REG - Morgan Sindall Grp - Half-year Report
04/08/2022 07:00
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RNS Number : 8487U Morgan Sindall Group PLC 04 August 2022
4 August 2022
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
This announcement contains information that qualified, or may have qualified,
as inside information for the purposes of Article 17 of the Market Abuse
Regulations (EU) 596/2014 (MAR). The person responsible for making this
announcement is Steve Crummett, Finance Director.
RESULTS FOR THE HALF YEAR (HY) ENDED 30 JUNE 2022
( ) HY 2022 HY 2021 Change
( )Revenue £1,698m £1,559m +9%
( )Operating profit - adjusted(1) £56.9m £54.8m +4%
( )Profit before tax - adjusted(1) £54.6m £53.1m +3%
( )Earnings per share - adjusted(1) 95.8p 93.1p +3%
( )Period end net cash £274m £337m -£63m
Interim dividend per share 33.0p 30.0p +10%
( ) ( ) ( ) ( )
Operating profit - reported £56.0m £54.1m +4%
Profit before tax - reported £53.7m £52.4m +2%
Basic earnings per share - reported 94.3p 87.6p +8%
(1 )'Adjusted' is defined as before intangible amortisation of £0.9m
(HY 2021: before intangible amortisation of £0.7m and deferred tax charge
for future changes in tax rates of £1.9m)
HY 2022 summary:
· Record performance for the Group despite market headwinds
o Revenue up 9% to £1.7bn
o Adjusted profit before tax up 3% to £54.6m
o Full year performance expected to be slightly above previous expectations
( )
· Continued balance sheet strength
o Net cash of £274m (HY 2021: £337m)
o Average daily net cash of £264m (HY 2021: £294m)
· High quality order book with secured workload of £8.5bn
o Up 2% on prior year (HY 2021: £8.3bn); down 1% on year end (FY 2021:
£8.6bn)
· Interim dividend up 10% to 33.0p per share (HY 2021: 30.0p)
· Divisional highlights
o Further margin improvement in Construction & Infrastructure; operating
margin up to 3.2% (HY 2021: 2.9%), with operating profit up 7% to £24.1m (HY
2021: £22.6m)
o Another excellent performance from Fit Out; operating profit up 10% to
£21.2m (HY 2021: £19.3m)
o Property Services' operating profit(1) up 4% to £2.5m (HY 2021: £2.4m)
o Further good progress in Partnership Housing with operating profit up 15% to
£13.9m (HY 2021: £12.1m) and operating margin up to 4.9% (HY 2021: 4.5%)
o Long-term regeneration schemes progressing in Urban Regeneration with
operating profit of £7.3m (HY 2021: £8.7m)
Commenting on today's results, Chief Executive, John Morgan said:
"We've had a record first half of the year and these results reinforce the
significant strategic and operational progress we have made over the past few
years. Whilst early days, this is a good start towards our medium-term targets
outlined in February.
With the more challenging economic backdrop, our strong balance sheet
including a substantial net cash position is critical to operating efficiently
and effectively. It allows us to continue making the right decisions and to
best position us in our markets, giving us competitive advantage for continued
sustainable long-term growth.
Our market positions and disciplined approach to contract selection continues
to drive positive momentum across the Group. Our order book is substantial and
of high quality. Following our strong first half performance and with the
current visibility we have of the rest of the year, we now expect to deliver a
result for the full year which is slightly ahead of our previous
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
(http://www.morgansindall.com)
· Today's presentation will be available via live webcast from 09.00am
at www.morgansindall.com. The 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 £3.2bn, 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 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.
Through its Construction & Infrastructure division, the Group is also well
positioned to meet the demand for ongoing investment in the UK's
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
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').
The targets relate to revenue, operating margin, return on capital employed
and/or profit and are referred to in the Divisional review.
The medium-term targets are shown in the table below and were first published
on 24 February 2022.
Division Medium-term target
Construction Operating margin of between 2.5% and 3% per annum,
revenue of £1bn
Infrastructure
Operating margin of between 3.5% and 4% per annum,
revenue of £1bn
Fit Out Average annual operating profit through the cycle of £40m-£45m
Property Operating profit of £15m
Services
Partnership Housing Operating margin of 8% / return on capital up towards 25%
Urban Regeneration 3-year rolling average return on capital up towards 20%
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, but 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 £0.9m (HY 2021: before intangible amortisation of £0.7m and
(in the case of earnings per share) a deferred tax charge for future changes
in tax rates of £1.9m).
Group operating review
Summary Group financial results
The Group delivered a record performance in the first half against a difficult
market backdrop, with Group revenue increasing by 9% up to £1,698m (HY 2021:
£1,559m), while adjusted operating profit increased 4% to £56.9m (HY 2021:
£54.8m). Operating margin was 3.4%, 10bps lower than the prior year period
(HY 2021: 3.5%).
The net finance expense increased to £2.3m (HY 2021: £1.7m) resulting in
adjusted profit before tax of £54.6m, up 3% (HY 2021: £53.1m). The statutory
profit before tax was £53.7m, an increase of 2% (HY 2021: £52.4m).
The adjusted tax charge for the period was £10.9m (statutory tax charge of
£10.7m), an effective rate of 20%. The tax charge is based upon the expected
effective tax rate for the full year and includes the impact of the
Residential Property Developer Tax which became effective on 1 April 2022.
The adjusted earnings per share increased 3% to 95.8p (HY 2021: 93.1p), with
the statutory basic earnings per share of 94.3p, up 8% (HY 2021: 87.6p).
General market conditions
Across the Group, inflationary pressures and supply issues have remained a
significant headwind throughout the period. Rising energy prices, supply
constraints on certain materials and increased trade and labour costs have
continued to drive upward pressure on total build costs, which in turn is
placing increased strain on the stability of the supply chain. This is
expected to continue through the second half and beyond.
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.
In Urban Regeneration, construction cost inflation has also provided
additional challenges to the returns on some of its active developments and on
the viability of some of its schemes being evaluated prior to commencement.
Divisional performances
On a divisional basis, Construction & Infrastructure further improved its
operating margin to 3.2% (HY 2021: 2.9%) by continuing its disciplined focus
on operational delivery and contract selectivity. Its operating profit of
£24.1m was an increase of 7% (HY 2021: £22.6m), with revenue slightly lower
at £764m (HY 2021: £774m). Fit Out delivered another excellent performance,
with revenue and profit both increasing. Revenue grew 20% to £457m, while
profit increased by 10% to £21.2m at a margin of 4.6% (HY 2021: 5.1%).
Property Services also increased its profit, up 4% to £2.5m (HY 2021:
£2.4m), with revenue up 10% to £76m (HY 2021: £69m) and a margin of 3.3%
(HY 2021: 3.5%).
Of the Group's regeneration divisions, Partnership Housing performed well,
with operating profit increasing by 15% to £13.9m (HY 2021: £12.1m) on
revenue of £284m, up 5% (HY 2021: £270m). Its operating margin increased
40bps to 4.9% (HY 2021: 4.5%). Urban Regeneration progressed as planned with
its development portfolio, delivering an operating profit of £7.3m (HY 2021:
£8.7m), after charging £7.0m in relation to building safety (see section
below).
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 £8,519m, up 2% on the
same time last year (HY 2021: £8,324m) and 1% lower than at the year-end
position (FY 2021: £8,614m).
Payment practices
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. Particularly in the current inflationary environment,
strong supply chain relationships can provide a competitive advantage and
support superior operational delivery.
For the formal Payment Practices Reporting period of 1 January 2022 to 30 June
2022, Construction & Infrastructure, the largest operating division by
revenue, reported 26 days on average to pay invoices, with 99% of its invoices
paid within 60 days. Fit Out reported its average time taken to pay invoices
at 27 days, with 96% of invoices paid within 60 days, while Property Services
reported an average of 41 days to pay invoices, with 97% of invoices paid
within 60 days. Partnership Housing reported 32 days as its average time to
pay, with 96% of its invoices paid within 60 days.
Balance sheet & cash
Operating cash for the period was an outflow of £40.4m (HY 2021: inflow of
£44.1m). Operating cash for the last 12 months was an inflow of £33.1m.
Net cash at the period end was £274m, a reduction of £63m on the prior year
(HY 2021: £337m). Of this total, £54m was held in jointly controlled
operations or held for future payment to designated suppliers (JVs/PBAs).
