TIDMMGNS
RNS Number : 7855Q
Morgan Sindall Group PLC
23 February 2023
23 February 2023
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
RESULTS FOR THE FULL YEAR (FY)ED 31 DECEMBER 2022
FY 2022 FY 2021 Change
Revenue GBP3,612m GBP3,213m +12%
Operating profit - adjusted(1) GBP139.2m GBP131.3m +6%
Profit before tax - adjusted(1) GBP136.2m GBP127.7m +7%
Earnings per share - adjusted(1) 237.9p 226.0p +5%
Net cash at year end GBP355m GBP358m -GBP3m
Total dividend per share 101.0p 92.0p +10%
Operating profit - reported GBP88.3m GBP129.8m -32%
Profit before tax - reported GBP85.3m GBP126.2m -32%
Basic earnings per share
- reported 132.7p 212.4p -38%
------------------------------------ ----------- ----------- -------
(1) 'Adjusted' is defined as before intangible amortisation of
GBP2.0m and exceptional building safety charge of GBP48.9m
(FY 2021: before intangible amortisation of GBP1.5m and (in the
case of earnings per share) deferred tax charge of GBP5.1m)
FY 2022 summary:
-- Record results reflect a strong year of operational and
strategic progress despite market headwinds
o Revenue up 12% to GBP3.6bn
o Adjusted profit before tax up 7% to GBP136.2m
-- Continued balance sheet strength
o Net cash of GBP355m (FY 2021: GBP358m)
o Average daily net cash of GBP256m (FY 2021: GBP291m)
-- High quality and substantial order book with secured workload of GBP8.5bn
o 2% lower than prior year end
-- Total dividend up 10% to 101p per share
-- Exceptional charge for Building Safety in line with previous guidance of GBP48.9m
-- Continued leadership in sustainability
o MSCI 'AAA' rating retained for Group's ESG performance
o CDP 'A' rating retained for Group's leadership on climate
change
-- Divisional highlights
o Another excellent performance from Fit Out; operating profit
up 18% to GBP52.2m (FY 2021: GBP44.2m)
o Steady performance from Construction & Infrastructure;
operating margin of 3.3% (FY 2021: 3.8%) and operating profit of
GBP52.1m (FY 2021: GBP58.1m) against strong prior year
comparatives
o Property Services' operating profit(1) up 5% to GBP4.3m (FY
2021: GBP4.1m)
o Strong contribution from Partnership Housing with revenue up
22% to GBP696m (FY 2021: GBP572m) and operating profit(1) up 13% to
GBP37.4m (FY 2021: GBP33.2m)
o Good progress by Urban Regeneration; operating profit(1) up
56% to GBP18.9m (FY 2021: GBP12.1m) and return on capital(1) in
year of 20%
Commenting on today's results, Chief Executive, John Morgan
said:
"The Group delivered a strong performance in 2022, with
significant strategic and operational progress made across the
business despite the market headwinds. These results are another
record for the Group and they reflect the high quality of our
operations and the talent and commitment of our people .
With the more challenging economic backdrop, our strong balance
sheet including our substantial net cash position provides us with
confidence and enables us to continue operating efficiently and
effectively. Particularly, it allows us to continue making the
right decisions for the long term, to maximise our competitive
advantage, and to best position us in our markets for continued
sustainable long-term growth.
We remain committed to delivering economic, social and
environmental value for all our stakeholders, and I am particularly
pleased that the Group has retained both its 'AAA' rating from MSCI
and its 'A' rating from CDP for our leadership on climate
change.
While there remains significant macroeconomic uncertainty,
Morgan Sindall is a strong and agile business which is well-placed
to overcome the challenges of the coming year and also
well-positioned to take advantage of the opportunities that arise
in this type of environment. There are early signs that inflation,
particularly labour inflation, has plateaued and is starting to
fall in some areas. We look forward with optimism and although it
is still early in the year, we're well-positioned to deliver a
result for 2023 which is in line with our current
expectations."
Enquiries
Morgan Sindall Group Tel: 020 7307 9200
John Morgan
Steve Crummett
Instinctif Partners Tel: 020 7457 2020
Matthew Smallwood
Bryn Woodward
Presentation
-- There will be an analyst and investor presentation at 09.00am
at Numis Securities Limited, 45 Gresham Street, London EC2V 7BF.
Coffee and registration will be from 08.30am
-- A copy of these results is available at: www.morgansindall.com
-- Today's presentation will be available via live webcast from
09.00am at www.morgansindall.com. T he presentation will be
available via playback on our website in the afternoon.
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK Construction &
Regeneration group with annual revenue of GBP3.6bn, employing
around 7,200 employees and operating in the public, regulated and
private sectors. It reports through five divisions of Construction
& Infrastructure, Fit Out, Property Services, Partnership
Housing and Urban Regeneration.
Group Strategy
The Group's strategy is focused on its well-established core
strengths of Construction and Regeneration in the UK. The Group has
a balanced business which is geared toward the increasing demand
for affordable housing, urban regeneration and infrastructure and
construction investment.
Morgan Sindall's recognised expertise and market positions in
affordable housing (through its Partnership Housing division) and
in mixed-use regeneration development (through its Urban
Regeneration division) reflect its deep understanding of the built
environment developed over many years and its ability to provide
solutions for complex regeneration projects. As a result, its
capabilities are aligned with sectors which support the UK's
current and future regeneration and affordable housing needs.
Through its Construction & Infrastructure division, the
Group is also well positioned to meet the demand for ongoing
investment in the UK's physical infrastructure, while its
geographically diverse construction activities are focused on key
areas of education, healthcare and commercial.
The Fit Out division is the market leader in its field and
delivers a consistently strong operational performance. Fit Out,
together with the Construction & Infrastructure division,
generates cash resources to support the Group's investment in
affordable housing and mixed-use regeneration. The Group also has
an operation in Property Services which is focused on response and
planned maintenance activities provided to the social housing and
the wider public sector.
Group Structure
Under the two strategic lines of business of Construction and
Regeneration, the Group is organised into five reporting divisions
as follows:
Construction activities comprise the following operations:
-- Construction & Infrastructure : Focused on the education,
healthcare, commercial, industrial, leisure and retail markets in
Construction; and on the highways, rail, energy, water and nuclear
markets in Infrastructure. Infrastructure also includes the
BakerHicks design activities based out of the UK and
Switzerland
-- Fit Out : Focused on the fit out of office space with
opportunities in commercial, central and local government offices
and further education
-- Property Services : Focused on response and planned
maintenance activities provided to the social housing and the wider
public sector
Regeneration activities comprise the following operations:
-- Partnership Housing : Focused on working in partnerships with
local authorities and housing associations. Activities include
mixed-tenure developments, building and developing homes for open
market sale and for social/affordable rent, 'design & build'
house contracting and planned maintenance & refurbishment
-- Urban Regeneration : Focused on transforming the urban
landscape through partnership working and the development of
multi-phase sites and mixed-use regeneration
Basis of Preparation
In addition to presenting the financial performance of the
business on a statutory basis, adjusted performance measures are
also disclosed. Refer to the Other Financial Information section
which sets out the basis for the calculations. These measures are
not an alternative or substitute to statutory UK IAS measures,
however are seen as more useful in assessing the performance of the
business on a comparable basis and are used by management to
monitor the performance of the Group.
In all cases the term 'adjusted' excludes the impact of
intangible amortisation of GBP2.0m and of the exceptional building
safety charge of GBP48.9m. For FY 2021, 'adjusted' excluded the
impact of intangible amortisation of GBP1.5m and (in the case of
earnings per share) a deferred tax charge of GBP5.1m.
Group Operating Review
Summary Group financial results
The Group delivered a strong performance in 2022, with
significant strategic and operational progress made across the
business despite the market headwinds. The results were another
record for the Group and reflected the high quality of the Group's
operations and the talent and commitment of its people .
Group revenue increased by 12% up to GBP3,612m (FY 2021:
GBP3,213m), while adjusted operating profit increased 6% to
GBP139.2m (FY 2021: GBP131.3m). Adjusted operating margin was 3.9%,
20bps lower than the prior year (FY 2021: 4.1%). The net finance
expense reduced to GBP3.0m (FY 2021: GBP3.6m) resulting in adjusted
profit before tax of GBP136.2m, up 7% (FY 2021: GBP127.7m).
The statutory profit before tax was GBP85.3m, a decrease of 32%
(FY 2021: GBP126.2m). This was mainly due to the exceptional
Building Safety charge of GBP48.9m incurred in the year (see below)
which was in line with the guidance issued in August with the half
year results.
The adjusted tax charge for the period was GBP27.0m (statutory
tax charge of GBP24.4m), an effective rate of 19.8% on adjusted
profit before tax.
The adjusted earnings per share increased 5% to 237.9p (FY 2021:
226.0p). The statutory basic earnings per share of 132.7p was down
38% (FY 2021: 212.4p), similarly impacted by the exceptional
Building Safety charge of GBP48.9m incurred in the year.
General market conditions
Across the Group, inflationary pressures and supply issues have
been a significant headwind throughout the year. Rising energy
prices, supply constraints on certain materials and increased trade
and labour costs have continued to place upward pressure on total
build costs, which in turn has placed increased strain on the
stability of the supply chain. Towards the end of the year and
going into 2023, there were early signs that inflation,
particularly labour inflation, had plateaued and was starting to
fall.
Where projects are active and underway, the additional costs
arising have generally been offset by a combination of contractual
protection, operational efficiencies, flexible sourcing and (in the
case of Partnership Housing) by house sales price inflation. On
projects where it has not been possible to mitigate all such
additional costs in full, the resulting impact on margins has been
unavoidable.
Where projects are being priced for future delivery, the
inflationary environment has continued to place some project
budgets under pressure particularly in Construction &
Infrastructure, which in turn has led to some delays in
decision-making and project commencement. However, these have been
minimal in number, with generally most of t he public and regulated
sector clients which the Group serves indicating that committed
spending on capital projects remains in place.
The market for Fit Out's services has remained very strong,
driven by factors such as lease renewals, the move towards hybrid
working practices, the requirement for greater energy efficiency
from offices and the use of office space as a tool for enhancing
staff retention and brand image.
In Partnership Housing, demand for the partnership model
focusing on long-term partnerships with the public sector remained
positive throughout the year. However, in line with the rest of the
UK housing industry, the division experienced a significant
slowdown in its sales rates of private homes on its mixed-tenure
sites in the fourth quarter driven by the combination of economic
uncertainty together with changes to mortgage rates and
availability.
In Urban Regeneration, construction cost inflation has provided
some challenges to the returns on some of its active developments
and has led to some delays in decision-making and project
commencement on some other schemes, however the overall impact has
not been material.
Divisional performances
On a divisional basis, Construction & Infrastructure
continued with its disciplined focus on operational delivery and
contract selectivity and delivered a steady result. Revenue
increased 3% to GBP1,569m (FY 2021: GBP1,520m), while operating
profit was down to GBP52.1m (FY 2021: GBP58.1m) impacted by market
factors described above. Fit Out delivered another excellent
performance, with revenue and operating profit both increasing
substantially. Revenue grew 22% to GBP968m (FY 2021: GBP795m),
while operating profit increased by 18% to GBP52.2m (FY 2021:
GBP44.2m). Property Services also increased its operating profit,
up 5% to GBP4.3m (FY 2021: GBP4.1m), with revenue up 22% to GBP163m
(FY 2021: GBP134m).
Of the Group's regeneration divisions, Partnership Housing
performed well, with a strong operational performance delivering
operating profit of GBP37.4m, an increase of 13% (FY 2021:
GBP33.2m), on revenue of GBP696m (FY 2021: GBP572m). Urban
Regeneration made good progress with its long-term development
portfolio and delivered an operating profit of GBP18.9m, up 56% on
last year (FY 2021: GBP12.1m) resulting in its return on capital
employed for the year increasing to 20%.
Secured workload
The Group has a high-quality workload and maintaining contract
selectivity and bidding discipline to ensure the appropriate risk
balance in the order book remains of critical importance to the
future success of the Group. The total secured workload for the
Group at the period end was GBP8,459m, down 2% on the prior
year-end position (FY 2021: GBP8,614m) and 1% lower than at the
half year (HY 2022: GBP8,519m).
Balance sheet & cash
The Group's Capital Allocation Framework is unchanged and is set
out in the section below.
The Board's single, overarching principle governing capital
allocation is a commitment to maintain a strong balance sheet and
hold significant net cash balances at all times, providing a stable
and firm foundation for the Group to make sound decisions for its
long-term development, thereby enhancing its competitive advantage
and future work winning. This remained the case throughout the
year. Net cash at the year-end was GBP355m (FY 2021: GBP358m) and
the average daily net cash for the year was GBP256m (FY 2021:
GBP291m). The year-end cash position included GBP46m held in
jointly controlled operations or held for future payment to
designated suppliers.
Operating cash flow for the year was an inflow of GBP48.0m (FY
2021: inflow of GBP117.6m), which included a working capital
outflow of GBP64.5m. Significant movements within the operating
cash flow included a net working capital increase in the
Regeneration activities of GBP56.7m and an increase in contract
assets in Property Services of GBP25.2m to fund growth as new
projects mobilised.
Looking ahead, the Group expects that the average daily net cash
for 2023 will be at a broadly similar level to that reported for
2022.
Building Safety
During the year, the Partnership Housing division signed the
Developers Pledge (the "Pledge") with the Department of Levelling
Up, Housing and Communities ("DLUHC") setting out the principles
under which life critical fire-safety issues on buildings that they
have developed of 11 meters and above are to be remediated. A
letter was also received from DLUHC requesting information to
assess whether it may be appropriate for Urban Regeneration to also
commit to the principles of the Pledge as part of its commitment to
support the remediation of historic cladding and fire safety
defects over and above its obligations under the new Building
Safety Act. A number of constructive meetings were subsequently
held with DLUHC in the second half of the year to clarify matters
with a view to codifying the agreed obligations into a
legally-binding contract.
The final-form legal contract was issued in January 2023 and
both Partnership Housing and Urban Regeneration have confirmed in
writing to DLUHC their intention to sign and execute the contract
on or before the stipulated date of 13 March 2023.
