were excluded from the above calculations because they were anti-dilutive at 30 June 2014 (30 June 2013: 865,304, 31 December 2013: 698,089).

6 Investments in equity accounted joint ventures

Disposals

During the period, the Group has made following disposal:

· On 26 June 2014 the Group sold its 33.3% interest in Hull Esteem Consortium PSP Limited, a private sector investor in the Hull BSF ('Building Schools for the Future') programme, for cash consideration of £5.9m. The gain on disposal was £1.7m.

The gain on disposal represents other gains and losses in the income statement.

The Group's share of the result of this joint venture up to the date of its disposal is included within the Investments operating segment as the criteria to be included as discontinued operations were not met.

7 Shared equity loan receivables

The internal model used to value these Level 3 financial instruments, including the assumptions applied is unchanged from that used in the 2013 Annual Report and Accounts. The assumptions used in the model are as follows:

8 Trade and other receivables

9 Net cash

Borrowings of £20.0m were drawn down under the Group's committed bank loan facilities. Additional project finance borrowings of £18.3m (30 June 2013: £4.6m, 31 December 2013: £8.1m) were drawn from separate facilities to fund specific projects. These project finance borrowings are without recourse to the remainder of the Group's assets.

During July 2014, the Group signed a new four year £140m committed revolving loan facility with four banks, which will expire in September 2018. Additionally the Group still retains £30m of committed facilities maturing in 2016 and a £20m committed facility maturing in 2015.

10 Trade and other payables

Current and non-current other payables include £4.7m and £13.3m respectively (30 June 2013: £1.3m and £17.5m, 31 December 2013 £4.7m and £13.1m) related to the discounted deferred consideration due on the acquisition of an additional interest in ISIS Waterside Regeneration Partnership.

11 Related party transactions

The Group has contracted with, provided services to, and received management fees from, certain joint ventures amounting to £16.8m (30 June 2013: £17.9m, 31 December 2013: £41.5m). These transactions occurred in the normal course of business at market rates and terms. The amounts due from and to joint ventures from trading activities are disclosed above.

12 Contingent liabilities

Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating companies in the Group. There are contingent liabilities in respect of surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.

13 Subsequent events

There were no subsequent events that affected the financial statements of the Group

Responsibility statement

The directors confirm that to the best of their knowledge:

(a) the unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union;

(b) the half year report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the half year report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein)

By order of the Board

John Morgan Steve Crummett

Chief Executive Finance Director

4 August 2014