The average daily net cash for the period was £264m (including £67m in
JVs/PBAs) compared to £294m in the prior year period.
Looking ahead, based upon the current anticipated cash movements over the rest
of the year, the Group expects that the average daily net cash for the full
year will be slightly lower than that reported for the first half.
Building Safety
The new Building Safety Act received Royal Assent on 28 April 2022.
The main implication for the Group is the extension to the limitation period
for bringing claims relating to construction under the Defective Premises Act
to a retrospective 30-year period. Partnership Housing and Urban
Regeneration are the divisions in the Group most directly impacted by this new
legislation.
In addition, following the announcement by the Secretary of State for the
Department of Levelling Up, Housing and Communities ("DLUHC") on Building
Safety on 10 January and following the subsequent discussions coordinated by
the Home Builders Federation ("HBF") acting on behalf of its members,
Partnership Housing signed the Developer Pledge Letter ("the Pledge") on 4
April 2022 which sets out the principles under which life-critical fire-safety
issues on buildings that they have developed of 11 metres and above are to be
remediated. The requirements under the final contract formalising the
commitment with the Government are still being finalised through coordination
with the HBF.
The costs arising across the Group in relation to general fire safety and the
provisions of the new Building Safety Act have been charged through trading
results of the relevant division in the ordinary course of business. These
costs are not expected to be material to the Group and will likely span a
number of years.
In Urban Regeneration, a comprehensive review of historic developments
covering the extended limitation period under the new Building Safety Act and
any potential liabilities arising therefrom is ongoing. In the Half Year, a
provision of £7.0m has been charged through its operating results in the
ordinary course to cover the liabilities identified to date.
The discussions referred to above between DLUHC and HBF regarding the Pledge
were restricted to a specific market sector and included only Partnership
Housing from within the Group. Subsequent to the period end, on 18 July 2022 a
letter was received from DLUHC as part of its next wave of negotiations with
industry extending its reach to other developers, requesting that Urban
Regeneration 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.
One of the significant differences in respect of the Pledge over and above the
obligations of the Building Safety Act is the requirement for the
reimbursement of amounts provided by the Building Safety Fund ("BSF") on
developments where such claims had already been made and were being/had been
rectified.
In addition is the requirement to identify buildings that are proposed to be
remediated with funds from BSF and take over, fund and complete these works as
quickly as possible.
In most cases for Urban Regeneration (as is usual for a mixed-use developer),
contractual coverage and other remedies to recover such costs are in place.
However, because income from these other third parties cannot be recognised
until it is virtually certain to be received, it is expected that the expense
of reimbursing the BSF or of funding works which would be proposed to be
remediated by the BSF will be required to be recognised in an earlier period
than the income recovering these costs. On this basis and although the review
remains ongoing, the initial assessment of the charge to the Group should
Urban Regeneration also take on the obligations of the principles of the
Pledge, is in the range of £40m-£50m.
In this event, due to the nature and materiality of this item, it is intended
that the expenses related to the Pledge for both Urban Regeneration and
Partnership Housing would be shown separately as an exceptional 'Developer's
Pledge' provision/expense and adjusted for when reporting the Group's adjusted
(underlying) trading performance.
Subsequent income received for recoveries from third parties would similarly
be presented separately as exceptional 'Developer's Pledge' income.
Dividend
The interim dividend has been increased by 10% to 33.0p per share (HY 2021:
30.0p). This reflects the increase in profit in the period, the strong
balance sheet and the Board's confidence in the future prospects of the Group.
Outlook
Following the Group's strong first half performance and with the current
visibility there is of the rest of the year, the Group now expects to deliver
a result for the full year which is slightly ahead of its previous
expectations.
Divisional Review
The following Divisional Review is given on an adjusted basis, unless
otherwise stated. Refer to Note 3 of the consolidated financial statements for
appropriate reconciliations to the comparable UK IAS measures.
Headline results by business segment (vs HY 2021)
Revenue Operating Profit Operating Margin
£m Change £m Change % Change
Construction & Infrastructure 764 -1% 24.1 +7% 3.2% +30bps
Fit Out 457 +20% 21.2 +10% 4.6% -50bps
Property Services 76 +10% 2.5 +4% 3.3% -20bps
Partnership Housing 284 +5% 13.9 +15% 4.9% +40bps
Urban Regeneration 126 +85% 7.3 -16% n/a n/a
Group/Eliminations (9) (12.1)
Total 1,698 +9% 56.9 +4% 3.4% -10bps
Group secured workload(1) by division
The Group's secured workload(1) at 30 June 2022 was £8,519m, up 2% compared
to the prior year and 1% lower than at the year end. The divisional split is
shown below.
HY 2022 HY 2021 Change FY 2021 Change
£m £m £m
Construction & Infrastructure 2,535 2,542 - 2,715 -7%
Fit Out 869 581 +50% 897 -3%
Property Services 1,279 973 +31% 945 +35%
'Construction' secured order book(2) 4,683 4,096 +14% 4,557 +3%
Partnership Housing 1,633 1,478 +10% 1,498 +9%
Urban Regeneration 2,235 2,759 -19% 2,574 -13%
'Regeneration' secured order book(2) 3,868 4,237 -9% 4,072 -5%
Inter-divisional eliminations (32) (9) (15)
Group secured workload(1) 8,519 8,324 +2% 8,614 -1%
(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
HY 2022 HY 2021 Change
£m £m
Revenue 764 774 -1%
Operating profit 24.1 22.6 +7%
Operating margin 3.2% 2.9% +30bps
Although revenue reduced slightly to £764m (HY 2021: £774m), operating
profit increased 7% to £24.1m (HY 2021: £22.6m). Operating margin improved
to 3.2%, up 30bps (HY 2021: 2.9%), driven by the division's continuing
disciplined focus on operational delivery and contract selectivity. Both the
Construction and Infrastructure (including Design)(1) activities improved
their respective margins.
Split by activity, Construction revenue increased 16% to £392m (HY 2021:
£339m) and accounted for 51% of divisional revenue. Infrastructure revenue
(49% of divisional revenue) reduced 14% to £372m (HY 2021: £435m) as
expected primarily due to the timing and nature of its project workload.
Construction's operating margin for the period was 2.9%, up 50bps from 2.4% in
the prior year period, with operating profit of £11.3m, up a substantial 40%
from £8.1m in the prior year. Infrastructure's operating margin increased
10bps to 3.4% (HY 2021: 3.3%), although operating profit reduced by 12% to
£12.8m (HY 2021: £14.5m) in line with the lower revenue.
The secured order book for the division at the period end was £2,535m, level
with the prior period end position (HY 2021: £2,542m), however 7% lower than
at the year-end (FY 2021: £2,715m).
(i) Construction
In Construction, the focus remains on improving its overall quality of
earnings through contract selectivity and operational delivery.
Construction's order book of £760m was up 17% from the prior year (HY 2021:
£648m) although down 6% from the year-end position (FY 2021: £810m). All
work is now derived through either negotiated, framework or two-stage bidding
procurement processes, in line with the preferred risk profile of work
undertaken. In addition to this, Construction also had £701m of work at
preferred bidder stage, up 8% compared to the same time last year (HY 2021:
£648m in preferred bidder).
Work won in the period included: the £61m redevelopment of King Henry VIII
Secondary School in Abergavenny into a 1,900 place, all-through school for
Monmouthshire County Council; the £12.5m Priscilla Bacon Hospice, a new
state-of-the-art hospice on an eight-acre site in Norwich; and two new Grade
A, BREEAM Excellent-rated office buildings in Birkenhead with a project total
of £40m, in partnership with Urban Regeneration. In addition, Construction
gained a place on the £9bn Procure 23 framework, a partnership between Crown
Commercial Services and NHS England and Improvement (NHSE&I).
The medium-term target for Construction is an operating margin of between 2.5%
and 3% per annum and revenue of £1bn. For the full year, it is expected that
the margin will be around the top end of this range and progress made towards
its revenue target, whilst maintaining its normal risk profile in its workload
and bidding discipline.
(ii) Infrastructure(1)
In Infrastructure, the focus remains on the key sectors of highways, rail,
nuclear, energy and water.
Infrastructure's order book of £1,775m was down 7% compared to the year end
(FY 2021: £1,905m) and down 6% from the prior year (HY 2021: £1,894m).