A comprehensive review was completed during the year to identify
legal and constructive obligations related to the Pledge, including
the reimbursement of grants provided by the Building Safety Fund
(the "BSF"). As a result of this review, provisions have been
recognised in the year totaling GBP48.9m and these have been
presented as exceptional charges due to their materiality and
irregular nature. The charge does not include the benefit of any
potential income subsequently received for recoveries from third
parties and any such amounts would similarly be presented
separately.
Of the total exceptional charge, GBP5.5m related to Partnership
Housing and GBP43.4m related to Urban Regeneration.
Dividend
The proposed final dividend has increased by 10% to 68.0p per
share (FY 2021: 62.0p), resulting in a total dividend for the year
of 101.0p per share (FY 2021: 92.0p), also an increase of 10%. This
represents dividend cover of 2.36x and reflects the result for the
year, the strong balance sheet and the Board's confidence in the
long-term prospects of the Group.
As part of the Capital Allocation Framework, the Board operates
a formal dividend policy such that dividend cover is expected to be
in the range of 2.0x-2.5x on an annual basis.
Environment & Social Summary
The Group's obligation to delivering economic, social and
environmental value is reflected in its five Total Commitments: to
health, safety and wellbeing, employee development, the
environment, its supply chain, and local communities. These
Commitments have been in place since 2008 and support the UN
Sustainable Development Goals. Each Commitment has long term
quantitative targets and KPIs set to monitor progress. The Group
undergoes regular assessments covering all of its main stakeholder
groups to ensure that its strategy continues to address its most
material social and environmental matters and supports local
communities. The next assessment will be undertaken in early
2023.
Subsequent to the year end in January 2023, the Group was
awarded 'AAA' under MSCI's ESG ratings for a second consecutive
year.
For full details, see the responsible business section of the
2022 annual report and our 2022 responsible business data sheet
which will be published on 23 March 2023 on the Group's website (
www.morgansindall.com ).
(a) Environmental
The Group continues to maintain its sector leadership status in
addressing climate change. For the third year in a row, the Group
achieved a grade 'A' score for its leadership on climate change
from CDP and since 2010, all the Group's emissions have been
independently verified.
In early 2021, the Group set its goal of achieving 'net zero' in
its Scope 1(1) , Scope 2(2) and operational Scope 3(3) emissions by
2030. The Group's route to operational net zero is through reducing
such emissions by 60% (based on its 2019 emissions) and offsetting
its residual emissions by investing in UK-based projects. In 2022,
the Group achieved a reduction of 4% in its Scope 1(1) , Scope 2(2)
and operational Scope 3(3) emissions compared to 2021, resulting in
a total 40% reduction compared to its 2019 baseline. Based on its
current trajectory, the Group is on track to achieve its targeted
reductions by 2030.
Considerable progress has been made by the Group with its
responsible offsetting projects. These include its investment in a
25-year project to create nine new woodlands on the Blenheim Estate
in Oxfordshire. As well as providing measurable, demonstrable gains
in terms of absorbing and storing carbon, increasing biodiversity
and improving soil, air and water quality, the woodlands will
provide wellbeing benefits for people visiting the area.
In addition, since the year end, the Group announced its
participation in two other responsible offsetting projects: a
peatland restoration programme to restore over 300 hectares of
blanket bog in the Northern Pennines AONB and the Yorkshire Dales
National Park; and the acquisition of 54 hectares of land to
support the RSPB in unlocking and restoring additional land next to
their existing Lakenheath Fen reserve in Norfolk.
In addition to preventing further carbon loss from the degraded
soils and storing future carbon, both projects will enable
endangered species to recover, support a range of wildlife and
provide people with vibrant places to visit.
Other activities by the Group in this area also include the
ongoing investment in a scheme where carbon savings from
energy-saving retrofits which the Group carries out for local
authorities on social housing can be converted into carbon credits.
The local authorities can then either use these credits to offset
unavoidable embodied carbon in future construction and regeneration
projects or sell the credits to raise funding for further
decarbonisation schemes.
The Group has set science-based targets for reducing carbon
emissions and was one of the first construction companies globally
to have its science-based emission targets officially accredited
back in 2018. In 2022, the Group realigned its targets to a 1.5(o)
C scenario and submitted them to the Science Based Targets
Initiative for revalidation. As part of this, the Group has now
extended its net zero target to include the full total of its Scope
3(4) emissions (ie not just operational Scope 3) by 2045. This
target is consistent with progress made to date and with the 2030
operational net zero target, which includes only operational Scope
3(3) emissions.
Where possible, the Group integrates biodiversity into design
decisions and measures the biodiversity net gain(5) associated with
projects. The Group also supports a circular economy by reducing
waste, recycling, and reusing waste where appropriate. In 2022, 96%
of the Group's waste was diverted from landfill and total waste
reduced by 57%.
Other 2022 highlights and performance measures include:
-- Carbon intensity(6) reduced to 4.5 from 5.3 in 2021
-- 109 BREEAM, CEEQUAL, LEED, SKA or other industry-relevant sustainability ratings
-- 65% of electricity purchased from renewable sources
-- Waste intensity(7) reduced to 103.3 from 267.4 in 2021
(b) Social
The Group works to deliver positive social and economic impacts
that last long beyond the completion of projects by procuring
locally where possible, collaborating with local community
organisations to maximise volunteering and charity initiatives, and
upskilling employees and local people to create economic
resilience. The Group's value to its stakeholders lies in providing
improved and efficient built environments and national
infrastructure and its approach to and accountability for
delivering high levels of social value to the communities in which
it operates.
The Group's divisions pay the real living wage or above and two
divisions are accredited Living Wage Foundation employers. During
2022, the divisions provided employees with a range of support to
help with the cost of living, including offering one-off
cost-of-living support payments, bringing forward annual pay and
bonus payments, and enhancing employee benefit packages.
During the year, the Group has also supported local communities
with the cost of living. For example, through the HACT's Energy
Hardship Fund, Property Services provided 570 energy vouchers to
support social housing residents in paying their increasing energy
bills. To date, Property Services has provided a total of 1,600
energy vouchers worth nearly GBP80,000 to 600 families in fuel
poverty.
The Group continues to support the Supply Chain Sustainability
School (SCSS) and encourages employees and supply chain partners to
leverage its free training. The Group proactively engages with the
supply chain regarding climate mitigation and seeks opportunities
to help improve the performance of its suppliers. Over the year the
Group has conducted, sponsored learning events, held workshops, and
conducted site visits and audits to gather more information on how
best to help suppliers.
The Group's relationships with its supply chain partners are of
major strategic importance and the prompt payment of its suppliers
remains a key component of this. Strong supply chain relationships
can provide a competitive advantage and support superior
operational delivery. For the formal Payment Practices Reporting
period of 1 July 2022 to 31 December 2022, Construction &
Infrastructure, the largest operating division by revenue, further
reduced its average time taken to pay invoices at 24 days, with 99%
of its invoices paid within 60 days. Fit Out reported its average
time taken to pay invoices at 26 days, with 96% of invoices paid
within 60 days, while Partnership Housing reported 32 days as its
average time to pay, with 96% of its invoices being paid within 60
days. Property Services showed an average of 43 days to pay
invoices, a deterioration of 2 days from the first half of the year
(1 January 2022 to 30 June 2022) and with 97% of its invoices being
paid within 60 days.
Ensuring its employees, suppliers and subcontractors have the
tools and resources necessary to safely deliver for its clients and
partners is fundamental to the Group. The senior health, safety and
environment leaders across the Group increased their number of site
visits by 29% in 2022 and the Group saw an improvement regarding
serious injuries and high potential incidents. In the year, the
number of RIDDOR(8) incidents reduced to 28, down from 44 last
year, while the lost time incident rate(9) decreased to 0.22
compared to 0.29 last year. Continued focus is placed on driving
down the number of accidents related to the use of hand tools and
trips, which account for the majority of the RIDDOR incidents
incurred.
The Group actively engages with its employees to hear their
perspectives. Three of the Group's divisions have achieved
accreditation from Investors in People, demonstrating a fulfilment
of commitments to employees. Diversity is vital to the long-term
success of the Group as it drives innovation and attracts the best
employees. The Group maintains national partnerships with Women
into Construction, Working Families/Working Mums, BPIC (Black
Professionals in Construction) and Build Force UK. These networks
help the Group to reach a wider audience and share information
about the benefits of a career in construction. In 2022, 25% of
employees were female and 9% from an ethnic minority background.
The Group's median gender pay gap for 2022 was 30.6% (2021: 29.6%).
This remains high and reflects a higher number of senior male
employees in the Group. Women make up 11% (2021: 11%) of the upper
pay quartile compared to 39% (2021: 39%) in the lower quartile.
Some other performance measures and actions in this area
include:
-- Employee voluntary turnover rate of 15.0% (2021: 13.0%)
-- 535 (2021: 532) people sponsored to complete national
vocational qualifications and professional qualifications
-- 347 (2021: 275) directly employed apprentices and graduates sponsored
-- 9,253 (2021: 9,620) number of hours of employees spent volunteering
-- 4,779 (2021: 7,979) number of hours employees spent supporting schools
(1) Scope 1 emissions are direct emissions from owned or
controlled sources.
(2) Scope 2 emissions are Indirect emissions generated from
purchased energy.
(3) Operational Scope 3 emissions are all indirect emissions not
included in Scope 2 that occur in limited categories of the Group's
value chain as measured by the Toitu carbon reduce scheme.
(4) Scope 3 emissions are all emissions arising from the whole
value chain from supply chain and end-users of buildings. Total
emissions include carbon embodied in the materials (emitted during
raw extraction, manufacture, transport to site, and disposal or
recycling; carbon emitted during construction via energy use and
waste; and estimated carbon emitted from operating the buildings
for 60 years following handover to the client.
(5) Biodiversity net gain is an approach to development, and/or
land management, that aims to leave the natural environment in a
measurably better state than it was beforehand.
(6) Carbon intensity is measured as 'Carbon emissions (in
tonnes) per GBPm revenue'.
(7) Waste intensity is measured as 'Total waste (in tonnes) per
GBPm revenue'.
(8) RIDDOR is The Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013.
(9) Lost time incident rate is the number of incidents resulting
in absence from work for a minimum of one working day, excluding
the day the incident occurred per 100,000 hours worked.
Outlook
Group outlook for 2023
While there remains significant macroeconomic uncertainty, the
Group is well-placed to overcome the challenges of the coming year
and also well-positioned to take advantage of the opportunities
that arise in this type of environment. There are early signs that
inflation, particularly labour inflation, has plateaued and is
starting to fall in some areas. The Group looks forward with
optimism and although it is still early in the year, it is
well-positioned to deliver a result for 2023 which is in line with
its current expectations.
The 2023 outlook for each division is detailed in the Divisional
Review.
Medium-term divisional targets
To provide a framework for future performance, each division
operates to a medium-term financial target or set of targets (the
'target' or 'targets') and are referred to in the Business
review.
The targets were originally set in February 2022 and are shown
below together with the actual FY 2022 performance measured against
these targets. The medium-term target for Fit Out has been upgraded
as of February 2023 to reflect current performance, its market
position and its future prospects.
Division Target Actual
FY 2022
Construction Operating margin of 2.5% Operating margin
- 3% pa of 2.8%
Revenue of GBP1bn Revenue of GBP808m
------------------- ----------------------------------- -----------------------
Infrastructure Operating margin of 3.5% - Operating margin
4.0% pa of 3.9%
Revenue of GBP1bn Revenue of GBP761m
------------------- ----------------------------------- -----------------------
Fit Out Average annual operating Operating profit
profit through the cycle of of GBP52.2m
GBP45m-GBP50m (was GBP40m-GBP45m)
------------------- ----------------------------------- -----------------------
Property Operating profit of GBP15m Operating profit
Services of GBP4.3m
------------------- ----------------------------------- -----------------------
Partnership Operating margin of 8% / Operating margin
Housing return on capital up of 5.4% /
towards 25% return on capital
of 19%
------------------- ----------------------------------- -----------------------
Urban Regeneration 3-year rolling average return 3-year rolling average
on capital up towards 20% return on capital
of 13%
----------------------------------- -----------------------
Divisional Review
The following Divisional Review is given on an adjusted basis
unless otherwise stated. Refer to Note 15 of the consolidated
financial statements for appropriate reconciliations to the
comparable UK IAS measures.
Headline results by division
Revenue Operating Operating
Profit Margin
GBPm Change GBPm Change % Change
------ ------- ------- ------- ----- -------
Construction & Infrastructure 1,569 +3% 52.1 -10% 3.3% -50bps
Fit Out 968 +22% 52.2 +18% 5.4% -20bps
Property Services 163 +22% 4.3 +5% 2.6% -50bps
Partnership Housing 696 +22% 37.4 +13% 5.4% -40bps
Urban Regeneration 244 +20% 18.9 +56% n/a n/a
Group/Eliminations (28) (25.7)
------ ------- ------- ------- ----- -------
Total 3,612 +12% 139.2 +6% 3.9% -20bps
------ ------- ------- ------- ----- -------
Group secured workload(1) by division
The Group's secured workload(1) at 31 December 2022 was
GBP8,459m, a decrease of 2% on the prior year end (FY 2021:
GBP8,614m) and 1% lower than at the half year (HY 2022:
GBP8,519m).
The divisional split is shown below.
FY 2022 FY 2021 Change
GBPm GBPm
------------------------------- ------- ------- ------
Construction & Infrastructure 2,601 2,715 -4%
Fit Out 841 897 -6%
Property Services 1,204 945 +27%
------------------------------- ------- ------- ------
'Construction' secured order
book(2) 4,646 4,557 +2%
------------------------------- ------- ------- ------
Partnership Housing 1,984 1,498 +32%
Urban Regeneration 1,847 2,574 -28%
------------------------------- ------- ------- ------
'Regeneration' secured order
book(2) 3,831 4,072 -6%
------------------------------- ------- ------- ------
Inter-divisional eliminations (18) (15)
------------------------------- ------- ------- ------
Group secured workload(1) 8,459 8,614 -2%
------------------------------- ------- ------- ------
(1) The Group secured workload is the sum of the Construction
secured order book and the Regeneration secured order book, less
any inter-divisional eliminations
(2) The 'Secured order book' is the sum of the 'committed order
book', the 'framework order book' and (for the Regeneration
businesses only) the Group's share of the gross development value
of secured schemes (including the development value of open market
housing schemes)
The 'committed 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.