Around 95% of the order book value remains derived through existing frameworks
and with 78% of the order book for 2023 and beyond, this demonstrates the
long-term nature of the work streams and client relationships.
In Highways, the division commenced the A11 Concrete Roads scheme as part of
National Highway's Concrete Roads Programme - Reconstruction Works Framework,
a four-year programme worth c£130m to repair or replace the concrete surface
of motorways or major A roads in England. In addition, work was completed on
the A45 Sprint corridor for Transport for West Midlands (TfWM), a c£40m
scheme forming part of a bus priority corridor linking Walsall with the centre
of Birmingham, Solihull and Birmingham Airport.
In Rail, work began on six new stations as part of an extension to the
Northumberland Line for Northumberland County Council, and work continued to
progress on the Network Rail Parsons Tunnel rockfall shelter extension in
Devon. In addition, work completed (delivered in joint venture) on the Barking
Riverside Extension project for Transport for London.
In Nuclear, work continued for Sellafield Ltd on the Infrastructure Strategic
Alliance and the £1.6bn Programme and Project Partners contract, while in
Water, work continued as part of the long-term AMP7 framework with Welsh
Water.
In Energy, the division was awarded a place, in a joint venture, on Scottish
& Southern Electricity Networks (SSEN)'s RIIO-2 framework with an initial
term of five years, with an option for a two-year extension. The framework
involves the construction, refurbishment and decommissioning of both overhead
lines, underground cable systems and substations operating between 33kV to
400kV across SSEN's transmission network.
In the BakerHicks design business(1), Whitechapel Station was completed and
opened to the public while projects underway included multi-disciplinary
design on the new HMP Highland in Inverness for Scottish Prison Services.
The medium-term target for Infrastructure is an operating margin of between
3.5% and 4% per annum and revenue of £1bn. For the full year, based upon the
current visible work mix and volumes through its existing frameworks for the
rest of the year, it is expected that revenue will be lower than last year,
however the margin is expected to be towards the top end of its target range,
albeit lower than last year's very strong performance.
(1) Design results are reported within Infrastructure
Fit Out
HY 2022 HY 2021 Change
£m £m
Revenue 457 380 +20%
Operating profit 21.2 19.3 +10%
Operating margin 4.6% 5.1% -50bps
Fit Out delivered another excellent result in the period, with significant
growth in revenue and profit. Revenue increased by 20% to £457m (HY 2021:
£380m), with operating profit up 10% to £21.2m (HY 2021: £19.3m). The
operating margin was still a strong 4.6%, albeit lower than last year (HY
2021: 5.1%) as a result of contract mix and type.
The division's focus on consistent operational delivery and customer
experience has again driven performance, complemented by a high-quality
workload and disciplined and focused bidding.
Geographically, the London region remained the division's largest market,
accounting for 62% of revenue (HY 2021: 54%) while other regions accounted for
38% of revenue (HY 2021: 46%).
There was no significant change to the market sectors served. The commercial
office market remained the largest, contributing 78% of revenue (HY 2021:
73%), with government/local authority, higher education and retail banking
accounting for the majority of the remainder.
In terms of type of work delivered in the period, 86% related to traditional
fit out work (HY 2021: 80%), while 14% related to 'design and build' (HY 2021:
20%). The proportion of revenue generated from the fit out of existing office
space increased slightly to 78% (HY 2021: 73%), with the fit out of new office
space reducing to 22% (HY 2021: 27%). Of the fit out of existing office space,
work was broadly split evenly between refurbishment 'in occupation' and
non-occupied space. Again, this slight shift in revenue balance is not
indicative of any long-term market trend.
The market for Fit Out remains strong, with a number of different factors
driving demand; lease events and significant project requirements in the
London commercial office market; carbon-driven planning restrictions for new
buildings and energy efficiency of existing office space; and the re-purposing
of office space in the wake of the pandemic to enable new ways of working.
At the period end, the secured order book stood at £869m, an increase of
50% from the prior year position (HY 2021: £581m) and only slightly lower
than the year end high position (FY 2021: £897m).
Of the secured order book, £394m (45%) relates to the second half of the
year, which is 23% higher than the equivalent amount as at 30 June 2021 of
£321m. In addition, with £475m of the current order book (55%) for 2023 and
beyond, the division has significantly better long-term visibility of workload
than in previous years. The comparable number at the same time last year was
£260m, 45% lower. This advantageous position has been driven by the
securing of a number of larger contracts which will generate revenue over a
number of years.
Major projects continuing onsite during the period included; 366,000 sq ft of
office space at Five Bank Street, Canary Wharf; 200,000 sq ft for BP in North
Colonnade, Canary Wharf; 200,000 sq ft for BT in Bristol; the CAT 'A' fit out
of 180,000 sq ft at Campus Reading, one of the largest office developments in
the Thames Valley.
Projects won during the period included; the 57,000 sq ft CAT 'B' fit out for
InterContinental Hotel Group in Windsor; the fit out of CBRE Investment
Management's offices in London; the design and build fit out for Montagu
Private Equity in London; and fit out projects for the BBC in Newcastle, the
Cambridge Design Partnership in Cambridge and the Nottingham Central Library
for Nottingham City Council. In the Education sector, significant projects won
during the period included three projects for University College London,
totalling £35m; the £8m 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.
Delivered under frameworks and corporate partnerships, projects included;
£25m of works carried out for The Mayor's Office for Policing and Crime
(MOPAC) (with a future order book of £33m); a fit out of 60,000 sq ft for the
University of Leicester via the Pagabo framework; and 19 projects won under
the division's partnership for NatWest Group.
The medium-term target for Fit Out is for average annual operating profit
through the cycle of £40m-£45m. Looking ahead to the second half, based upon
the current order book and timing of delivery, a further very strong
performance is expected and consequently, the division is expected to be
materially ahead of the top end of this range in 2022.
Property Services
HY 2022 HY 2021 Change
£m £m
Revenue 76 69 +10%
Operating profit(1) 2.5 2.4 +4%
Operating margin(1) 3.3% 3.5% -20bps
( )
Property Services improved its performance in the period, with revenue
increasing 10% to £76m (HY 2021: £69m) and operating profit(1) increasing 4%
to £2.5m (HY 2021: £2.4m). Its operating margin was slightly lower at 3.3%
(HY 2021: 3.5%).
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.
During the period, there have been continued delays to decision-making for
some planned maintenance programmes, leading to lower volumes. In addition,
margin has been impacted by the time lag between immediate labour inflationary
pressures and the administration of contractual inflation-uplift mechanisms.
At the period end, the secured order book was £1,279m, up 31% from the prior
year (HY 2021: £973m) and up 35% from the full year position (FY 2021:
£945m). Of this total, over 80% is for 2024 and beyond.
Included in the secured order book are; a ten-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 £200m and with the potential
to be extended by a further five years; a £80m contract with Longhurst Group,
maintaining 6,500 homes in their East region for up to ten-years; and a
ten-year contract with Welwyn Hatfield Borough Council delivering maintenance
and planned works for 9,500 homes, worth £120m. All three contracts will
have mobilised and commenced operations by the end of the year.
The medium-term target for Property Services is to generate operating profit
of £15m. With slightly higher revenue expected in the second half due to
contract phasing and mobilisations, the division is on track to make progress
towards this target in 2022.
( ) (1 ) before intangible amortisation of £0.9m (HY 2021: £0.7m)
Partnership Housing
HY 2022 HY 2021 Change
£m £m
Revenue 284 270 +5%
Operating profit 13.9 12.1 +15%
Operating margin 4.9% 4.5% +40bps
Average capital employed(1) 179.0 158.3 +£20.7m
( ) (last 12 months)
Capital employed(1) - at period end 190.9 146.3 +£44.6m
ROCE(2) (last 12 months) 20% 17%
Partnership Housing made progress in the period, with revenue up 5% to £284m
(HY 2021: £270m). Split by type of activity, Mixed-tenure revenue was 12%
lower at £140m (49% of divisional revenue), however Contracting revenue
(including planned maintenance and refurbishment) was up 30% to £144m (51% of
divisional total) compared to the prior year.
In Mixed-tenure, 755 units were completed across open market sales and social
housing (including through its joint ventures) compared to 815 in the prior
year period. The average sales price was £261k compared to the prior year
average of £232k. In line with the division's strategy to increase the size
of its mixed-tenure sites, there was an average of 169 open market units per
site at the period end (up from 122 at the prior year period end) across a
total of 49 mixed-tenure sites at various stages of construction and sales.