Construction & Infrastructure
FY 2022 FY 2021 Change
GBPm GBPm
------------------------------ ---------- ----------- -----------
Revenue 1,569 1,520 +3%
Operating profit 52.1 58.1 -10%
Operating margin 3.3% 3.8% -50bps
------------------------------ ---------- ----------- -----------
Construction & Infrastructure delivered a steady performance
in the year, with both the Construction and Infrastructure
(including Design)(1) achieving operating margins well within their
respective medium-term target ranges (see section 'Outlook -
medium-term divisional targets' above) despite the inflationary
headwinds and supply chain issues experienced across the year.
Divisional revenue increased 3% to GBP1,569m (FY 2021:
GBP1,520m), while operating profit was down 10% to GBP52.1m (FY
2021: GBP58.1m). The operating margin was 3.3%, down 50bps against
the strong prior year comparator (FY 2021: 3.8%).
Of the divisional revenue split by type of activity,
Construction accounted for 51% of divisional revenue at GBP808m,
with 49% being Infrastructure(1) at GBP761m.
Key to performance is risk management and the division
maintained its focus on disciplined contract selection and
operational delivery throughout the year. Contract by
procurement-type consisted mainly of negotiated work, two-stage
tendered work or work procured through frameworks. The public and
regulated sectors, which together accounted for c75% of revenue in
the year, remained positive with most clients indicating that
committed spending on capital projects remained in place. In turn,
the division's order book also remains of high-quality work, with
the secured order book at the year end at GBP2,601m, 4% lower
compared to the prior year (FY 2021: GBP2,715m).
(i) Construction
Construction's revenue increased 16% to GBP808m (FY 2021:
GBP694m), while operating profit increased 3% to GBP22.6m (FY 2021:
GBP21.9m).
The continued focus on improving operational delivery and
prudent risk management all contributed towards achieving an
operating margin of 2.8% (FY 2021: 3.2%).
The order book at the year end was GBP802m, a reduction of 1% on
the prior year (FY 2021: GBP810m) and up 6% from the half year
position (HY 2022: GBP760m). Of the total, GBP646m (81% by value)
is secured for 2023. This compares to GBP599m of work which was
secured for the year ahead at the start of last year.
In addition to the total order book, Construction also had
GBP758m of work at preferred bidder stage at the year-end, 41%
higher than the equivalent amount at the same time last year (FY
2021: preferred bidder GBP537m).
In education, project wins included the GBP63m redevelopment of
King Henry VIII Secondary School in Abergavenny into a 1,900-place,
all-through school for Monmouthshire County Council, with enabling
works completed in October; and Buntingford First School (GBP10.0m)
which will be Hertfordshire's first carbon-neutral primary and
nursery school and built to Passivhaus standards. In addition,
Construction was awarded a GBP15.1m contract to refurbish an
existing bank headquarters to create the Leeds Mathematics School,
a 240-place sixth form college, for the Department for
Education.
Completions in the year included the GBP49.8m 100%
electric-powered SEE Building (Science, Engineering and
Environment) and the GBP8.3m NERIC Building (North of England
Robotics Innovation Centre) for the University of Salford; the
GBP32.4m Glebe Farm School in Milton Keynes, the area's first
fossil-free school; the GBP13.9m Renton Primary School in West
Dunbartonshire; the GBP7.8m Ravensdale Primary School in Derby; and
a GBP5.6m two-storey teaching block at Horsforth School in Leeds
which provided 365 additional places.
In healthcare, Construction was awarded the GBP11.9m Priscilla
Bacon Hospice, a new state-of-the-art facility on an eight-acre
site in Norwich; and, via the Pagabo framework, a GBP14.5m project
to deliver a new imaging centre at Milton Keynes University
Hospital.
In other sectors, Construction was awarded, in partnership with
Urban Regeneration, the development of two new, Grade A office
buildings in Birkenhead, totalling GBP40m in project value and on
track for completion in 2023. Work progressed at Spinnaker View, an
affordable homes development in Gosport for older people with care
and support needs, being delivered with Partnership Housing; a
GBP109.9m 34-story mixed-use development at Manor Road in Canning
Town, in partnership with Urban Regeneration; and a new car park
and cycle hub at North Manchester General Hospital. Work completed
during the year on the GBP23.3m Great Yarmouth Marina Centre.
Framework appointments included a place on the GBP9bn Procure 23
framework, a partnership between Crown Commercial Services and NHS
England and Improvement (NHSE&I); Lot 1 (GBP8m - GBP25m) and
Lot 2 (>GBP25m) of the North West Construction Framework; and
construction projects valued between GBP250k and GBP10m on the
GBP1bn Pagabo Medium Works Framework (the division's third
appointment to this framework).
(ii) Infrastructure(1)
As expected, Infrastructure's revenue was 8% lower at GBP761m
(FY 2021: GBP826m) with operating profit of GBP29.5m, 19% lower
than last year's strong performance (FY 2021: GBP36.2m), driven
mainly by the timing and nature of projects delivered through its
frameworks. This balance of work resulted in an operating margin of
3.9% (FY 2021: 4.4%).
Infrastructure's order book at the year end was GBP1,799m, down
6% on the previous year end (FY 2021: GBP1,905m), however was up 1%
on the half year position (HY 2022: GBP1,775m). In excess of 90% of
the value of the order book is derived through frameworks,
consistent with the strategic focus on long-term workstreams from
its clients.
The focus for the division remained on its key sectors of
highways, rail, nuclear, energy and water.
In highways, Infrastructure was awarded the A45 at Great
Doddington, its first project on National Highways' new Scheme
Delivery Framework, a GBP3.6bn, six-year programme to deliver vital
renewals to maintain safety and reliability. Work continued on the
A11 as part of National Highways' Concrete Roads Programme -
Reconstruction Works Framework, a four-year programme worth
cGBP130m to repair or replace the concrete surface of motorways and
major A roads in England; and National Highways' Lower Thames
Crossing scheme, where Infrastructure is part of a joint venture
delivering the Integration Partner contract. Works completed in the
year included the M27 Junctions 4 to 11 smart motorway upgrade; the
A45 Sprint corridor for Transport for West Midlands, a cGBP40m
scheme forming part of a bus priority corridor linking Walsall with
the centre of Birmingham, Solihull and Birmingham Airport; and the
installation of safety technology to detect stopped vehicles on
motorways without a hard shoulder, delivered through the Smart
Motorway Alliance with National Highways.
In rail, Infrastructure secured several schemes with Network
Rail: the Bangor to Colwyn Bay signalling power upgrade; a GBP7.5m
project on the CP6 Wales and Western framework; Lot 1 of the
Building and Civils Framework, which involves renewing structural
assets within Network Rail's Western region as part of their CP7
programme; and the detailed and temporary works design for the
refurbishment of Liverpool Street Station roof, procured through
SCAPE's Construction Framework. In addition, the division secured
the Surrey Quays station upgrade, a GBP40m contract awarded through
the London Rail Infrastructure Improvement Framework. Work
progressed on the Northumberland Line extension project for
Northumberland County Council; the Network Rail Parsons Tunnel
rockfall shelter extension in Devon; several access-for-all schemes
with Merseyrail; and the project to upgrade Slough Crossrail
station as part of Network Rail's CP6 framework in the Western
region. During the year, the division completed the Central Area
enabling works for HS2 and the Barking Riverside Extension project
for Transport for London.
In nuclear, work continued on Sellafield's GBP1.6bn Programme
and Project Partners contract, in its third year of a 20-year
framework, and on the Infrastructure Strategic Alliance. Work
continued on the D58 facility for BAE Systems and completed on the
D59 facility.
In energy, National Grid awarded Infrastructure the GBP112m
Dinorwig scheme and the GBP9.2m ZZA overhead line route as part of
the RIIO-2 electricity construction EPC (Engineer, Procure and
Construct) framework, which involves the construction,
refurbishment and decommissioning of overhead line and underground
cable systems operating between 33kV to 400kV across its
transmission network. In addition, the division was awarded a place
on Scottish & Southern Electricity Network's (SSEN) RIIO-2
framework for an initial term of five years with an option to
extend by two years. The framework involves the construction,
refurbishment and decommissioning of overhead lines, underground
cable systems and substations operating between 33kV to 400kV
across SSEN's transmission network. Energisation (transferring
energy into the grid) was completed on the Dorset and Peak East
Visual Impact Provision (VIP) schemes for National Grid.
In water, tunnelling was completed on the Thames Tideway 'super
sewer' project to expand London's sewer network and help prevent
pollution in the Thames, while work continued as part of the
long-term AMP7 framework with Welsh Water.
In the BakerHicks design business(1) , projects completed in the
year included: the newly refurbished Whitechapel Station as part of
the Crossrail scheme in London; the Dorset Visual Impact Provision
(VIP) underground cabling scheme for National Grid; an onshore HVDC
convertor station as part of National Grid's IFA2 scheme linking
the UK and French electricity systems; Ulster Hospital's Acute
Services Block; Clydebank Health and Care Centre for NHS Greater
Glasgow and Clyde; Renton Primary School in West Dunbartonshire;
two Community Custody Units for Scottish Prison Services, in
Maryhill, Glasgow and Dundee; the Medicines Manufacturing
Innovation Centre (MMIC) in Renfrewshire; and a large-scale cell
culture production facility in Vienna. Work continued on the
multi-disciplinary design for Scottish Prison Services' new HMP
Highland in Inverness; Engineering, Procurement and Construction
management (EPCm) services for a new state-of-the-art, fill-finish
drug manufacturing facility; and civil and structural engineering
services for the GBP42.5m Allander Health and Leisure Centre in
Bearsden, East Dunbartonshire.
Divisional outlook for Construction & Infrastructure
The medium-term target for Construction is maintaining its
operating margin within the range of 2.5%-3.0% per annum while
increasing revenue to GBP1bn per annum. Infrastructure's
medium-term target is to maintain its operating margin within the
range of 3.5%-4.0% per annum while also increasing revenue to
GBP1bn per annum.
Based upon the timing of orders and projects, both Construction
and Infrastructure are expected to make positive progress towards
their revenue targets in 2023, whilst also maintaining their
margins within their target ranges.
(1) D esign results are reported within Infrastructure
Fit Out
----------
FY 2022 FY 2021 Change
GBPm GBPm
----------------------------- ---------- --------- ----------
Revenue 968 795 +22%
Operating profit 52.2 44.2 +18%
Operating margin 5.4% 5.6% -20bps
----------------------------- ---------- --------- ----------
Fit Out delivered another excellent performance in the year
which was again driven by strong and consistent project delivery, a
high-quality workload and a continued focus on enhanced customer
experience. Revenue increased 22% to GBP968m (FY 2021: GBP795m)
while operating profit increased 18% to GBP52.2m (FY 2021:
GBP44.2m), a record result for the division, resulting in a strong
operating margin of 5.4% (FY 2021: 5.6%).
During the year, there was no significant change to the overall
balance of the business compared to previous years. The commercial
office sector contributed 73% of revenue (FY 2021: 76%), with work
in the public sector and for local authorities dropping back only
slightly to 12% of revenue (FY 2021: 16%) offset by an increase in
higher education work to 11% (FY 2021: 7%). The retail banking
sector made up the remainder.
Similarly, the geographical spread of the business remained
broadly similar to the prior year, with the London region
accounting for 60% of revenue (FY 2021: 58%).
In terms of type of work delivered in the year, there was a
slight shift towards traditional fit out work, up to 87% of revenue
(FY 2021: 80%), however this was not indicative of any longer-term
trends. 'Design and build' work made up the remainder at 13% of
revenue (FY 2021: 20%).
The proportion of revenue generated from the fit out of existing
office space increased to 83% (FY 2021: 78%), with the fit out of
new office space reducing to 17% (FY 2021: 22%). Of the fit out of
existing office space, work was broadly split evenly between
refurbishment 'in occupation' and non-occupied space. Again, such
movements are not viewed as material.
At the year end, the secured order book was GBP841m, a sizeable
workload albeit a reduction of 6% from the previous year end (FY
2021: GBP897m). Importantly of this total, GBP591m (70%) relates to
2023 and this level of orders for the next 12 months is 12% higher
than it was at the same time last year.
In addition to these secured orders, the division had over
GBP100m of work in the pre-contract 'preferred bidder' stage at the
year end, as well as in excess of GBP300m of work already tendered
and pending a decision and over GBP200m of work at the tender
stage. The average value of enquiries received through the year was
around GBP3m.
Traditional office fit out projects won in the year included:
360,000 sq ft for Marsh McLennan in London; Shell UK's 250,000 sq
ft Waterloo HQ; 250,000 sq ft for the relocation of a global
financial organisation to Paddington; 150,000 sq ft HQ for GSK in
London's Life Sciences hub, known as the Knowledge Quarter; 110,000
sq ft for a professional services firm in London; and 80,700 sq ft
for ROKU Europe in Manchester.
Project completions included: 366,000 sq ft for the European
Bank for Reconstruction and Development (EBRD) in Canary Wharf;
200,000 sq ft for BP in the North Colonnade in Canary Wharf;
141,000 sq ft for Boston Consulting Group in London; 57,000 sq ft
for International Hotel Group in Windsor; 50,000 sq ft for Convene
in Bishopsgate, London; 20,000 sq ft for CBRE Investment Management
in London; 17,000 sq ft for Tarmac in Birmingham; 13,300 sq ft for
euNetworks in London; and projects for the BBC in Newcastle and the
Cambridge Design Partnership in Cambridge.
In higher education, projects won and on site during the year
included: the 19,000 sq ft fit out of a laboratory and workspace at
Queen Mary University's Francis Bancroft building; 25,000 sq ft for
Coventry University that included a laboratory refurbishment; three
projects for University College London totalling GBP40m; an GBP8m
fit out and refurbishment of Middlesex University's West Stand at
StoneX Stadium; and the fit out of the School of Health at Leeds
Beckett University.