Operating profit of £13.9m was up 15% on the prior year (HY 2021: £12.1m).
The increase in average selling price in Mixed-tenure helped to offset the
impact of build cost inflation across both activities, with the operating
margin increasing to 4.9% (HY 2021: 4.5%).
The secured order book at the period end was £1,633m, an increase of 10% on
the prior year (HY 2021: £1,478m) and 9% higher than the year-end position
(FY 2021: £1,498m). Of this total, the order book relating to the
Mixed-tenure activities was up 9% on the prior year position and 1% lower than
the year end at £980m (HY 2021: £896m, FY 2021: £992m). The Contracting
secured order book increased to £653m, up 12% on the prior year (HY 2021:
£582m) and up 29% on the year end (FY 2021: £506m). In terms of progressing
with the delivery of the order book, the planning system has remained slow and
has hindered the speed of progress on some of its developments. In particular,
the guidance from Natural England to local authorities in relation to nutrient
neutrality is taking time to work through and has added an additional layer of
complexity and uncertainty to the planning process.
In mixed-tenure, work secured included; c£35m of work within the division's
Compendium JV (joint venture with The Riverside Group) at Ings (Hull) and
Castleward (in Derby); a 398 unit scheme in Queensferry, Edinburgh; and 156
units in Mayfield, Midlothian.
Key contracting schemes awarded in the period included; a £30m, 143 unit
scheme at Barne Barton, Plymouth for Clarion; a £15m, 90 unit scheme for
Saffron Housing Trust on the old Wymondham Rugby club site in South Norfolk;
and the £20m, 124 unit Chartist Garden Village scheme for Pobl, the housing
association based in Newport.
The capital employed at period end was £190.9m, an increase of £44.6m on the
prior year (HY 2021: £146.3m) and £35.3m higher than at the year end (FY
2021: £155.6m), reflecting the significant amount of ongoing activity in the
division. The average capital employed for the last 12-month period was
£179.0m (HY 2021: £158.3m), resulting in an overall ROCE of 20% for the last
12-month period. Average capital employed for the full year is expected to be
c£190m-£200m.
Partnership Housing's medium-term targets are to generate a return on average
capital employed up towards 25% and to deliver an operating margin of 8% and
looking ahead to the rest of the year, continued progress is expected towards
these targets.
(1) 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)
(2) Return On Average Capital Employed = (Adjusted operating profit plus
interest from JVs) divided by average capital employed
Urban Regeneration
HY 2022 HY 2021 Change
£m £m
Revenue 126 68 +85%
Operating profit 7.3 8.7 -16%
Average capital employed(1) 91.9 110.0 -£18.1m
( ) (last 12 months)
Capital employed(1) at period end 99.4 96.6 +£2.8m
ROCE(2) (last 12 months) 12% 14%
ROCE(2) (average last 3 years) 12% 15%
( )
Urban Regeneration delivered an operating profit of £7.3m in the period, a
reduction of 16% on prior year (HY 2021: £8.7m), with a ROCE(2) for the last
12 months of 12% based on the average capital employed(1) of £91.9m.
During the period, there was further good progress made on the Lewisham
Gateway, London, and New Victoria, Manchester, developments which were both
subject to forward funding deals signed in 2020. Profits were also generated
from 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). Several other developments were active
within The English Cities Fund 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 Phase 1 Manor Road Quarter, Canning Town, which will deliver 355
homes (177 affordable).
The operating result also included a provision of £7.0m to cover potential
liabilities identified in relation to building safety. See separate section in
Group Operating Review above. Adjusting for the impact of this provision,
the ROCE(2) for the last 12 months would be 20%, which is more representative
of the underlying performance of the division.
At the period end, the division's regeneration order book amounted to
£2,235m, a reduction of 19% on the prior year period (HY 2021: £2,759m) and
13% lower than the year end (FY 2021: £2,574m). Activity levels remain good
and there are a significant number of sizeable schemes currently being bid and
any short/medium term reductions in the value of the order book are not
indicative of any wider trends or concerns.
Capital employed(1) at the period end was £99.4m, £2.8m higher than the
prior year (HY 2021: £96.6m), and £15.4m higher than the year end (FY 2021:
£84.0m). Based upon the current profile and type of scheme activity across
the portfolio, the average capital employed(1) for the full year is expected
to be c£100m.
The medium-term target for Urban Regeneration is to increase its rolling
three-year average ROCE(2) up towards 20%. Based upon the current profile of
scheme completions throughout the second half, ROCE(2) is expected to improve,
with progress made towards its target in the full year.
(1) 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)
(2) Return On Average Capital Employed = (Adjusted operating profit plus
interest from JVs) divided by average capital employed
Other Financial Information
1. Net finance expense. The net finance expense was £2.3m, an increase of
£0.6m compared to HY 2021.
HY 2022 HY 2021 Change
£m £m £m
Interest payable on drawings on bank facilities - - -
Amortisation of bank fees & non-utilisation fees (1.1) (1.3) 0.2
Interest expense on lease liabilities (1.0) (0.7) (0.3)
Interest from JVs - 0.4 (0.4)
Other (0.2) (0.1) (0.1)
Total net finance expense (2.3) (1.7) (0.6)
2. Tax. A tax charge of £10.7m is shown for the period (HY 2021: £12.0m).
This equates to an effective tax rate of 19.9% on profit before tax. The
adjusted tax charge is £10.9m (HY 2021: £10.2m).
HY 2022 HY 2021
£m £m
Profit before tax 53.7 52.4
Less: share of net profit in joint ventures (3.1) (5.7)
Profit before tax excluding joint ventures 50.6 46.7
Statutory tax rate 19.0% 19.0%
Current tax charge at statutory rate (9.6) (8.9)
Tax on joint venture profits(1) (0.6) (1.0)
Effect of change in tax rate used to calculate deferred tax - (1.9)
Residential Property Developer Tax (0.4) -
Other adjustments (0.1) (0.2)
Tax charge as reported (10.7) (12.0)
Tax on amortisation (0.2) (0.1)
Effect of change in tax rate used to calculate deferred tax - 1.9
Adjusted tax charge (10.9) (10.2)
(1) 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.
HY 2022 HY 2021(3) Change
£m
£m £m
Inventories 333.9 284.8 +49.1
Trade & Other Receivables(1) 574.4 479.9 +94.5
Trade & Other Payables(2) (977.7) (957.5) -20.2
Net working capital (69.4) (192.8) +123.4
(1) Adjusted to exclude capitalised arrangement fees of £0.6m (HY 2021:
£0.9m) and accrued interest receivable of £0.1m (HY 2021: £nil)
(2) Adjusted to exclude accrued interest payable of £0.5m (HY 2021: £0.4m)
(3) ( )Includes the restatement to correct an historic error - see Note 1 of
the consolidated financial statements
4. Cash flow. The operating cash flow for the 12 months to 30 June 2022 was an
inflow of £33.1m and a free cash inflow of £0.1m. For the half year
period, there was an operating cash outflow of £40.4m (HY 2021: inflow of
£44.1m).
HY 2022 HY 2021 Last 12
£m £m months
Operating profit - adjusted 56.9 54.8 133.4
Depreciation 10.8 10.0 21.3
Share option expense 4.2 4.6 11.7
Movement in fair value of shared equity loans - - 1.9
Share of net loss/(profit) of joint ventures (3.1) (5.7) (2.8)
Other operating items (1) (12.3) 2.5 16.3
Change in working capital (2) (84.7) (13.2) (124.2)
Net capital expenditure (including repayment of finance leases) (12.2) (9.3) (24.7)
Dividends and interest received from joint ventures - 0.4 0.2
Operating cash flow (40.4) 44.1 33.1
Income taxes paid (14.9) (11.3) (31.9)
Net interest paid (non-joint venture) (0.4) (1.0) (1.1)
Free cash flow (55.7) 31.8 0.1
(1) 'Other operating items' includes decrease in provisions (£12.7m) and
gains on disposals (£0.9m), less shared equity redemptions (£1.0m) and
impairment of investments (£0.3m)
(2) The cash flow due to change in working capital for the 12-month period
excludes £0.8m of non-cash movements relating to the unwinding of discounting
on land creditors and other non-cash working capital movements
5. Net cash. Net cash at the period end was £273.5m.
£m
Net cash as at 1 January 2022 358.0
Free cash flow (as above) (55.7)
Dividends (28.3)
Other(1) (0.5)
Net cash as at 30 June 2022 273.5
(1) 'Other' includes the purchase of shares in the Company by the employee
benefit trust (£15.6m) less proceeds from the issue of new shares (£7.7m),
proceeds from the disposal of investments (£0.6m), net loan receipts from
joint ventures (£5.4m) and proceeds from the exercise of share options
(£1.4m).