In commercial design and build, significant wins included: a
50,145 sq ft fit out for IMG Media in Stockley Park; KAO
Corporation's new 11,500 sq ft London office; 10,000 sq ft for
Navico at The Boathouse in Southampton; 8,000 sq ft for The Gibson
Garage in London, the first dedicated office and retail experience
for Gibson's guitar and music fans outside of the US; and the 2,500
sq ft HQ for Teck Resources in St James Square, London.
Design and build projects completed in the year included:
Montagu Private Equity's new office in London; Hutchinson 3G
UK/Three's new 117,000 sq ft workspace in Reading; and a 180,000 sq
ft Cat A fit out at Campus Reading, one of the largest office
developments in the UK.
Projects delivered through public sector frameworks and
corporate partnerships included: an 86,000 sq ft office fit out for
the Government Property Agency in Peterborough; GBP39m of works for
the Mayor's Office for Policing and Crime (MOPAC), with a future
order book of GBP22m; 39 projects won through Fit Out's partnership
with NatWest Group; 10 projects for commercial landlord GPE to
deliver 50,000 sq ft of high-quality lettable office space across
London; and a 60,000 sq ft fit out for the University of Leicester
via the Pagabo framework. Also via Pagabo, work continued at
Nottingham Central Library for Nottingham City Council.
Divisional outlook for Fit Out
Fit Out's medium-term target has been upgraded as of February
2023 to reflect the division's current performance, its market
position and future prospects and it is now expected to deliver a
verage annual operating profit through the cycle of
GBP45m-GBP50m.
The division exceeded this target in 2022 and based on the
timing of projects in the order book and the current visibility the
division has of future workload for the first half, Fit Out is
again expected to be slightly ahead of the top end of this new
target in 2023, at broadly similar levels to 2022.
Property Services
----------
FY 2022 FY 2021 Change
GBPm GBPm
----------------------------- ---------- --------- ----------
Revenue 163 134 +22%
Operating profit(1) 4.3 4.1 +5%
Operating margin(1) 2.6% 3.1% -50bps
----------------------------- ---------- --------- ----------
(1) before intangible amortisation of GBP2.0m (FY 2021:
GBP1.5m)
Property Services improved its performance in the period, with
revenue increasing 22% to GBP163m (FY 2021: GBP134m) and operating
profit(1) increasing 5% to GBP4.3m (FY 2021: GBP4.1m). Its
operating margin(1) was lower at 2.6% (FY 2022: 3.1%).
The significant revenue growth was primarily driven by the
addition of new contracts being mobilised in the year.
Specifically, three new integrated contracts worth a total of
GBP380m commenced operations in the year: a 10-year contract with
South East housing association, Moat, to provide services to 11,500
homes across south east London, Kent, Essex and Sussex, worth over
GBP200m and with the potential to be extended by a further five
years; an GBP80m contract with Longhurst Group, maintaining 6,500
homes in their East region for up to 10 years; and a 10-year
contract with Welwyn Hatfield Borough Council, delivering
maintenance and planned works for 9,500 homes, worth GBP120m.
The addition of these new contracts provides a run-rate entering
2023 at which the division has sufficient critical mass to support
the operating model and drive the focus on improved contract
performance.
Notwithstanding the increase in revenue, however, operating
profit and operating margin were both adversely impacted by
inflationary pressures on labour, materials and other general
costs. Due to the significant time lag between such cost increases
experienced and the timing of annual inflation-uplift mechanisms in
client contracts, the division was unable to recover any such
increases in the year and absorbed the full impact on most of its
responsive maintenance contracts. Operationally, availability of
industry resource was also a continuous challenge throughout the
year, which further impacted efficiency of contract delivery.
Strategically, the division remains focused on delivering
repairs and planned maintenance with a strong social value
offering, servicing public sector housing through its integrated
contracts with housing associations and local authorities. At the
year end, the secured order book was GBP1,204m, up 27% from the
prior year end (FY 2021: GBP945m). Of this total, in excess of 85%
is for 2024 and beyond.
During the year, the division's data collection technology,
goldeni, which was launched in 2021, was installed in hundreds of
social homes. Its sensors pick up data on temperature, humidity and
air quality to identify properties that may be susceptible to damp
or mould, so that corrective action can be taken. In Basildon, 25
homes piloted new boiler sensors which send out alerts for any
urgent repairs needed before the resident is even aware. The boiler
programme will be expanded in 2023. Also planned for 2023 is a
pilot scheme in St Albans where goldeni sensors will be used to
test the effectiveness of energy efficiency works.
Divisional outlook for Property Services
The medium-term target for Property Services is GBP15m operating
profit per annum.
As above, the 2022 result was significantly impacted by
inflation in the cost base. For many of the division's responsive
maintenance contracts, the annual retrospective inflation-uplift
mechanisms will be applied to future pricing from the second
quarter of 2023 onwards. The impact of this is expected to drive a
significant uplift in profitability in 2023 and progress made
towards its medium-term target.
Partnership Housing
----------
FY 2022 FY 2021 Change
GBPm GBPm
------------------------------- ---------- --------- ----------
Revenue 696 572 +22%
Operating profit(1) 37.4 33.2 +13%
Operating margin (1) 5.4% 5.8% -40bps
------------------------------- ---------- --------- ----------
Average capital employed(1,2)
(last 12 months) 197.3 155.8 +GBP41.5m
Capital employed(1,2) - at
year end 189.3 155.6 +GBP33.7m
ROCE(1,3) (last 12 months) 19% 21%
------------------------------- ---------- --------- ----------
Partnership Housing delivered a strong operational performance
in the year with good strategic progress made across the
business.
Revenue for the year was up 22% to GBP696m (FY 2021: GBP572m).
Split by type of activity, Mixed-tenure revenue was up 15% to
GBP371m (53% of divisional revenue) while Contracting revenue
(including planned maintenance and refurbishment) increased by 31%
to GBP325m (47% of divisional total).
Operating profit(1) increased 13% to GBP37.4m (FY 2021:
GBP33.2m), resulting in an operating margin(1) of 5.4% (FY 2021:
5.8%) with the margin reduction in part reflecting the dilutive
impact of the slight change in business mix towards lower-margin
Contracting activities.
The division had a successful year of winning high-quality work,
providing good visibility of longer-term workstreams through its
partnerships. The secured order book at the year end was GBP1,984m,
an increase of 32% on the prior year end (FY 2021: GBP1,498m) with
60% of its total value for 2024 and beyond.
The ROCE(1,3) for the year was 19%, based upon the average
capital employed(1,2) for the last 12-month period of GBP197.3m.
The capital employed(1,2) at year end was GBP189.3m, an increase of
GBP33.7m from the prior year end. In 2023, the average capital
employed(1,2) is expected to increase up towards cGBP250m,
reflecting the increased scale of the business and stage of
developments.
Mixed-tenure
Increasing the number and size of mixed-tenure sites continues
to be a key aspect of the division's growth strategy. Significant
progress has been made in this area, with currently a total of 58
mixed-tenure sites at various stages of construction and sales (up
from 48 at the prior year end), and an average of 157 open market
units per site (up from 143 at the prior year end). Average site
duration is 48 months, providing long-term visibility of
activity.
During the year, 1,936 units were completed across open-market
sales and social housing (including through joint ventures)
compared to 1,653 units in 2021. The average sales price of GBP258k
compared to the prior year average of GBP249k. Of the open-market
units, a reduction in sales activity during the fourth quarter of
the year was experienced in line with the rest of the UK housing
industry.
Of the total divisional order book, the amount relating to the
Mixed-tenure activities increased 29% to GBP1,279m (FY 2021:
GBP992m). In addition, the amount of mixed-tenure business in
preferred bidder status or already under development agreement but
where land has not been drawn down was over GBP500m at the year
end.
Partnership Housing increased its portfolio of long-term joint
ventures during 2022. The division formally executed a 15-year
joint venture with Suffolk County Council with an initial five
sites (2,800 homes) immediately under option. Preferred bidder
status was achieved with Peabody Developments for the next two
phases of its major regeneration programme at Thamesmead totalling
750 new homes. In addition, Partnership Housing has been selected
as preferred bidder by Scarborough Council for their 30-year
'Better Homes' joint venture, with initial sites identified to
deliver over 700 new homes in the Scarborough area. Scarborough
Council will be part of the new North Yorkshire Unitary Council
from April 2023, which would be the contracting authority.
Planning permission was secured for the first scheme of
Partnership Housing's joint venture with West Sussex County
Council, with works anticipated to start on site in 2023.
Compendium Living, the division's joint venture with The Riverside
Group, began work during the year on two further phases worth
GBP35m, at Ings in Hull and Castleward in Derby. Work also started
on the development of 163 units at the site of the former Philips
factory in South Lanarkshire and 766 units on an additional phase
of the One Woolwich Programme in London. The division legally
completed the purchase of a 398-unit site in Queensferry, Edinburgh
with the majority of units affordable homes or forward sold to
Sigma Homes as private-for-rent.
Elsewhere, progress continued on other mixed-tenure schemes, in
partnerships with Riverside, Clarion Housing, Trafford Housing
Trust, Together Housing Group, Repton Property Developments (owned
by Norfolk County Council), the Borough Council of Kings Lynn &
West Norfolk, Flagship Group, Pobl Group and Homes England.
Contracting
In Contracting , the total number of equivalent units built was
2,010, up from 1,477 in the prior year.
Of the total divisional order book, the Contracting secured
order book was 39% higher at GBP705m (FY 2021: GBP506m), of which
GBP357m is for 2023.
Key contracting schemes awarded in the year included: a GBP17m
scheme in Stockton in conjunction with sister division, Urban
Regeneration; a GBP70m project at Gallions 3B, Newham for Notting
Hill Developments Ltd; a GBP30m, 143-unit scheme at Barne Barton,
Plymouth for Clarion Housing; a GBP15m, 90-unit scheme for Saffron
Housing Trust on the old Wymondham Rugby Club site in South
Norfolk; and the GBP20m, 124-unit Chartist Garden Village scheme in
Pontllanfraith for Pobl Group. Work started on the final phase of
development at The Mill in Cardiff and an GBP11m refurbishment
scheme at The Lakes in Oldbury for Sandwell Metropolitan Borough
Council, which will transform five low-rise residential buildings
into modern social accommodation for rent.
Divisional outlook for Partnership Housing
Partnership Housing's medium-term targets are; firstly, to
generate a return on average capital employed(3) of up to 25% and
secondly, to deliver an operating margin of 8%.
Looking ahead, although its focus on long-term partnerships with
the public sector provides a reasonable level of forward visibility
and resilience, the economic headwinds and general uncertainty in
the housing market will inevitably impact on the division's
financial performance.
Current expectations are that the division will deliver
materially lower profit in 2023 compared to 2022, with both its
medium-term target measures of operating margin and ROCE also
expected to be significantly lower in the year. Despite this,
however, the medium-term targets remain valid and unchanged and the
strategic development and investment in the business will continue
to progress as planned.
(1) Before exceptional Building Safety charge of GBP5.5m
(2) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total
liabilities (excluding corporation tax, deferred tax, inter- company financing and overdrafts)
(3) Return On Average Capital Employed = (Adjusted operating
profit plus interest from JVs) divided by average capital
employed
Urban Regeneration
----------
FY 2022 FY 2021 Change
GBPm GBPm
---------------------------------- ---------- --------- ----------
Revenue 244 203 +20%
Operating profit(1) 18.9 12.1 +56%
---------------------------------- ---------- --------- ----------
Average capital employed(1,2)
(last 12 months) 96.5 98.7 -GBP2.2m
Capital employed(1,2) at year
end 100.4 84.0 +GBP16.4m
ROCE(1,3) (last 12 months) 20% 13%
ROCE(1,3) (average last 3 years) 13% 12%
---------------------------------- ---------- --------- ----------
Urban Regeneration made good progress with its long-term
regeneration schemes, delivering a significant uplift in activity
and performance in the year. Operating profit(1) of GBP18.9m was an
increase of 56% on the prior year (FY 2021: GBP12.1m), while the
ROCE(1,3) in the year increased to 20%, based on the average
capital employed(1,2) in the year of GBP96.5m.
Key contributors to performance were profit and development fees
generated from Lewisham Gateway, London and New Victoria,
Manchester, developments which were both subject to forward funding
deals signed in 2020; and the sale of 166 homes across the
portfolio, including 115 sales at Atelier, Salford, delivered by
The English Cities Fund (a joint venture with Legal & General
and Homes England). The operating result also included a charge of
GBP4.3m relating to building remediation costs which arose in the
ordinary course of business and are not within the scope of the
exceptional Building Safety charge (see Group Operating Review
section).
Of the division's active long-term regeneration schemes,
construction progress was made with the final phase of Lewisham
Gateway which will deliver 649 homes for rent, c25,000 sq ft of
retail space, c15,000 sq ft of food and beverage space, 10,000 sq
ft of offices and Lewisham's first major multiplex cinema, pre-let
to Empire Cinemas. Work also continued at New Victoria, Manchester
to deliver 520 homes for rent on a 450,000 sq ft, formerly unused
site next to Manchester Victoria train station, due to complete in
2023; 106 homes at Islington Wharf in Manchester, through the
division's Waterside Places joint venture with the Canal and River
Trust; 113 affordable homes at Northshore in Stockton-on-Tees; a
64,000 sq ft office building and 399-space multi-storey car park at
Stockport Exchange; two office buildings totalling 150,000 sq ft in
Birkenhead, pre-let to Wirral Council; and a 144-bedroom Holiday
Inn hotel in Blackpool.
In addition, a number of new schemes and phases commenced.
Construction began in 2022 on One City Park, a 56,000 sq ft office
building in Bradford city centre; the final phase at Hale Wharf,
Tottenham Hale, to deliver a further 191 affordable homes for
Haringey Council; and Forge Island, a new leisure destination in
Rotherham town centre that will provide a boutique cinema,
Travelodge hotel and six independent restaurants.