6. Capital employed by strategic activity. An analysis of the capital employed
in the Construction activities shows an increase of £49.6m since the prior
period, split as follows:
Capital employed(1) in Construction HY 2022 HY 2021(2) Change
£m £m £m
Construction & Infrastructure (244.7) (288.7) +44.0
Fit Out (80.0) (68.5) -11.5
Property Services 47.9 30.8 +17.1
(276.8) (326.4) +49.6
An analysis of capital employed in the Regeneration activities shows an
increase of £47.4m since the prior period, split as follows:
Capital employed in Regeneration HY 2022 HY 2021 Change
£m £m £m
Partnership Housing 190.9 146.3 +44.6
Urban Regeneration 99.4 96.6 +2.8
290.3 242.9 +47.4
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 Includes the restatement to correct an historic error - see Note 1 of the
consolidated financial statements
7. Dividends. The Board of Directors has proposed an interim dividend of
33.0p per share, an increase of 10% on the prior year interim dividend. This
will be paid on 26 October 2022 to shareholders on the register at 7 October
2022. The ex-dividend date will be 6 October 2022.
8. Building Safety. See Note 12 'Contingent liabilities' in the financial
statements
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 are
included within the 2021 Annual Report. These are still considered to be
relevant risks and uncertainties for the Group at this time and are summarised
below (in no order of magnitude). However, since compiling these the following
additional matters should be noted when considering the Group's risk profile:
Conflict in Ukraine - Has exacerbated inflationary pressures and could impact
business confidence later in the year. However, the Group's predominantly
public sector and largely negotiated orderbook provides resilience.
Building Safety Act - The Group needs to ensure that its future buildings
comply with the Act and that related issues in completed projects are
identified, appropriate provisions made, and rectification strategies
implemented.
Summary of principal risks as per 2021 Annual Report:
Economic change and uncertainty - There could be fewer or less profitable
opportunities in the Group's chosen markets including a decline in
construction activity caused by macroeconomic weakness and/or further UK
lockdowns. Allocating resources and capital to declining markets or less
attractive opportunities would reduce its profitability and cash generation.
Exposure to UK housing market - The UK housing sector is strongly influenced
by government stimulus and consumer confidence. Inflationary pressures could
challenge scheme viability, slowing down its secured order book conversion. If
mortgage availability, affordability or consumer confidence is reduced, this
could impact on demand, make existing schemes difficult to sell and future
developments unviable, reducing profitability and tying up capital.
Health and safety - If the Group fails to protect the health, safety and
wellbeing of its key stakeholders, individuals could be hurt which could
damage the Group's reputation as a responsible employer and affect its ability
to secure future work.
Climate change - Failure to protect the environment in which the Group works
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.
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 -
An insolvency could disrupt project works, cause delay and incur the costs of
finding a replacement, resulting in significant financial loss. There is a
risk that credit checks undertaken in the past may no longer be valid.
Inadequate funding - A lack of liquidity could impact the Group's ability to
continue to trade or restrict its ability to achieve market growth or invest
in regeneration schemes.
Mismanagement of working capital and investments - Poor management of working
capital and investments leads to insufficient liquidity and funding problems.
Poor contract selection and/or bidding - Failure to fully understand the risks
on projects may lead the Group to accepting work outside its core competencies
or for which the Group has insufficient resources, leading to poor delivery, a
reduction in gross margin and ultimately result in reputational damage and
loss of opportunities.
Poor project delivery (including changes to contracts and contract disputes) -
Failure to meet client expectations could lead to disputes and incur costs
that erode profit margins, lead to the withholding of cash payments and impact
working capital. It may also result in reduction of repeat business and client
referrals.
UK cyber activity and failure to invest in information technology - Investment
in IT is necessary 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 in order 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.
Condensed consolidated income statement
For the six months ended 30 June 2022
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
Notes £m £m £m
Revenue 2 1,697.5 1,558.6 3,212.8
Cost of sales (1,504.7) (1,383.0) (2,830.0)
Gross profit 192.8 175.6 382.8
Administrative expenses (139.6) (126.5) (258.3)
Share of net profit of joint ventures 7 3.1 5.7 5.4
Other gains and losses 0.6 - 1.4
Operating profit before amortisation of intangible assets 56.9 54.8 131.3
Amortisation of intangible assets (0.9) (0.7) (1.5)
Operating profit 56.0 54.1 129.8
Finance income 0.4 0.4 0.6
Finance costs (2.7) (2.1) (4.2)
Profit before tax 53.7 52.4 126.2
Tax 4 (10.7) (12.0) (28.3)
Profit for the period 43.0 40.4 97.9
Attributable to:
Owners of the Company 43.0 40.4 97.9
Earnings per share
Basic 6 94.3p 87.6p 212.4p
Diluted 6 91.9p 85.1p 204.4p
There were no discontinued operations in either the current or comparative
periods.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2022
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
£m £m £m
Profit for the period 43.0 40.4 97.9
Items that may be reclassified subsequently to profit or loss:
Gain/(loss) arising during the period on translation of investments in foreign 0.8 (0.5) (0.2)
operations
Other comprehensive income/(expense) 0.8 (0.5) (0.2)
Total comprehensive income 43.8 39.9 97.7
Attributable to:
Owners of the Company 43.8 39.9 97.7
Condensed consolidated statement of financial position
At 30 June 2022
30 June 2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
restated(1)
Notes £m £m £m
Assets
Goodwill and other intangible assets 221.5 222.2 221.9
Property, plant and equipment 66.9 62.7 66.6
Investment property 0.8 1.1 0.8
Investments in joint ventures 7 91.8 95.4 94.1
Shared equity loan receivables - 4.4 -
Non-current assets 381.0 385.8 383.4
Inventories 333.9 284.8 288.5
Contract assets 281.5 213.5 232.6
Trade and other receivables 8 293.6 267.3 328.3
Current tax assets 8.9 0.2 4.7
Shared equity loan receivables 0.5 - 1.5
Cash and cash equivalents 9 352.3 414.2 468.6
Current assets 1,270.7 1,180.0 1,324.2
Total assets 1,651.7 1,565.8 1,707.6
Liabilities
Contract liabilities (70.3) (53.9) (78.5)
Trade and other payables 10 (878.2) (904.0) (891.4)
Lease liabilities (14.2) (12.1) (13.4)
Borrowings 9 (78.4) (76.7) (110.2)
Provisions 11 (18.2) (3.4) (33.4)
Current liabilities (1,059.3) (1,050.1) (1,126.9)
Net current assets 211.4 129.9 197.3
Trade and other payables 10 (29.7) - (32.6)
Lease liabilities (38.3) (37.8) (39.4)
Borrowings 9 (0.4) (0.4) (0.4)
Retirement benefit obligation (0.2) (0.2) (0.2)
Deferred tax liabilities (10.0) (14.4) (10.0)
Provisions 11 (26.4) (27.5) (23.9)
Non-current liabilities (105.0) (80.3) (106.5)
Total liabilities (1,164.3) (1,130.4) (1,233.4)
Net assets 487.4 435.4 474.2
Equity
Share capital 2.4 2.3 2.3
Share premium account 53.4 45.6 45.8
Other reserves (0.2) (1.3) (1.0)
Retained earnings 431.8 388.8 427.1
Equity attributable to owners of the Company 487.4 435.4 474.2
Total equity 487.4 435.4 474.2
(1)The prior period balances for Trade and other payables and Retained
earnings have been restated as described in the basis of preparation, along
with their respective totals.
Condensed consolidated cash flow statement
For the six months ended 30 June 2022
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
Notes £m £m £m
Operating activities
Operating profit 56.0 54.1 129.8
Adjusted for:
Amortisation of intangible assets 0.9 0.7 1.5
Share of net profit of equity accounted joint ventures 7 (3.1) (5.7) (5.4)
Depreciation 10.8 10.0 20.5
Share option expense 4.2 4.6 12.1
Gain on disposal of investments (0.6) - -
Gain on disposal of property, plant and equipment (0.3) (0.2) (0.5)
Movement in fair value of shared equity loan receivables - - 1.9
Impairment of investments 0.3 - 1.2
Proceeds on disposal of investment properties - 1.6 1.9
Repayment of shared equity loan receivables 1.0 1.1 2.1
(Decrease)/increase in provisions 11 (12.7) - 26.4
Operating cash inflow before movements in working capital 56.5 66.2 191.5
(Increase)/decrease in inventories (45.7) 9.4 5.7
Increase in contract assets (48.9) (41.7) (60.8)
Decrease/(increase) in receivables 34.4 (33.0) (94.0)
(Decrease)/increase in contract liabilities (8.2) (1.7) 22.9
(Decrease)/increase in payables (16.3) 53.8 73.5
Movements in working capital (84.7) (13.2) (52.7)
Cash (outflow)/inflow from operations (28.2) 53.0 138.8
Income taxes paid (14.9) (11.3) (28.3)
Net cash (outflow)/inflow from operating activities (43.1) 41.7 110.5
Investing activities
Interest received 0.3 0.4 0.6
Proceeds on disposal of property, plant and equipment 0.3 0.6 1.4
Purchases of property, plant and equipment (3.9) (1.7) (6.7)
Purchases of intangible fixed assets (0.5) (0.8) (1.3)
Net decrease in loans to joint ventures 7 5.4 1.7 1.5
Proceeds from the disposal of investments 0.6 - -
Net cash inflow/(outflow) from investing activities 2.2 0.2 (4.5)
Financing activities
Interest paid (0.7) (1.0) (1.7)
Dividends paid 5 (28.3) (18.5) (32.3)
Repayments of lease liabilities (8.1) (7.4) (15.2)
Proceeds on issue of share capital 7.7 0.1 0.3
Payments by the Trust to acquire shares in the Company (15.6) (12.3) (33.6)
Proceeds on exercise of share options 1.4 1.5 1.7
Net cash outflow from financing activities (43.6) (37.6) (80.8)
Net (decrease)/increase in cash and cash equivalents (84.5) 4.3 25.2
Cash and cash equivalents at the beginning of the period 358.4 333.2 333.2
Cash and cash equivalents at the end of the period 9 273.9 337.5 358.4
Cash and cash equivalents presented in the consolidated cash flow statement
include bank overdrafts. See note 9 for a reconciliation to cash and cash
equivalents presented in the consolidated statement of financial position.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2022
Share Share premium account Other Retained Total
capital reserves earnings equity
£m £m £m £m £m
1 January 2022 2.3 45.8 (1.0) 427.1 474.2
Profit for the period - - - 43.0 43.0
Other comprehensive income - - 0.8 - 0.8
Total comprehensive income - - 0.8 43.0 43.8
Share option expense - - - 4.2 4.2
Issue of shares at a premium 0.1 7.6 - - 7.7
Exercise of share options - - - 1.4 1.4
Purchase of shares in the Company by the Trust - - - (15.6) (15.6)
Dividends paid - - - (28.3) (28.3)
30 June 2022 (unaudited) 2.4 53.4 (0.2) 431.8 487.4
Share Share premium account Other Retained earnings Total
capital reserves equity
£m £m £m £m £m
1 January 2021 2.3 45.5 (0.8) 383.0 430.0
Adjustment for correction of an historic error (see basis of preparation) - - - (9.9) (9.9)
1 January 2021 (restated) 2.3 45.5 (0.8) 373.1 420.1
Profit for the period - - - 40.4 40.4
Other comprehensive expense - - (0.5) - (0.5)
Total comprehensive (expense)/income - - (0.5) 40.4 39.9
Share option expense - - - 4.6 4.6
Issue of shares at a premium - 0.1 - - 0.1
Exercise of share options - - - 1.5 1.5
Purchase of shares in the Company by the Trust - - - (12.3) (12.3)
Dividends paid - - - (18.5) (18.5)
30 June 2021 (unaudited) 2.3 45.6 (1.3) 388.8 435.4
Share Share premium account Other Retained earnings Total
capital reserves equity
£m £m £m £m £m
1 January 2021 (restated) 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 option expense - - - 12.1 12.1
Tax relating to share option expense - - - 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)
31 December 2021 (audited) 2.3 45.8 (1.0) 427.1 474.2
Other reserves
Other reserves include:
· Capital redemption reserve of £0.6m (30 June 2021: £0.6m, 31
December 2021: £0.6m) which was created on the redemption of preference
shares in 2003.
· Hedging reserve of (£0.8m) (30 June 2021: (£1.0m), 31 December
2021: (£0.8m)) arising under cash flow hedge accounting. Movements on the
effective portion of hedges are recognised through the hedging reserve, whilst
any ineffectiveness is taken to the income statement.
· Translation reserve of nil (30 June 2021: (£0.9m), 31 December
2021: (£0.8m)) 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 to satisfy
options under the Group's share incentive schemes. The number of shares held
by the Trust at 30 June 2022 was 1,157,029 (30 June 2021: 271,678, 31 December
2021: 1,051,664) with a cost of £26.6m (30 June 2021: £6.3m, 31 December
2021: £25.3m).
Notes to the condensed consolidated financial statements
For the six months ended 30 June 2022
1 Basis of preparation
General information
The financial information for the year ended 31 December 2021 set out in this
half year report does not constitute the Company's statutory accounts as
defined by section 434 of the Companies Act 2006. A copy of the statutory
accounts for that year was delivered to the Registrar of Companies. The
auditor reported on those accounts: their report was unqualified, did not draw
attention to any matters by way of emphasis without qualifying their report
and did not contain a statement under s498(2) or (3) of the Companies Act
2006. This half year report has not been audited or reviewed by the auditor
pursuant to the Auditing Practices Board guidance on the Review of Interim
Financial Information. Figures as at 30 June 2022 and 2021 and for the six
months ended 30 June 2022 and 2021 are therefore unaudited.
Basis of preparation
The annual financial statements of Morgan Sindall Group plc are prepared in
accordance with UK adopted International Accounting Standards (UK IAS). The
condensed consolidated financial statements included in this half year report
were prepared in accordance with IAS 34 'Interim Financial Reporting'. While
the financial information included in this half year report was prepared in
accordance with the recognition and measurement criteria of UK IAS, this half
year report does not itself contain sufficient information to comply with UK
IAS.
Going concern
As at 30 June 2022, the Group had cash of £352.3m and total loans and
borrowings of £78.8m, including £78.4m of overdrafts repayable on demand
(together net cash of £273.5m). Should further funding be required the Group
has total committed banking facilities of £180m which are in place for
greater than one year. The directors have reviewed the Group's forecasts and
projections, and have modelled certain downside scenarios which show that the
Group will have a sufficient level of headroom within facility limits and
covenants for the going concern period, which the directors have defined as
the period from the date of approval of the 30 June 2022 financial statements
through to 4 August 2023. After making enquiries the directors have a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the going concern period to 4 August
2023. Accordingly, they continue to adopt the going concern basis in preparing
the condensed consolidated financial statements.
Tax
A tax charge of £10.7m is shown for the six-month period (six months to 30
June 2021: £12.0m, year ended 31 December 2021: £28.3m). This tax charge is
recognised based upon the best estimate of the average effective income tax
rate on profit before tax for the full financial year.
Changes in accounting policies
There have been no significant changes to accounting policies, presentation or
methods of preparation since the Group's latest annual audited financial
statements for the year ended 31 December 2021.
Correction of an historic error
On 27 July 2007 the Group acquired Amec Developments Limited and certain
assets and businesses carried on by Amec Investments Limited and the assets,
liabilities and contracts relating to the Design and Project Services ('DPS')
division of Amec plc, save for certain excluded assets and liabilities
(together 'Amec').
A difference was identified relating to the acquired business of Amec. This
error was an historic unsubstantiated asset of £9.9m that continued to be
recorded on the consolidated statement of financial position in accrued
expenses within Trade and other payables. The error was corrected as at 31
December 2021 by restating each of the affected financial statements line
items for the prior periods and this effected the prior year comparative for
30 June 2021 as follows:
Impact on equity ((decrease) in equity)
30 June 2021
£m
Trade and other
payables 9.9
Total
liabilities
9.9
Net impact on
equity
(9.9)
The change has no impact on the consolidated income statement, consolidated
statement of comprehensive income, basic and diluted earnings per share or the
Group's operating, investing and financing cash flows for each period
presented. In accordance with IAS 1, a restated balance sheet at 30 June 2021
has been presented.