Completions in the year included the final 100,000 sq ft units
at Logic Leeds, bringing the 15-year regeneration scheme to an end;
211 homes for sale at the Novella apartment development in
Manchester; 34 homes (30 affordable) handed over as part of the
75-home Brixton Centric in partnership with Lambeth Council and
Notting Hill Genesis housing association; and 44 homes at West
Cliff Mansions, Bournemouth, through the Bournemouth Development
Company joint venture with BCP Council.
Several developments within The English Cities Fund (ECF) joint
venture were active during the year, including Four New Bailey,
Salford, where a 20-year pre-let had been signed with BT for
175,000 sq ft of Grade A office space; and the Eden building at New
Bailey, a 115,000 sq ft, speculative office building, designed to
be carbon neutral in operation and featuring Europe's largest
living wall (43,000 sq ft), which is due to complete in 2023.
Planning consent was secured for a new 22-storey, 196-apartment
building for rent in Salford Centre; and for the regeneration of St
Helens and Earlestown town centres in partnership with St Helens
Borough Council, which will create new homes, transport
infrastructure and public spaces. The GBP2.5bn, 240-acre, mixed-use
regeneration of Salford Crescent also progressed with planning
consent obtained to deliver Salford Rise, a 90m, green boulevard
that will connect communities in Salford with new opportunities
generated by Salford Crescent.
Early-stage progress has also been made on a number of schemes.
Plans are progressing following a public consultation on Horsham
Enterprise Park, a sustainable new neighbourhood for Horsham, which
will provide 270,000 sq ft of commercial space, up to 300
high-quality homes and extensive improvements to public spaces. The
division will be working together with Partnership Housing on the
residential element. Plans are also being prepared for submission
following a public consultation exercise for Weston M6, a GBP176m,
1.3m sq ft employment park near the HS2 interchange in Crewe; and
for the revitalisation of Prestwich in partnership with Bury
Council, to create a new heart in the village centre with wellbeing
spaces, new homes, a community hub and public realm.
In the second half of the year, the division was selected as
development partner for Arden Cross, Solihull, a GBP3bn scheme to
create an internationally connected, 346-acre city district
including up to 6m sq ft of commercial development, up to 3,000
homes, key transport infrastructure and large areas of public
space. The development agreement is set to be signed in 2023,
followed by a master-planning and public consultation exercise.
Arden Cross will take approximately 20 years to complete.
The active development portfolio of schemes includes 16 projects
on site at the year end, totalling GBP1,215m gross development
value(4) , with a further 5 projects, with a gross development
value(4) of GBP334m, expected to start on site in 2023.
At the year end, the order book was GBP1,847m, a reduction of
28% on the prior year end and is long-term in nature with over 70%
of its value for 2025 and beyond. As the division's new business
pipeline tends to be large scale schemes which can take a
significant time to bid, any short-term movements in the order book
are not considered to be representative of future workload. No
value is yet taken in the order book for Arden Cross.
The order book retains a diverse regional and sector split:
-- by value, 42% is in the North West, 46% in London and the
South East, 10% in Yorkshire and the North East and 2% in the rest
of the UK: and
-- by sector, 49% by value relates to residential, 29% to
offices, 13% to industrial with the remainder broadly split between
retail and leisure.
Divisional outlook for Urban Regeneration
Based upon the current profile and type of scheme activity
across the portfolio, the average capital employed(1,2) for 2023 is
expected to be cGBP100m.
The medium-term target for Urban Regeneration is to increase its
rolling three-year average ROCE(1,3) up towards 20%. 2022 delivered
a ROCE(1,3) of 20% and a broadly similar performance is expected in
2023.
(1) Before exceptional Building Safety charge of GBP43.4m
(2) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts)
(3) Return On Average Capital Employed = (Adjusted operating
profit plus interest from JVs) divided by average capital
employed
(4) Includes projects delivered through joint ventures at 100%
of the project value to the JV
Group Capital Allocation Framework
The Board's single, overarching principle governing capital
allocation is a commitment to maintain a strong balance sheet and
to hold significant net cash balances at all times.
In support of this principle, the Group's capital allocation
framework comprises:
-- Maintaining balance sheet strength to enhance our competitive advantage and win future work
Fundamental to the Group's organic strategy is engaging in long
term partnerships with its public and private sector clients,
whether it be through joint ventures or other arrangements in its
Regeneration activities, or through frameworks in its Construction
activities.
When assessing the suitability of long-term partners, potential
clients are increasingly looking for security and assurance of
long-term solvency and the availability of cash resources to ensure
their partners can fulfil their long-term contractual obligations.
A strong balance sheet and significant levels of net cash are
considered by the Group as a market differentiator and a
competitive advantage when bidding and winning future work to
support the future growth of the business.
-- Ensuring downside protection - maintaining a 'buffer' in the event of a macro downturn
Maintaining significant levels of net cash is considered as key
to offsetting any potential consequence of a future downturn in the
economy and reduction in revenue in the Construction activities of
Construction & Infrastructure and Fit Out.
These activities operate with a negative working capital model,
which in turn can lead to cash outflows in the event of declines in
revenue. Maintaining a net cash 'buffer' therefore allows the Group
to continue with its strategy of disciplined contract selectivity
and prudent approach to risk management throughout the whole
economic cycle.
-- Maximising investment in the current business to drive growth
As detailed in the Group Strategy section above, the Group's
capabilities are aligned with sectors of the UK economy which are
expected to see increasing opportunities in the medium to long term
and which support the UK's current and future regeneration and
affordable housing needs, as well as being well positioned to meet
the demand for ongoing investment in the UK's physical and social
infrastructure. Consequently, significant opportunities are
expected to arise through the medium and long-term to invest in the
business to support and accelerate the organic growth of these
activities.
Specifically, investment in the regeneration activities is a
strategic priority:
Ø For Partnership Housing, the growth potential remains
substantial. The new and upgraded medium-term target is for an
operating margin of 8% and for return on capital to be up towards
25% on an annual basis. These investment returns are targeted for
its next phase of growth and the scalability of the partnership
housing model provides the potential to significantly increase the
capital employed above current levels over the medium to long
term.
Ø Within Urban Regeneration, its development activities across
multi-phase sites and mixed-use regeneration are targeted to
generate an average return on capital of up to 20% on a three- year
basis over the medium term. Based on the identified pipeline of
future opportunities as well as the investment profile of schemes
already secured, the capital employed in the division is expected
to increase over the medium term.
Within the overall investment programme for the Regeneration
activities, the Group may occasionally identify opportunities to
complement the existing growth strategy by acquiring pre-existing
development schemes or positions in existing schemes from third
parties. Any such acquisition opportunities would only be
considered where they would accelerate the strategic growth through
the Group's existing divisional structure and capabilities.
-- Maintaining an attractive dividend policy
Dividends are considered by the Board to be an important
component of shareholder returns. The Board has formally adopted a
dividend policy such that dividend cover is expected to be in the
range of 2.0x-2.5x on an annual basis.
This capital allocation framework is designed to balance the
needs of all stakeholders whilst enhancing the Group's market
competitiveness and capabilities and maintaining its financial
strength. The Board will prioritise attractive investment
opportunities in the business to support and accelerate growth,
generate the best returns for shareholders and ensure the continued
support of the ordinary dividend. The Board will continue to assess
the needs of the business and the optimum balance sheet structure
within the context of the principle and framework described above,
and any capital then deemed surplus above these requirements may be
returned to shareholders.
Other Financial Information
1. Net finance expense. The net finance expense was GBP3.0m, a
reduction of GBP0.6m compared to FY 2021 and which is broken down
as follows:
FY 2022 FY 2021 Change
GBPm GBPm GBPm
--------------------------------------- ------- ------- ------
Interest income on bank deposits 2.2 - 2.2
Amortisation of bank fees &
non-utilisation fees (2.2) (2.5) 0.3
Interest expense on lease liabilities (1.9) (1.5) (0.4)
Interest from JVs - 0.6 (0.6)
Other (1.1) (0.2) (0.9)
Total net finance expense (3.0) (3.6) 0.6
--------------------------------------- ------- ------- ------
2. Tax. A reported tax charge of GBP24.4m is shown for the year
(FY 2021: GBP28.3m). The adjusted tax charge is GBP27.0m (FY 2021:
GBP23.5m), which equates to an effective tax rate of 19.8% on
adjusted profit before tax.
FY 2022 FY 2021
GBPm GBPm
--------------------------------------------- ------- -------
Profit before tax 85.3 126.2
Less: share of underlying(1) net profit
in joint ventures (14.3) (5.4)
Profit before tax excluding joint ventures 71.0 120.8
Statutory tax rate 19.00% 19.00%
Current tax charge at statutory rate (13.5) (23.0)
Tax on joint venture profits (2) (2.6) (0.7)
Non-deductible portion of exceptional
items (7.0) -
Other non-deductible expenses (2.1) (0.3)
Effect of change in tax rate used to
calculate deferred tax - (5.1)
Residential Property Developer Tax (0.3) -
Prior year adjustments 0.6 1.4
Other adjustments 0.5 (0.6)
Tax charge as reported (24.4) (28.3)
--------------------------------------------- ------- -------
Tax on amortisation (0.4) (0.3)
Tax on exceptional items (2.2) -
Effect of change in tax rate used to
calculate deferred tax - 5.1
Adjusted tax charge (27.0) (23.5)
(1) Underlying net profit of joint ventures excludes the
exceptional building safety charge (GBP9.8m) related to
joint ventures
(2) Most of the Group's joint ventures are partnerships
where profits are taxed within the Group rather than the
joint venture
3. Net working capital. ' Net Working Capital' is defined as
'Inventories plus Trade & Other Receivables (including Contract
Assets), less Trade & Other Payables (including Contract
Liabilities)' adjusted as below.
Change
FY 2022 FY 2021 GBPm
GBPm GBPm
--------------------------- --------- ---------
Inventories 333.9 288.5 +45.4
Trade & Other Receivables
(1) 646.3 559.9 +86.4
Trade & Other Payables(2) (1,070.1) (1,002.0) -68.1
Net working capital (89.9) (153.6) +63.7
--------------------------- --------- --------- -------
(1) Adjusted to exclude capitalised arrangement fees and accrued
interest receivable of GBP1.3m (FY 2021: GBP1.0m)
(2) Adjusted to exclude accrued interest payable of GBP0.6m (FY
2021: GBP0.5m) and JV funding obligation of GBP4.0m (FY 2021:
GBPnil)
4. Cash flow. The o perating cash flow was an inflow of GBP48.0m
(FY 2021: inflow of GBP117.6m). Free cash flow was an inflow of
GBP27.7m (FY 2021: inflow of GBP87.6m).
FY 2022 FY 2021
GBPm GBPm
-------------------------------------- ------- --------
Operating profit - adjusted 139.2 131.3
Depreciation 22.9 20.5
Share option expense 9.7 12.1
Movement in fair value of shared
equity loans (0.4) 1.9
Share of underlying(1) net
profit of joint ventures (14.3) (5.4)
Other operating items (2) (17.6) 31.1
Change in working capital (3) (64.5) (52.7)
Net capital expenditure (including
repayment of finance leases) (28.4) (21.8)
Dividends and interest received
from joint ventures 1.4 0.6
Operating cash flow 48.0 117.6
Income taxes paid (20.3) (28.3)
Net interest paid (non-joint
venture) - (1.7)
Free cash flow 27.7 87.6
-------------------------------------- ------- --------
(1) Underlying net profit of joint ventures excludes the
exceptional building safety charge (GBP9.8m) related to joint
ventures
(2) 'Other operating items' includes shared equity redemptions
(GBP1.5m) and impairments of investments (GBP0.9m) less provision
movements (GBP19.5m) and a gain on disposal of property, plant
& equipment (GBP0.5m)
(3) The cash flow due to change in working capital excludes
non-cash movements relating to the unwinding of discounting on land
creditors (GBP1.2m) and other non-cash creditor movements
5. Net cash. Net cash at the year end was GBP354.6m as a result
of a net cash outflow of GBP3.4m from 1 January 2022.
GBPm
------
Net cash as at 1 January
2022 358.0
Free cash flow (as above) 27.7
Dividends (43.5)
Other(1) 12.4
Net cash as at 31 December
2022 354.6
-------------------------------- ------
(1) 'Other' i ncludes net loan receipts from interests in joint
ventures (GBP16.3m), proceeds from the issue of new shares
(GBP10.2m) and proceeds from the exercise of share options
(GBP1.6m); less the purchase of shares in the Company by the
employee benefit trust (GBP15.7m)
6. Capital employed by strategic activity. An analysis of the
capital employed in the Construction activities shows an increase
of GBP32.2m since the prior year, split as follows:
Capital employed(1) in Construction FY 2022 FY 2021 Change
GBPm GBPm GBPm
-------- --------
Construction & Infrastructure (260.5) (269.4) +8.9
Fit Out (86.8) (86.2) -0.6
Property Services 61.8 37.9 +23.9
------------------------------------- -------- -------- -------
(285.5) (317.7) +32.2
------------------------------------- -------- -------- -------
An analysis of adjusted capital employed(2) in the Regeneration
activities shows an increase of GBP50.1m since the prior year,
split as follows:
Capital employed(1,2) in FY 2022 FY 2021 Change
Regeneration GBPm GBPm GBPm
-------- --------
Partnership Housing 189.3 155.6 +33.7
Urban Regeneration 100.4 84.0 +16.4
289.7 239.6 +50.1
-------- --------
(1) Total assets (excluding goodwill, intangibles, inter-company
financing and cash) less total liabilities (excluding corporation
tax, deferred tax, inter-company financing and overdrafts).
(2) Adjusted to exclude exceptional Building Safety
provisions
7. Exceptional Building Safety charge. Included in the GBP48.9m
total exceptional building safety charge is GBP9.8m that has been
recognised in respect of the Group's share of constructive and
legal obligations to remediate legacy building safety issues within
JVs, and this has been recognised within the Group's share of net
profit of joint ventures. The remaining GBP39.1m charge has been
recognised in cost of sales.
2022 2021
GBPm GBPm
----------------------------------------- ---- ----
Exceptional building safety provisions
recognised 39.1 -
Exceptional building safety charges
within joint ventures 9.8 -
----------------------------------------- ---- ----
Total exceptional building safety charge 48.9 -
----------------------------------------- ---- ----
8. Dividends. The Board of Directors has proposed a final
dividend of 68p per share, an increase of 10% on the prior year.
This will be paid on 18 May 2023 to shareholders on the register at
28 April 2023. The ex-dividend date will be 27 April 2023.
9. Principal risks and uncertainties. The Board continues to
take a proactive approach to recognising and mitigating risk with
the aim of protecting and safeguarding the interests of the Group
and its shareholders in the changing environment in which it
operates.
Details of the principal risks facing the Group and mitigating
actions will be included in the 2022 Annual Report which will be
published on 23 March 2023. These are considered to be relevant
risks and uncertainties for the Group at this time and are
summarised below (in no order of magnitude):
Economic change and uncertainty - Despite economic headwinds, UK
construction continues to benefit from sustained government
investment commitments, as confirmed in the Autumn Statement. This
continues to support the Group's market sectors which remain
structurally secure particularly in regeneration, construction and
infrastructure (primary areas in the UK targeted for growth). In
addition, the Group's diversity of offering and strong balance
sheet protects the business from cyclical changes in individual
markets.
Exposure to UK housing market - The Group's long-term public
sector partnerships models, Government support and UKs housing need
complement our product position. However, headwinds such as
interest rate rises and inflation, mortgage availability and
loan-to-value ratios, have impacted consumer confidence, which
together with continued planning constraints has resulting in a
slowdown of sales. In Regeneration, cost inflation on some schemes
is impacting their potential viability.
Poor contract selection and/or bidding - The quality of the
Group's public and regulated industry sectors should safeguard
future performance, allowing the Group to continue selecting the
right projects. However, in some situations, inflation continues to
stretch customer budgets resulting in preconstruction periods
sometimes taking longer. Within the Group's bids, appropriate
contingency levels are maintained and there also remains the
potential to pass through inflationary costs as arrangements
allow.
Poor project delivery (including changes to contracts and
contract disputes) - Inflationary pressures continue to be a
challenge but largely mitigated via a combination of the Group's
ability to pass through inflation costs in bids and the application
of contingency allowances and contract terms allowing inflation
recovery on live projects. The Group's longstanding relationships
and focus on customer experience should mitigate any significant
issues and disputes should they arise.
Health and safety - Failure to protect the health, safety and
wellbeing of its key stakeholders could damage the Group's
reputation as a responsible employer and affect its ability to
secure future work.
Failure to attract and retain talented people - Talented people
are needed to provide excellence in project delivery and customer
service. Skills shortages in the construction industry remain an
issue for the foreseeable future.
Insolvency of key client, subcontractor, joint venture partner
or supplier - Some partners are likely to be trading with stretched
finances following the pandemic, unwind of government measures to
support business recovery, and the reverse charge VAT initiative.
More recent inflation and interest rate
increases will have place further pressure on balance sheets,
leading to a greater likelihood of failure.
Mismanagement of working capital and investments - Poor
management of working capital and investments leads to insufficient
liquidity and funding problems.
Climate change - Failure to protect the environment in which we
work by reducing carbon emissions and waste and to fully consider
potential environmental risks on projects could cause delays to
projects and damage the Group's reputation.
UK cyber activity and failure to invest in information
technology - Cybercrime continues its prevalence and to counter
this the Group's investment in IT continues to increase in order to
meet the future needs of the business in terms of expected growth,
security, and innovation, and enables its long-term success. It is
also essential to avoid reputational and operational impacts and
loss of data that could result in significant fines and/or
prosecution.
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.
Consolidated income statement
For the year ended 31 December 2022
2022 2021
Notes GBPm GBPm
-------------------------------------- ----- --------- ---------
Revenue 3,612.2 3,212.8
Cost of sales (3,241.3) (2,830.0)
-------------------------------------- ----- --------- ---------
Gross profit 370.9 382.8
-------------------------------------- ----- --------- ---------
Analysed as:
Adjusted Gross profit 410.0 382.8
Exceptional building safety charge 3 (39.1) -
-------------------------------------- ----- --------- ---------
Administrative expenses (287.6) (259.8)
Share of net profit of joint ventures 4.5 5.4
Other operating income 0.5 1.4
-------------------------------------- ----- --------- ---------
Operating profit 88.3 129.8
-------------------------------------- ----- --------- ---------
Analysed as:
Adjusted Operating profit 139.2 131.3
Exceptional building safety charge 3 (48.9) -
Amortisation of intangible assets (2.0) (1.5)
-------------------------------------- ----- --------- ---------
Finance income 2.3 0.6
Finance expense (5.3) (4.2)
-------------------------------------- ----- --------- ---------
Profit before tax 85.3 126.2
-------------------------------------- ----- --------- ---------
Analysed as:
Adjusted Profit before tax 136.2 127.7
Exceptional building safety charge 3 (48.9) -
Amortisation of intangible assets (2.0) (1.5)
-------------------------------------- ----- --------- ---------
Tax 4 (24.4) (28.3)
-------------------------------------- ----- --------- ---------
Profit for the year 60.9 97.9
-------------------------------------- ----- --------- ---------
Attributable to:
Owners of the Company 60.9 97.9
-------------------------------------- ----- --------- ---------
Earnings per share
Basic 6 132.7p 212.4p
Diluted 6 130.4p 204.4p
-------------------------------------- ----- --------- ---------
There were no discontinued operations in either the current or
comparative years.
The Consolidated income statement has been re-presented this
year to give additional analysis of adjusted measures and the
exceptional building safety charge.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
GBPm GBPm
-------------------------------------------- ---- -----
Profit for the year 60.9 97.9
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange movement on translation of
overseas operations 2.1 (0.2)
2.1 (0.2)
-------------------------------------------- ---- -----
Other comprehensive income/(expense) 2.1 (0.2)
-------------------------------------------- ---- -----
Total comprehensive income 63.0 97.7
-------------------------------------------- ---- -----
Attributable to:
Owners of the Company 63.0 97.7
-------------------------------------------- ---- -----
Consolidated statement of financial position
At 31 December 2022
2022 2021
Notes GBPm GBPm
------------------------------------- ----- --------- ---------
Assets
Goodwill and other intangible assets 221.2 221.9
Property, plant and equipment 74.8 66.6
Investment property 0.8 0.8
Investments in joint ventures 7 84.0 94.1
Non-current assets 380.8 383.4
------------------------------------- ----- --------- ---------
Inventories 333.9 288.5
Contract assets 294.6 232.6
Trade and other receivables 8 353.0 328.3
Current tax assets - 4.7
Shared equity loan receivables 0.4 1.5
Cash and cash equivalents 11 431.7 468.6
Current assets 1,413.6 1,324.2
------------------------------------- ----- --------- ---------
Total assets 1,794.4 1,707.6
------------------------------------- ----- --------- ---------
Liabilities
Contract liabilities (74.2) (78.5)
Trade and other payables 9 (963.2) (891.4)
Current tax liabilities (5.6) -
Lease liabilities (16.0) (13.4)
Borrowings 11 (77.1) (110.2)
Provisions 10 (55.1) (33.4)
------------------------------------- ----- --------- ---------
Current liabilities (1,191.2) (1,126.9)
------------------------------------- ----- --------- ---------
Net current assets 222.4 197.3
------------------------------------- ----- --------- ---------
Trade and other payables 9 (37.3) (32.6)
Lease liabilities (40.9) (39.4)
Borrowings 11 - (0.4)
Retirement benefit obligation (0.2) (0.2)
Deferred tax liabilities (6.8) (10.0)
Provisions 10 (21.8) (23.9)
------------------------------------- ----- --------- ---------
Non-current liabilities (107.0) (106.5)
------------------------------------- ----- --------- ---------
Total liabilities (1,298.2) (1,233.4)
------------------------------------- ----- --------- ---------
Net assets 496.2 474.2
------------------------------------- ----- --------- ---------
Equity
Share capital 2.4 2.3
Share premium account 55.9 45.8
Other reserves 1.1 (1.0)
Retained earnings 436.8 427.1
------------------------------------- ----- --------- ---------
Equity attributable to owners of
the Company 496.2 474.2
Total equity 496.2 474.2
------------------------------------- ----- --------- ---------
Consolidated cash flow statement
For the year ended 31 December 2022
2022 2021
Notes GBPm GBPm
--------------------------------------------------------- ----- ------ ------
Operating activities
Operating profit 88.3 129.8
Adjusted for:
Exceptional building safety items 3 48.9 -
Amortisation of intangible assets 2.0 1.5
Underlying share of net profit of equity
accounted joint ventures (14.3) (5.4)
Depreciation 22.9 20.5
Share-based payments 9.7 12.1
Gain on disposal of property, plant and equipment (0.5) (0.5)
Movement in fair value of shared equity loan
receivables (0.4) 1.9
Impairment of investments 0.9 1.2
Proceeds on disposal of investment properties - 1.9
Repayment of shared equity loan receivables 1.5 2.1
(Decrease)/increase in provisions (excluding
exceptional building safety items) 10 (19.5) 26.4
Operating cash inflow before movements in
working capital 139.5 191.5
(Increase)/decrease in inventories (45.4) 5.7
Increase in contract assets (62.0) (60.8)
Increase in receivables (24.4) (94.0)
(Decrease)/increase in contract liabilities (4.3) 22.9
Increase in payables 71.6 73.5
--------------------------------------------------------- ----- ------ ------
Movements in working capital (64.5) (52.7)
--------------------------------------------------------- ----- ------ ------
Cash inflow from operations 75.0 138.8
--------------------------------------------------------- ----- ------ ------
Income taxes paid (20.3) (28.3)
--------------------------------------------------------- ----- ------ ------
Net cash inflow from operating activities 54.7 110.5
--------------------------------------------------------- ----- ------ ------
Investing activities
Interest received 1.8 0.6
Dividends from joint ventures 1.4 -
Proceeds on disposal of property, plant and
equipment 0.6 1.4
Purchases of property, plant and equipment (10.5) (6.7)
Purchases of intangible fixed assets (1.3) (1.3)
Net decrease in loans to joint ventures 16.3 1.5
Net cash inflow/(outflow) from investing
activities 8.3 (4.5)
--------------------------------------------------------- ----- ------ ------
Financing activities
Interest paid (1.8) (1.7)
Dividends paid 5 (43.5) (32.3)
Repayments of lease liabilities (17.2) (15.2)
Repayment of borrowings (0.4) -
Proceeds on issue of share capital 10.2 0.3
Payments by the Trust to acquire shares in
the Company (15.7) (33.6)
Proceeds on exercise of share options 1.6 1.7
--------------------------------------------------------- ----- ------ ------
Net cash outflow from financing activities (66.8) (80.8)
--------------------------------------------------------- ----- ------ ------
Net (decrease)/increase in cash and cash equivalents (3.8) 25.2
Cash and cash equivalents at the beginning
of the year 358.4 333.2
--------------------------------------------------------- ----- ------ ------
Cash and cash equivalents at the end of the
year 11 354.6 358.4
--------------------------------------------------------- ----- ------ ------
Cash and cash equivalents presented in the Consolidated cash
flow statement include bank overdrafts. See note 11 for a reconciliation
to Cash and cash equivalents presented in the Consolidated statement
of financial position.
Consolidated statement of changes in equity
For the year ended 31 December 2022
Share
Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- -------- --------- --------- -------
1 January 2021 2.3 45.5 (0.8) 373.1 420.1
Profit for the year - - - 97.9 97.9
Other comprehensive expense - - (0.2) - (0.2)
--------------------------------------- -------- -------- --------- --------- -------
Total comprehensive (expense)/income - - (0.2) 97.9 97.7
Share-based payments - - - 12.1 12.1
Tax relating to share-based payments - - - 8.2 8.2
Issue of shares at a premium - 0.3 - - 0.3
Exercise of share options - - - 1.7 1.7
Purchase of shares in the Company
by the Trust - - - (33.6) (33.6)
Dividends paid - - - (32.3) (32.3)
--------------------------------------- -------- -------- --------- --------- -------
1 January 2022 2.3 45.8 (1.0) 427.1 474.2
Profit for the year - - - 60.9 60.9
Other comprehensive income - - 2.1 - 2.1
--------------------------------------- -------- -------- --------- --------- -------
Total comprehensive income - - 2.1 60.9 63.0
Share-based payments - - - 9.7 9.7
Tax relating to share-based payments - - - (3.3) (3.3)
Issue of shares at a premium 0.1 10.1 - - 10.2
Purchase of shares in the Company
by the Trust - - - (15.7) (15.7)
Exercise of share options - - - 1.6 1.6
Dividends paid - - - (43.5) (43.5)
--------------------------------------- -------- -------- --------- --------- -------
31 December 2022 2.4 55.9 1.1 436.8 496.2
--------------------------------------- -------- -------- --------- --------- -------
Other reserves
Other reserves include:
-- Capital redemption reserve of GBP0.6m (2021: GBP0.6m) which
was created on the redemption of preference shares in 2003.
-- Hedging reserve of (GBP0.8m) (2021: (GBP0.8m)) arising under
cash flow hedge accounting. Movements on the effective portion of
hedges are recognised through the hedging reserve, while any
ineffectiveness is taken to the income statement.
-- Translation reserve of GBP1.3m (2021: (GBP0.8m)) arising on
the translation of overseas operations into the Group's functional
currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc
purchased in the market and held by the Morgan Sindall Employee
Benefit Trust ('the Trust') to satisfy options under the Company's
share incentive schemes. The number of shares held by the Trust at
31 December 2022 was 1,135,131 (2021: 1,051,664) with a cost of
GBP26.1m (2021: GBP25.3m). All of the shares held by the Trust were
unallocated at the year end and dividends on these shares have been
waived. Based on the Company's share price at 31 December 2022 of
GBP15.30 (2021: GBP25.20), the market value of the shares was
GBP17.4m (2021: GBP26.5m).
Notes to the consolidated financial statements
For the year ended 31 December 2022
1 Basis of preparation
General information
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2022 or
2021 but is derived from those accounts. A copy of the statutory
accounts for 2021 was delivered to the Registrar of Companies and
those for 2022 will be delivered following the Company's annual
general meeting. 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 s498(2) or (3) of the Companies Act 2006.