Seasonality
The Group's activities are generally not subject to significant seasonal
variation.
2 Revenue
An analysis of the Group's revenue is as follows:
Six months to 30 June 2022 Six months to 30 June 2021 Year ended 31 Dec 2021
£m £m £m
Construction 392.2 338.6 693.5
Infrastructure and design 372.1 435.4 826.1
Construction and Infrastructure 764.3 774.0 1,519.6
Traditional fit out 392.6 303.3 634.7
Design and build 64.4 77.1 160.7
Fit Out 457.0 380.4 795.4
Property Services 75.9 69.4 133.8
Contracting 144.3 111.1 249.2
Mixed tenure 139.4 158.9 323.0
Partnership Housing 283.7 270.0 572.2
Urban Regeneration 126.1 68.0 202.5
Inter-segment revenue (9.5) (3.2) (10.7)
Total revenue 1,697.5 1,558.6 3,212.8
3 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). The
divisions' activities are as follows:
· Construction & Infrastructure: Morgan Sindall Construction
& Infrastructure Ltd provides construction services in the education,
healthcare, commercial, defence, industrial, leisure and retail markets and
delivers infrastructure projects in the highways, rail, energy, water and
nuclear markets. Infrastructure also includes the BakerHicks Limited design
activities based in the UK and Switzerland.
· Fit Out: Overbury plc specialises in 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 responsive repairs and planned maintenance for social housing and the
wider public sector.
· Partnership Housing: Lovell Partnerships Limited works in
partnerships with local authorities and housing associations. Activities
include mixed-tenure developments, building and developing homes or open
market sale and for social/affordable rent, design and build house contracting
and planned maintenance and refurbishment.
· Urban Regeneration: Muse Developments Limited focuses on
transforming the urban landscape through partnership working and the
development of multi-phase sites and mixed-use regeneration.
Group Activities represent 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, information technology services, interest revenue and
interest expense.
Adjusted Performance Measures
The divisions are the basis on which the Group reports its segmental
information as presented. 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. 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
which are referred to in the disclosure of the results for the 6 months ended
30 June 2022, which are:
'Adjusted' In all cases the term 'adjusted' excludes the impact of intangible
amortisation of £0.9m (six months to 30 June 2021: £0.7m, year ended 31
December 2021: £1.5m). This is used to improve the comparability of
information between reporting periods and aid the reader's understanding of
the activities across the Group's portfolio. The below segmental analysis
reconciles the statutory operating profit measure to the 'adjusted' measure
and is used in reviewing the segmental performance. Adjusted profit before tax
is used only in monitoring the Group's performance which is the statutory
measure excluding the impact of intangible amortisation of £0.9m (six months
to 30 June 2021: £0.7m, year ended 31 December 2021: £1.5m). Adjusted basic
earnings per share and adjusted diluted earnings per share is the statutory
measure excluding the post-tax impact of intangible amortisation of £0.7m
(six months to 30 June 2021: £0.6m, year ended 31 December 2021: £1.2m) and
the deferred tax charge arising due to changes in UK corporation tax rates of
£nil (six months to 30 June 2021: £1.9m, year ended 31 December 2021:
£5.1m). See note 6 for a detailed reconciliation of the adjusted EPS
measures.
'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 9. 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 end of day balances of the net cash over the course of the
reporting period.
'Operating cashflow' Management use an adjusted measure for operating cashflow 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. The figures can be derived from the consolidated cash flow statement
being: Cash outflow from operations (£28.2m) plus repayments of lease
liabilities (£8.1m), purchase of property, plant and equipment (£3.9m), and
purchase of intangible assets (£0.5m) less dividend from joint ventures
(£nil), interest received from joint ventures (£nil) and proceeds from the
disposal of property, plant and equipment (£0.3m). Operating cash flow
conversion is operating cashflow as defined above divided by adjusted
operating profit as defined above.
'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 average capital employed. Average capital employed is the
12-month average of total assets (excluding goodwill, intangibles and cash)
less total liabilities (excluding corporation tax, deferred tax, intercompany
financing and overdrafts).
The Group reports its segmental information as presented below:
Six months to 30 June 2022
Construction & Infrastructure Fit Out Property Services Partnership Housing Urban Regeneration Group Activities Eliminations Total
£m £m £m £m £m £m £m £m
External revenue 754.8 457.0 75.9 283.7 126.1 - - 1,697.5
Inter-segment revenue 9.5 - - - (9.5) -
Total revenue 764.3 457.0 75.9 283.7 126.1 - (9.5) 1,697.5
Operating profit/(loss) before amortisation of intangible assets 24.1 21.2 2.5 13.9 7.3 (12.1) - 56.9
Amortisation of intangible assets - - (0.9) - - - - (0.9)
Operating profit/(loss) 24.1 21.2 1.6 13.9 7.3 (12.1) - 56.0
Finance income 0.4
Finance expense (2.7)
Profit before tax 53.7
Six months to 30 June 2021
Construction & Infrastructure Fit Out Property Services Partnership Housing Urban Regeneration Group Activities Eliminations Total
£m £m £m £m £m £m £m £m
External revenue 770.9 380.3 69.4 270.0 68.0 - - 1,558.6
Inter-segment revenue 3.1 0.1 - - - - (3.2) -
Total revenue 774.0 380.4 69.4 270.0 68.0 - (3.2) 1,558.6
Operating profit/(loss) before amortisation of intangible assets 22.6 19.3 2.4 12.1 8.7 (10.3) - 54.8
Amortisation of intangible assets - - (0.7) - - - - (0.7)
Operating profit/(loss) 22.6 19.3 1.7 12.1 8.7 (10.3) - 54.1
Finance income 0.4
Finance expense (2.1)
Profit before tax 52.4
Year ended 31 December 2021
Construction & Infrastructure Fit Out Property Services Partnership Housing Urban Regeneration Group Activities Eliminations Total
£m £m £m £m £m £m £m £m
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
Operating profit/(loss) before amortisation of intangible assets 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
During the period ended 30 June 2022, the period ended 30 June 2021 and the
year ended 31 December 2021, inter-segment sales were charged at prevailing
market prices and significantly all of the Group's operations were carried out
in the UK.
4 Tax
The effective tax rate applied for the period was 19.9% (six months to 30 June
2021: 22.9%, year ended 31 December 2021: 22.4%). This reflects the
anticipated full year effective rate before adjusting items, as amended for
the tax effect of adjusting items incurred in the first half of the financial
year. This is higher than the statutory rate of 19.0% mainly due to the
expected liability arising from Residential Property Developer Tax ("RPDT")
which applies from 2022.
Deferred tax has been measured using the enacted rates that are expected to
apply to the period in which each asset or liability is expected to unwind. In
2021, the effective tax rate included the effect of increases in deferred tax
liabilities arising due to the announcement of the increase to the rate of UK
statutory tax from 19% to 25% from 1 April 2023.
The adjusted effective tax rate for the period was 20.0% (six months to 30
June 2021: 19.2%, year ended 31 December 2021: 18.4%) with the difference
between the reported and adjusted rates reflecting adjustments to exclude the
impact of the amortisation of intangibles and the effect of the change in tax
rate used to calculate deferred tax.
5 Dividends
Amounts recognised as distributions to equity holders in the period:
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 Dec 2021
£m £m £m
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 18.5
Interim dividend for the year ended 31 December 2021 of 30.0p per share - - 13.8
28.3 18.5 32.3
A proposed interim dividend of 33.0p per share for 2022 was approved by the
Board on 4 August 2022 and will be paid on 26 October 2022 to shareholders on
the register at 7 October 2022. The ex-dividend date is 6 October 2022.