This preliminary announcement has been prepared solely to assist
shareholders in assessing the strategies of the Board and in
gauging their potential to succeed. It should not be relied on by
any other party or for other purposes. Forward looking statements
have been made by the directors in good faith based on the
information available to them up to the time of their approval of
this preliminary announcement. Such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business factors, underlying any such forward looking
information. Actual future results may differ materially from those
expressed in or implied by these statements.
While the financial information included in this preliminary
announcement was prepared in accordance with the recognition and
measurement criteria of UK adopted International Accounting
Standards ('UK IAS'), this announcement does not itself contain
sufficient information to comply with UK IAS.
The consolidated financial statements will be available in March
2023. A copy will be delivered to the Registrar of Companies
following the Company's annual general meeting.
Further information on the Group, including the slide
presentation document which will be presented at the Group's
results meeting on 23 February 2023, can be found on the Group's
corporate website
www.morgansindall.com.
Going Concern
In determining the appropriate basis of preparation of the
Financial Statements, the directors are required to consider
whether the Group and Company can continue in operational existence
during the going concern period, which the directors have defined
as the date of approval of the 31 December 2022 financial
statements through to 29 February 2024.
As at 31 December 2022, the Group held cash of GBP431.7m,
including GBP38.0m which is the Group's share of cash held within
jointly controlled operations, and total overdrafts repayable on
demand of GBP77.1m (together net cash of GBP354.6m). Should further
funding be required, the Group has significant committed financial
resources available including unutilised bank facilities of
GBP180m, of which GBP165m matures in October 2025 and GBP15m
matures in March 2024. The Group's secured order book at 31
December 2022 is GBP8.5bn (2021: GBP8.6bn), of which GBP3.2bn
relates to the 12 months ended 31 December 2023.
The directors have reviewed the Group's forecasts and
projections for the going concern period, including sensitivity
analysis to assess the Group's resilience to the potential
financial impact on the Group of any plausible losses of revenue or
operating profit which could arise from one of the principal risks
to the business occurring. The analysis also includes a reasonable
worst-case scenario in which the Group's principal risks manifest
in aggregate to a severe but plausible level involving the
aggregation of the impacts of a number of these risks. The
modelling showed that the Group would remain profitable throughout
the going concern period and there is considerable headroom above
lending facilities such that there would be no expected requirement
for the Group to utilise the bank facility, which underpins the
going concern assumption on which these financial statements have
been prepared. As part of the sensitivity analysis the directors
also modelled a scenario that stress tests the Group's forecasts
and projections, to determine the scenario in which the headroom
above the committed bank facility would be exceeded. This model
showed that the Group's operating profit would need to deteriorate
substantially for the headroom to exceed the committed bank
facility. The directors consider there is no plausible scenario
where cash inflows would deteriorate this significantly. However,
as part of their analysis the Board also considered further
mitigating actions at their discretion, such as a reduction in
investments in working capital, to improve the position identified
by the reasonable worst-case scenario. In all scenarios, including
the reasonable worst case, the Group is able to comply with its
financial covenants, operate within its current facilities, and
meet its liabilities as they fall due.
Accordingly, the directors consider there to be no material
uncertainties that may cast significant doubt on the Group's
ability to continue to operate as a going concern. They have formed
a judgement that there is a reasonable expectation that the Group
and Company have adequate resources to continue in operational
existence for the going concern period. For this reason, they
continue to adopt the going concern basis in the preparation of
these Financial Statements. The period from the date of signing of
these Financial Statements to 29 February 2024 has been assessed
following consideration of the budgeting cycles and typical
contract lengths undertaken across the Group.
Changes in accounting policies
There have been no significant changes to accounting policies,
presentation or methods of preparation since the financial
statements for the year ended 31 December 2021.
2 Business segments
For management purposes, the Group is organised into five
operating divisions: Construction & Infrastructure, Fit Out,
Property Services, Partnership Housing and Urban Regeneration, and
this is the structure of segment information reviewed by the Chief
Operating Decision Maker (CODM) and used to assess performance and
allocate resources. The CODM is determined to be the Board of
Directors and reporting provided to the Board is in line with these
five divisions, which have been considered to be the group's
operating segments. Additional information is included in the
Divisional Review related to the Group's Construction and
Infrastructure division where this is considered useful to the
Group's stakeholders.
The five operating divisions' activities are as follows:
-- Construction & Infrastructure: Morgan Sindall
Construction & Infrastructure Ltd focuses on the
education, healthcare, commercial, industrial, leisure and
retail markets in Construction; and
highways, rail, energy, water and nuclear markets in
Infrastructure. Infrastructure also includes the
BakerHicks design activities based out of the UK and
Switzerland.
-- Fit Out: Overbury plc is focused on fit out and refurbishment
in commercial, central and local
government offices, as well as further education; Morgan Lovell
plc provides office interior design
and build services direct to occupiers.
-- Property Services: Morgan Sindall Property Services Limited provides response and planned
maintenance activities for social housing and the wider public
sector.
-- Partnership Housing: Lovell Partnerships Limited is focused
on working in partnerships with local
authorities and housing associations. Activities include
mixed-tenure developments, building and
developing homes for open market sale and for social/affordable
rent, design and build house
contracting and planned maintenance and refurbishment.
-- Urban Regeneration: Muse Places Limited is focused on transforming the urban landscape
through partnership working and the development of multi-phase
sites and mixed-use
regeneration.
Group activities represents costs and income arising from
corporate activities which cannot be
meaningfully allocated to the operating segments. These include
the costs of the Group Board,
treasury management, corporate tax coordination, Group finance
and internal audit, insurance
management, company secretarial services, Group general counsel
services, information technology
services, interest revenue and interest expense.
The Group reports its segmental information as presented
below:
Year ended
31 December
2022
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Construction Fit Property Partnership Urban Group
& Infrastructure Out Services Housing Regeneration Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
External revenue 1,545.4 967.5 163.5 691.8 244.0 - - 3,612.2
Inter-segment
revenue 23.2 - - 4.4 - - (27.6) -
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Total revenue 1,568.6 967.5 163.5 696.2 244.0 - (27.6) 3,612.2
Adjusted
operating
profit/(loss)
(note 15) 52.1 52.2 4.3 37.4 18.9 (25.7) - 139.2
----------------- ----- --------- ----------- ------------- ----------- ------------
Amortisation
of intangible
assets - - (2.0) - - - - (2.0)
Exceptional
operating items - - - (5.5) (43.4) - - (48.9)
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Operating
profit/(loss) 52.1 52.2 2.3 31.9 (24.5) (25.7) - 88.3
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Finance income 2.3
Finance expense (5.3)
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Profit before
tax 85.3
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Other
information:
Depreciation (13.8) (3.1) (1.5) (2.7) (0.9) (0.9) (22.9)
Average number
of employees 4,091 962 949 1,002 93 106 7,203
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Year ended 31
December 2021
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Construction Fit Property Partnership Urban Group
& Infrastructure Out Services Housing Regeneration Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
External revenue 1,509.0 795.3 133.8 572.2 202.5 - - 3,212.8
Inter-segment
revenue 10.6 0.1 - - - - (10.7) -
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Total revenue 1,519.6 795.4 133.8 572.2 202.5 - (10.7) 3,212.8
Adjusted
Operating
profit/(loss)
(note 15) 58.1 44.2 4.1 33.2 12.1 (20.4) - 131.3
----------------- ----- --------- ----------- ------------- ----------- ------------
Amortisation
of intangible
assets - - (1.5) - - - - (1.5)
Operating
profit/(loss) 58.1 44.2 2.6 33.2 12.1 (20.4) - 129.8
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Finance income 0.6
Finance expense (4.2)
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Profit before
tax 126.2
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Other
information:
Depreciation (12.3) (3.0) (1.0) (2.4) (0.8) (1.0) (20.5)
Average number
of employees 3,966 839 786 884 88 103 6,666
----------------- ----------------- ----- --------- ----------- ------------- ----------- ------------ -------
Segment assets and liabilities are not presented as these are
not reported to the CODM.
3 Exceptional building safety charge
2022 2021
Notes GBPm GBPm
----------------------------------------- ----- ---- ----
Exceptional building safety provisions
recognised 10 39.1 -
Exceptional building safety charges
within joint ventures 7 9.8 -
----------------------------------------- ----- ---- ----
Total exceptional building safety charge 48.9 -
----------------------------------------- ----- ---- ----
During 2022 the Partnership Housing division signed the
Developers Pledge (the "Pledge") with the Department of Levelling
Up, Housing and Communities ("DLUHC") setting out the principles
under which life critical fire-safety issues on buildings that they
have developed of 11 meters and above are to be remediated. A
letter was also received in July 2022 from DLUHC requesting
information to assess whether it may be appropriate for Urban
Regeneration to also commit to the principles of the Pledge as part
of its commitment to support the remediation of historic cladding
and fire safety defects over and above its obligations under the
new Building Safety Act.
The final-form legal contract was issued in January 2023 and
both Partnership Housing and Urban Regeneration have confirmed in
writing to DLUHC their intention to sign and execute the contract
on or before the stipulated date of 13 March 2023.
A comprehensive review has been completed during the year to
identify legal and constructive obligations related to the Pledge,
including reimbursement of grants provided by the Building Safety
Fund (the "BSF"). As a result of this review, and the obligations
arising as a result of the Pledge, provisions were recognised
totaling GBP48.9m and these have been presented as exceptional
charges due to their materiality and irregular nature.
Included in the GBP48.9m total exceptional building safety
charge is GBP9.8m that has been recognised in respect of the
Group's share of constructive and legal obligations to remediate
legacy building safety issues within JVs, and this has been
recognised within the Group's share of net profit of joint
ventures. The remaining GBP39.1m charge has been recognised in cost
of sales.
4 Tax
Tax expense for the year
------------------------------------- ----- -----
2022 2021
GBPm GBPm
------------------------------------- ----- -----
Current tax:
Current year 25.0 22.9
Adjustment in respect of prior years 8.5 (0.3)
-------------------------------------- ----- -----
33.5 22.6
------------------------------------- ----- -----
Deferred tax:
Current year - 1.7
Effect of change in tax rate used to
calculate deferred tax balances - 5.1
Adjustment in respect of prior years (9.1) (1.1)
-------------------------------------- ----- -----
(9.1) 5.7
------------------------------------- ----- -----
Tax expense for the year 24.4 28.3
-------------------------------------- ----- -----
Corporation tax is calculated at 19.00% (2021: 19.00%) of the
estimated taxable profit for the year.
The table below reconciles the tax charge for the year to tax at
the UK statutory rate:
Notes 2022 2021
GBPm GBPm
-------------------------------------------- ----- ------ ------
Profit before tax 85.3 126.2
Less: underlying post tax share of
profits from joint ventures 7 (14.3) (5.4)
-------------------------------------------- ----- ------ ------
71.0 120.8
UK corporation tax rate 19.00% 19.00%
Income tax expense at UK corporation
tax rate 13.5 23.0
Tax effect of:
Adjustments in respect of prior years:
Change to tax base cost of goodwill (1.1) -
Other 0.5 (1.4)
Expenses for which no tax relief is
recognised:
Proportion of exceptional items 7.0 -
Proportion of share-based payments 1.6 -
Other non-deductible expenses 0.5 0.3
Tax liability upon joint venture profits(1) 2.6 0.7
Residential property developer tax 0.3 -
Change in tax rate used to calculate
deferred tax balances - 5.1
Other (0.5) 0.6
-------------------------------------------- ----- ------ ------
Tax expense for the year 24.4 28.3
-------------------------------------------- ----- ------ ------
(1) Certain of the Group's joint ventures are partnerships for
which profits are taxed within the Group rather than within the
joint venture.
5 Dividends
Amounts recognised as distributions to equity
holders in the year:
------------------------------------------------ ---- ----
2022 2021
GBPm GBPm
------------------------------------------------ ---- ----
Final dividend for the year ended 31 December
2021 of 62.0p per share 28.3 -
Final dividend for the year ended 31 December
2020 of 40.0p per share - 18.5
Interim dividend for the year ended 31 December
2022 of 33.0p per share 15.2 -
Interim dividend for the year ended 31 December
2021 of 30.0p per share - 13.8
------------------------------------------------ ---- ----
43.5 32.3
------------------------------------------------ ---- ----
The proposed final dividend for the year ended 31 December 2022
of 68.0p per share is subject to approval by shareholders at the
AGM and has not been included as a liability in these financial
statements.
6 Earnings per share
2022 2021
GBPm GBPm
------------------------------------------------- ------------------ ------------------
Profit attributable to the owners of the
Company 60.9 97.9
Adjustments:
Exceptional operating items net of tax 46.7 -
Amortisation of intangible assets net
of tax 1.6 1.2
Deferred tax charge arising due to change
in UK corporation tax rates - 5.1
-------------------------------------------------- ------------------ ------------------
Adjusted earnings 109.2 104.2
-------------------------------------------------- ------------------ ------------------
2022 2021
Number of Number of
shares (millions) shares (millions)
------------------------------------------------- ------------------ ------------------
Basic weighted average number of ordinary
shares 45.9 46.1
Dilutive effect of share options and conditional
shares not vested 0.8 1.8
-------------------------------------------------- ------------------ ------------------
Diluted weighted average number of ordinary
shares 46.7 47.9
-------------------------------------------------- ------------------ ------------------
Basic earnings per share 132.7p 212.4p
Diluted earnings per share 130.4p 204.4p
Adjusted earnings per share 237.9p 226.0p
Diluted adjusted earnings per share 233.8p 217.5p
-------------------------------------------------- ------------------ ------------------
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
year. The average share price for the year was GBP19.12 (2021:
GBP21.39).
A total of 681,571 share options that could potentially dilute
earnings per share in the future were excluded from the above
calculations because they were anti-dilutive at 31 December 2022
(2021: 865,271).