6 Earnings per share
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 Dec 2021
£m £m £m
Profit attributable to the owners of the Company 43.0 40.4 97.9
Adjustments:
Amortisation of intangible assets net of tax 0.7 0.6 1.2
Deferred tax charge arising due to change in UK - 1.9 5.1
corporation tax rates
Adjusted earnings 43.7 42.9 104.2
Basic weighted average ordinary shares (m) 45.6 46.1 46.1
Dilutive effect of share options and conditional shares not vested (m) 1.2 1.4 1.8
Diluted weighted average ordinary shares (m) 46.8 47.5 47.9
Basic earnings per share 94.3p 87.6p 212.4p
Diluted earnings per share 91.9p 85.1p 204.4p
Adjusted earnings per share 95.8p 93.1p 226.0p
Diluted adjusted earnings per share 93.4p 90.3p 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 period that the options were
outstanding. The average share price for the period was £21.77 (30 June 2021:
£18.76, 31 December 2021: £21.39).
A total of 712,103 share options that could potentially dilute earnings per
share in the future were excluded from the above calculations because they
were anti-dilutive at 30 June 2022 (30 June 2021: 2,497,229, 31 December 2021:
865,271).
7 Investments in joint ventures
Investments in equity accounted joint ventures are as follows:
Six months to 30 June 2022 Six months to 30 June 2021 Year ended 31 Dec 2021
£m £m £m
1 January 94.1 91.4 91.4
Equity accounted share of net profits 3.1 5.7 5.4
Loans advanced to joint ventures 10.9 16.0 28.1
Loans repaid to joint ventures (16.3) (17.7) (29.6)
Non-cash impairment - - (1.2)
End of period 91.8 95.4 94.1
8 Trade and other receivables
30 June 2022 30 June 2021 31 Dec 2021
£m £m £m
Trade receivables 232.6 219.5 250.2
Amounts owed by joint ventures 0.4 0.3 13.5
Prepayments 20.2 22.4 13.2
Insurance receivables 10.9 - 30.4
Other receivables 29.5 25.1 21.0
293.6 267.3 328.3
The Group holds third party insurances that may mitigate the contract and
legal liabilities described in note 11 - Provisions. Insurance receivables are
recognised when reimbursement from insurers is virtually certain.
9 Net cash
30 June 2022 30 June 2021 31 Dec 2021
£m £m £m
Cash and cash equivalents 352.3 414.2 468.6
Bank overdrafts presented as borrowings due within one year (78.4) (76.7) (110.2)
Cash and cash equivalents reported in the consolidated cash flow statement 273.9 337.5 358.4
Borrowings due between two and five years (0.4) (0.4) (0.4)
Net cash 273.5 337.1 358.0
Included within cash and cash equivalents is £50.1m which is the Group's
share of cash held within jointly controlled operations (30 June 2021:
£61.3m, 31 December 2021: £55.7m). There is £8.6m included within cash and
cash equivalents held for future payments to designated suppliers (30 June
2021: £8.0m, 31 December 2021: £6.4m).
The Group has £180m of committed loan facilities maturing more than one year
from the balance sheet date, of which £15m matures in March 2024 and £165m
in October 2024. These facilities are undrawn at 30 June 2022. The Group has a
further facility of £0.4m that was drawn down in full during 2021 and the
six-month period to 30 June 2022, and matures in July 2025.
10 Trade and other payables
30 June 2022 30 June 2021 31 Dec 2021
restated(1)
£m £m £m
Trade payables 191.3 172.9 157.6
Amounts owed to joint ventures 0.2 0.2 0.2
Other tax and social security 83.5 97.4 107.5
Accrued expenses 581.4 600.3 602.7
Deferred income 2.8 15.4 8.9
Other payables 19.0 17.8 14.5
Current 878.2 904.0 891.4
Other payables 29.7 - 32.6
Non-current 29.7 - 32.6
(1) The prior period balances for Accrued expenses within Trade and other
payables have been restated as described in note 1 - Basis of preparation,
along with their respective totals.
11 Provisions
Self-insurance Contract & legal Other Total
£m £m £m £m
1 January 2021 22.8 - 8.1 30.9
Utilised (0.4) - (2.0) (2.4)
Additions 3.0 - - 3.0
Released - - (0.6) (0.6)
30 June 2021 25.4 - 5.5 30.9
Utilised (1.2) - (3.0) (4.2)
Additions 1.5 22.7 0.2 24.4
Reclassifications(1) - 10.7 - 10.7
Released (4.5) - - (4.5)
1 January 2022 21.2 33.4 2.7 57.3
Utilised (0.7) - - (0.7)
Additions 3.1 8.9 0.6 12.6
Released - (24.1) (0.5) (24.6)
30 June 2022 23.6 18.2 2.8 44.6
Current - 18.2 - 18.2
Non-current 23.6 - 2.8 26.4
30 June 2022 23.6 18.2 2.8 44.6
(1) A number of items previously presented as accruals were reclassified to
provisions in the prior year.
Self-insurance provisions
Self-insurance provisions comprise the Group's self-insurance of certain risks
and include £11.1m (30 June 2021: £13.5m, 31 December 2021: £10.8m) held in
the Group's captive insurance company, Newman Insurance Company Limited.
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 assets 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.
12 Contingent liabilities
Building Safety
The new Building Safety Act received Royal Assent on 28 April 2022.
The main implication for the Group is the extension to the limitation period
to bring claims relating to construction under the Defective Premises Act to a
retrospective 30-year period. Partnership Housing and Urban Regeneration are
the divisions in the Group most directly impacted by this new legislation.
In addition, following the announcement by the Secretary of State for the
Department of Levelling Up, Housing and Communities ("DLUHC") on Building
Safety on 10 January and following the subsequent discussions coordinated by
the Home Builders Federation ("HBF") acting on behalf of its members,
Partnership Housing signed the Developer Pledge Letter ("the Pledge") on 4
April 2022 which sets out the principles under which life-critical fire-safety
issues on buildings that they have developed of 11 metres and above are to be
remediated. The requirements under the final contract formalising the
commitment with the Government are still being finalised through coordination
with the HBF.
The costs arising across the Group in relation to general fire safety and the
provisions of the new Building Safety Act have been charged through trading
results of the relevant division in the ordinary course. These costs are not
expected to be material to the Group and will likely span a number of years.
In Urban Regeneration, a comprehensive review of historic developments
covering the extended limitation period under the new Building Safety Act and
any potential liabilities arising therefrom is ongoing. In the Half Year, a
provision of £7.0m has been charged through its trading results in the
ordinary course to cover such identified liabilities to date.
The discussions referred to above between DLUHC and HBF regarding the Pledge
were restricted to a specific market sector and included only Partnership
Housing from within the Group. Subsequent to the period end, on 18 July 2022,
a letter was 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.
One of the significant differences in respect of the Pledge over and above the
obligations of the Building Safety Act is the requirement for the immediate
re-imbursement of grants provided by the Building Safety Fund ("BSF") on
developments where such claims had already been made and were being/had been
rectified.
In addition is the requirement to identify buildings that are proposed to be
remediated with funds from BSF and take over, fund and complete these works as
quickly as possible.
In most cases for Urban Regeneration (as is usual for a mixed-use developer),
contractual coverage and other remedies to recover such costs are in place.
However, because income from these other third parties cannot be recognised
until it is virtually certain to be received, it is expected that the expense
of reimbursing the BSF or of funding works which would be proposed to be
remediated by the BSF will be required to be recognised in an earlier period
than the income recovering these costs. On this basis and although the review
remains ongoing, the initial assessment of the charge to the Group should
Urban Regeneration also take on the obligations of the principles of the
Pledge, is in the range of £40m-£50m.
In this event, due to the nature and materiality of this item, it is intended
that the expenses related to the Pledge for both Urban Regeneration and
Partnership Housing would be shown separately as an exceptional 'Developer's
Pledge' provision/expense and adjusted for when reporting the Group's adjusted
(underlying) trading performance.
Subsequent income received for recoveries from third parties would similarly
be presented separately as exceptional 'Developer's Pledge' income.
13 Subsequent events
The only significant subsequent event was the receipt of the letter from DLUHC
by Urban Regeneration on 18 July 2022 as described in note 12 'Contingent
liabilities'. This was considered a non-adjusting subsequent event in the
financial statements for the six months ended 30 June 2022.
The directors confirm that to the best of their knowledge:
· the unaudited condensed consolidated financial statements, which
have been prepared in accordance with UK adopted IAS 34 'Interim Financial
Reporting', give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group as required by DTR 4.2.4R;
· the half year report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
· the half year report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein)
This responsibility statement was approved by the Board on 4(th) August 2022
and is signed on its behalf by:
John Morgan Steve Crummett
Chief Executive Finance Director
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