7 Investments in joint ventures
Investments in equity accounted joint ventures are as
follows:
2022 2021
Notes GBPm GBPm
---------------------------------------- ----- ------ ------
1 January 94.1 91.4
Equity accounted share of net profits:
Underlying share of net profits 14.3 5.4
Exceptional building safety charge 3 (9.8) -
------ ------
4.5 5.4
Loans advanced to joint ventures 18.3 28.1
Loans repaid by joint ventures (34.6) (29.6)
Non-cash impairment (0.9) (1.2)
Dividends received (1.4) -
Reclassification to funding obligations
payable 9 4.0 -
---------------------------------------- ----- ------ ------
31 December 84.0 94.1
---------------------------------------- ----- ------ ------
During 2022, an exceptional building safety charge of GBP9.8m
has been recognised in respect of the Group's share of constructive
and legal obligations to remediate legacy building safety issues
within joint ventures. These obligations create potential funding
obligations within joint ventures of GBP4.0m where the obligations
recognised are in excess of the carrying values of investments.
These funding obligations have been presented in amounts owed to
joint ventures in note 9.
8 Trade and other receivables
2022 2021
GBPm GBPm
------------------------------------ ----- -----
Amounts falling due within one year
Trade receivables 243.6 200.3
Amounts owed by joint ventures 9.2 13.5
Prepayments 13.0 13.2
Insurance receivables 4.8 30.4
Other receivables 36.0 21.0
------------------------------------- ----- -----
306.6 278.4
------------------------------------ ----- -----
Amounts falling due after more than
one year
Trade receivables 46.4 49.9
------------------------------------- ----- -----
46.4 49.9
------------------------------------ ----- -----
Trade and other receivables 353.0 328.3
------------------------------------- ----- -----
The Group holds third party insurances that may mitigate the
contract and legal liabilities described in note 10 - Provisions
and note 13 - Contingent liabilities. Insurance receivables are
recognised when reimbursement from insurers is virtually
certain.
9 Trade and other payables
2022 2021
GBPm GBPm
------------------------------- ----- -----
Trade payables 165.4 157.6
Amounts owed to joint ventures 4.2 0.2
Other tax and social security 107.0 107.5
Accrued expenses 637.7 602.7
Deferred income 5.8 8.9
Land creditors 30.8 8.9
Other payables 12.3 5.6
-------------------------------- ----- -----
Current 963.2 891.4
-------------------------------- ----- -----
Land creditors 30.9 32.6
Other payables 6.4 -
-------------------------------- ----- -----
Non-current 37.3 32.6
-------------------------------- ----- -----
10 Provisions
Building Contract
Safety Self-insurance & legal Other Total
GBPm GBPm GBPm GBPm
------------------ -------- -------------- -------- ----- ------
1 January 2021 - 22.8 - 8.1 30.9
Utilised - (1.6) - (5.0) (6.6)
Additions - 4.5 22.7 0.2 27.4
Reclassifications - - 10.7 - 10.7
Released - (4.5) - (0.6) (5.1)
------------------ -------- -------------- -------- ----- ------
1 January 2022 - 21.2 33.4 2.7 57.3
Utilised (0.8) (1.0) (6.5) (0.2) (8.5)
Additions 39.1 4.0 13.2 1.3 57.6
Released - (4.4) (24.4) (0.7) (29.5)
------------------ -------- -------------- -------- ----- ------
31 December
2022 38.3 19.8 15.7 3.1 76.9
------------------ -------- -------------- -------- ----- ------
Current 38.3 - 15.7 1.1 55.1
Non-current - 19.8 - 2.0 21.8
------------------ -------- -------------- -------- ----- ------
31 December
2022 38.3 19.8 15.7 3.1 76.9
------------------ -------- -------------- -------- ----- ------
Building Safety provisions
During 2022 the Partnership Housing division signed the
Developers Pledge (the "Pledge") with the Department of Levelling
Up, Housing and Communities ("DLUHC") setting out the principles
under which life critical fire-safety issues on buildings that they
have developed of 11 meters and above are to be remediated. A
letter was also received from DLUHC requesting information to
assess whether it may be appropriate for Urban Regeneration to also
commit to the principles of the Pledge as part of its commitment to
support the remediation of historic cladding and fire safety
defects over and above its obligations under the new Building
Safety Act.
The final-form legal contract was issued in January 2023 and
both Partnership Housing and Urban Regeneration have confirmed in
writing to DLUHC their intention to sign and execute the contract
on or before the stipulated date of 13 March 2023.
Management have reviewed legal and constructive obligations with
regard to remedial work to rectify legacy building safety issues.
Where obligations exist, these have been evaluated for the likely
cost to address, including repayments of the Building Safety Fund.
As a result of this review provisions were recognised, excluding
those recognised in joint ventures, totalling GBP39.1m, of which
GBP0.8m has been utilised during the period.
Self-insurance provisions
Self-insurance provisions comprise the Group's self-insurance of
certain risks and include GBP11.1m (2021: GBP10.8m) held in the
Group's captive insurance company, Newman Insurance Company Limited
(the "Captive").
The Group makes provisions in respect of specific types of
claims incurred but not reported (IBNR). The valuation of IBNR
considers past claims experience and the risk profile of the Group.
These are reviewed periodically and are intended to provide a best
estimate of the most likely or expected outcome.
Contract and legal provisions
Contract and legal provisions include liabilities, loss
provisions, defect and warranty provisions on contracts that have
reached completion.
The Group also holds third party insurances that may mitigate
the liabilities. Third party insurance reimbursement is recognised
as a separate asset, but only when the reimbursement is virtually
certain. See note 8 for details of mitigating insurance receivables
recognised at the period end.
Other provisions
Other provisions include property dilapidations and other
personnel related provisions.
The majority of the provisions are expected to be utilised
within 10 years.
11 Net cash
Net cash is defined as cash and cash equivalents less borrowings
and non-recourse project financing as shown below:
2022 2021
GBPm GBPm
----------------------------------------- ------ -------
Cash and cash equivalents 431.7 468.6
Bank overdrafts presented as borrowings
due within one year (77.1) (110.2)
------------------------------------------ ------ -------
Cash and cash equivalents reported
in the Consolidated cash flow statement 354.6 358.4
Borrowings due between two and five
years - (0.4)
Net cash 354.6 358.0
------------------------------------------ ------ -------
Included within cash and cash equivalents is GBP38.0m (2021:
GBP55.7m) which is the Group's share of cash held within jointly
controlled operations. There is GBP11.1m included within cash and
cash equivalents that is held for future payment to designated
suppliers (2021: GBP6.4m).
The Group has GBP180m of committed loan facilities maturing more
than one year from the balance sheet date, of which GBP15m matures
in March 2024 and GBP165m in October 2025. These facilities are
undrawn at 31 December 2022.
12 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. During the year, Group companies entered
into transactions to provide construction and property development
services with related parties, all of which were joint ventures,
not members of the Group, amounting to GBP105.0m (2021: GBP124.0m).
At 31 December 2022, amounts owed to the Group by joint ventures
was GBP9.2m (2021: GBP13.5m) and amounts owed by the Group to joint
ventures was GBP4.2m (2021: GBP0.2m) including joint venture
funding obligations.
Remuneration of key management personnel
The Group considers key management personnel to be the members
of the group management team, and sets out below in aggregate,
remuneration for each of the categories specified in IAS 24
'Related Party Disclosures'.
2022 2021
GBPm GBPm
----------------------------- ---- ----
Short-term employee benefits 9.8 10.3
Post-employment benefits 0.1 0.1
Share-based payments 4.4 4.9
------------------------------ ---- ----
14.3 15.3
----------------------------- ---- ----
Directors' transactions
There have been no related party transactions with any director
in the year or in the subsequent period to 23 February 2023.
Directors' material interests in contracts with the Company
No director held any material interest in any contract with the
Company or any Group company in the year or in the subsequent
period to 23 February 2023.
13 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. As at 31 December 2022, contract bonds in issue under
uncommitted facilities covered GBP148.3m of contract commitments of
the Group, of which GBP25.7m related to joint arrangements and
GBP0.1m relates to joint ventures (2021: GBP137.2m, of which
GBP25.6m related to joint arrangements and GBP0.6m related to joint
ventures).
Contingent liabilities may also arise in respect of
subcontractor and other third party claims made against the Group,
in the normal course of trading. These claims can include those
relating to cladding/legacy fire safety matters, and defects. A
provision for such claims is only recognised to the extent that the
directors believe that the Group has a legal or constructive
obligation as a result of a past event and it is probable that an
outflow of economic benefit will be required to settle the
obligation. However, such claims are predominantly covered by the
Group's insurance arrangements. Recoveries under insurance
arrangements are recognised as insurance receivables when they are
considered virtually certain.
Building Safety
At 31 December 2022, the Group held provisions totalling
GBP48.1m, including those related to joint ventures, in respect of
liabilities arising from commitments made under the Pledge. This
represents managements best estimate of the cost and timing of
remedial works required and repayments to the Building Safety
Fund.
The ongoing legislative and regulatory changes in respect of
legacy building safety issues create uncertainty around the extent
of remediation required for legacy buildings, the liability for
such remediation, recoveries from other parties and the time to be
considered. It is possible that as remediation work proceeds,
additional remedial works are required that may not have been
identified from the reviews and physical inspections undertaken to
date. The scope of buildings and remediation works to be considered
may also change as legislation and regulations continue to
evolve.
Uncertainties also exist in respect of the timing and extent of
expected recoveries from other third parties involved in
developments for which no assets have been recognised at 31
December 2022.
14 Subsequent events
There were no subsequent events that affected the financial
statements of the Group.
15 Adjusted Performance Measures
In addition to monitoring and reviewing the financial
performance of the operating segments and the Group on a statutory
basis, management also use adjusted performance measures which are
also disclosed in the Annual Report. These measures are not an
alternative or substitute to statutory IFRS measures but are seen
by management as useful in assessing the performance of the
business on a comparable basis. These financial measures are also
aligned to the measures used internally to assess business
performance in the Group's budgeting process and when determining
compensation. The Group also uses other non-statutory measures
which cannot be derived directly from the financial statements.
There are four alternative performance measures used by management
and disclosure in the Annual Report which are:
'Adjusted' In all cases the term 'adjusted' excludes the impact
of intangible amortisation and exceptional items. This is used to
improve the comparability of information between reporting periods
to aid the use of the Annual Report in understanding the activities
across the Group's portfolio.
Below is a reconciliation between the reported Gross profit,
Operating profit and Profit before tax measures on a statutory
basis and the adjustment made to calculate Adjusted Gross profit,
Adjusted Operating profit and Adjusted Profit before tax.
Adjusted basic earnings per share and adjusted diluted earnings
per share is the statutory measure excluding the post-tax impact of
intangible amortisation and exceptional items, and the deferred tax
charge arising due to changes in UK corporation tax rates. See note
6 for a detailed reconciliation of the adjusted EPS measures.
Operating Profit before
Gross profit profit tax
--------------------------------- -------------- ------------ ---------------
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ----- ----- ----- ------- ------
Reported 370.9 382.8 88.3 129.8 85.3 126.2
Add back: exceptional building
safety charge(1) 39.1 - 48.9 - 48.9 -
Add back: amortisation
of intangible assets - - 2.0 1.5 2.0 1.5
---------------------------------- ------- ----- ----- ----- ------- ------
Adjusted 410.0 382.8 139.2 131.3 136.2 127.7
---------------------------------- ------- ----- ----- ----- ------- ------
(1) The exceptional building safety charge includes items
recognised in Cost of sales (GBP39.1m) and Share of net profit
of joint ventures (GBP9.8m) (See note 3).
'Net cash' Net cash is defined as cash and cash equivalents less
borrowings and non-recourse project financing. Lease liabilities
are not deducted from net cash. A reconciliation of this number at
the reporting date can be found in note 11. In addition, management
monitor and review average daily net cash as good discipline in
managing capital. Average daily net cash is defined as the average
of the 365 end of day balances of the net cash over the course of a
reporting period.
'Operating cash flow' Management use an adjusted measure for
operating cash flow as it encompasses other cashflows that are key
to the ongoing operations of the Group such as repayments of lease
liabilities, investment in property, plant and equipment,
investment in intangible assets, and returns from equity accounted
joint ventures. Operating cash flow can be derived from the cash
inflow from operations reported in the consolidated cash flow
statement as shown below.
Operating cash flow conversion is operating cash flow divided by
adjusted operating profit as defined above.
2022 2021
GBPm GBPm
------------------------------------------- ------ ------
Cash inflow from operations - Reported 75.0 138.8
Interest received from joint ventures - 0.6
Dividends from joint ventures 1.4 -
Proceeds on disposal of property, plant
and equipment 0.6 1.4
Purchases of property, plant and equipment (10.5) (6.7)
Purchases of intangible fixed assets (1.3) (1.3)
Repayments of lease liabilities (17.2) (15.2)
-------------------------------------------- ------ ------
Operating cash flow 48.0 117.6
-------------------------------------------- ------ ------
'Return on capital employed' Management use return on capital
employed (ROCE) in assessing the performance and efficient use of
capital within the Regeneration activities. ROCE is calculated as
adjusted operating profit plus interest received from joint
ventures divided by adjusted average capital employed. Adjusted
average capital employed is the 12-month average of total assets
(excluding goodwill, other intangible assets and cash) less total
liabilities (excluding corporation tax, deferred tax, intercompany
financing, overdrafts and exceptional building safety items).
We confirm to the best of our knowledge:
1. The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
2. The strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties they face; and
3. The annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
The contents of this announcement, including the responsibility
statement above, have been extracted from the annual report and
accounts for the year ended 31 December 2022 which will be
available on publication at http://www.morgansindall.com .
Accordingly, this responsibility statement makes reference to the
financial statements of the Company and the Group and to the
relevant narrative appearing in that annual report and accounts
rather than the contents of this announcement.
This responsibility statement was approved by the Board on 23
February 2023 and is signed on its behalf by:
John Morgan Steve Crummett
Chief Executive Finance Director
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END
FR UOVARONUUURR
(END) Dow Jones Newswires
February 23, 2023 02:00 ET (07:00 GMT)
Grafico Azioni Morgan Sindall (AQSE:MGNS.GB)
Storico
Da Dic 2024 a Gen 2025
Grafico Azioni Morgan Sindall (AQSE:MGNS.GB)
Storico
Da Gen 2024 a Gen 2025
