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MGNS Morgan Sindall Group Plc

2,320.00
-15.00 (-0.64%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Morgan Sindall Group Plc LSE:MGNS London Ordinary Share GB0008085614 ORD 5P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -15.00 -0.64% 2,320.00 2,320.00 2,330.00 2,340.00 2,310.00 2,325.00 53,358 16:29:55
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Gen Contractor-nonres Bldgs 4.12B 117.7M 2.4853 9.33 1.1B

Morgan Sindall Group PLC Half-year Report (1200X)

08/08/2018 7:00am

UK Regulatory


Morgan Sindall (LSE:MGNS)
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RNS Number : 1200X

Morgan Sindall Group PLC

08 August 2018

8 August 2018

MORGAN SINDALL GROUP PLC

('Morgan Sindall' or the 'Group')

The Construction & Regeneration Group

RESULTS FOR THE HALF YEAR (HY)ED 30 JUNE 2018

 
                                              HY 2018       HY 2017      Change 
   Revenue                                   GBP1,423m     GBP1,307m       +9% 
   Operating profit - adjusted(1)             GBP31.9m      GBP24.9m      +28% 
   Profit before tax - adjusted(1)            GBP30.2m      GBP23.7m      +27% 
   Earnings per share - adjusted(1)            55.6p         43.6p        +28% 
   Period end net cash                         GBP97m        GBP97m         - 
   Average daily net cash                     GBP113m       GBP132m      -GBP19m 
  Interim dividend per share                   19.0p         16.0p        +19% 
 
  Operating profit - reported                 GBP31.6m      GBP24.3m      +30% 
  Profit before tax - reported                GBP29.9m      GBP23.1m      +29% 
  Basic earnings per share - reported          55.2p         42.5p        +30% 
-----------------------------------------  ------------  ------------  --------- 
 
    (1) 'Adjusted' is defined as before intangible amortisation (GBP0.3m) 
    (HY 2017: before intangible amortisation (GBP0.6m)). 
 

HY 2018 summary:

   --     Strong results reflecting strategic and operational progress across the Group 

o Revenue up 9%

o Adjusted profit before tax up 27% to GBP30.2m

   --     Average daily net cash of GBP113m; period end net cash of GBP97m 
   --     Divisional highlights 

o Excellent performance from Fit Out; operating profit up 29% to GBP18.8m

o Significant margin improvement in Construction & Infrastructure; operating margin up to 1.7% (HY 2017: 1.1%) reflecting focus on quality of earnings

o Regeneration: Good performance from Urban Regeneration with profit up to GBP6.1m (HY 2017: GBP2.0m), with strong and visible development pipeline. Partnership Housing profit lower at GBP4.6m (HY 2017: GBP5.5m), impacted by construction cost overruns

o Property Services profit of GBP0.5m, reflecting the benefit of increased volumes. Loss in Investments of GBP1.1m due to scheme delays, but growing regeneration & development pipeline

   --   Interim dividend up 19% to 19p per share 

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

"I am pleased to report another strong set of results, which demonstrate the considerable operational and strategic progress made across the Group. Fit Out and Construction & Infrastructure have both continued to deliver margin and profit growth, which has been complemented by a good performance from Urban Regeneration. There remain a significant number of opportunities in regeneration and our strong balance sheet and cash position leave us well-placed to invest further in this key strategic area.

Based upon its current trading patterns and order book visibility, the second half outlook for Fit Out is very positive and as a result of this, the Group is on track to deliver a result for the year which is slightly ahead of its previous expectations."

Enquiries

 
 Morgan Sindall Group   Tel: 020 7307 9200 
  John Morgan 
  Steve Crummett 
 
  Instinctif Partners    Tel: 020 7457 2020 
  Matthew Smallwood 
  Helen Tarbet 
  Rosie Driscoll 
 

Presentation

-- There will be an analyst and investor presentation at 09.00 at Instinctif Partners, 65 Gresham Street, London EC2V 7NQ. Coffee and registration will be from 08.30

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

-- Today's presentation will be available via live webcast from 09.00 at www.morgansindall.com. A recording will also be available via playback in the afternoon.

Note to Editors

Morgan Sindall Group

Morgan Sindall Group plc is a leading UK Construction & Regeneration group with annual revenue of GBP2.8bn, employing around 6,400 employees and operating in the public, regulated and private sectors. It reports through six divisions of Construction & Infrastructure, Fit Out, Property Services, Partnership Housing, Urban Regeneration and Investments.

Group Strategy & Structure

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 investment.

Under the two business activities of Construction and Regeneration, the Group is organised into six divisions as follows:

Construction activities comprise the following operations:

-- Construction & Infrastructure: Focused on the highways, rail, aviation, energy, water and nuclear markets in Infrastructure; and on the education, healthcare, defence, commercial, industrial, leisure and retail markets in Construction

-- Fit Out: Focused on the fit out of office space with opportunities in commercial, central and local government offices, further education and retail banking

-- Property Services: Focused on response and planned maintenance activities provided to social housing and the 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' 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

In addition, Investments is focused on providing the Group with both construction and regeneration opportunities through various strategic partnerships to develop under-utilised property assets and generates development profits from such partnerships.

In February 2017, the Group announced a set of medium-term financial targets for each division (the 'target' or 'targets'). These targets relate to operating margin, return on capital employed or profit and are referenced in the divisional sections of the Business Review as appropriate.

Basis of Preparation

For HY 2018, the term 'adjusted' excludes the impact of intangible amortisation of GBP0.3m (HY 2017: intangible amortisation of GBP0.6m).

Group Operating Review

The positive momentum across the Group coming into 2018 has continued throughout the first half and has driven another strong period of growth. Group revenue increased by 9% up to GBP1,423m (HY 2017: GBP1,307m), while adjusted operating profit increased 28% to GBP31.9m (HY 2017: GBP24.9m). Operating margin increased to 2.2%, up 30 bps from the prior year period (HY 2017: 1.9%).

The Group has again made considerable operational and strategic progress in its activities and markets.

On a divisional basis, Construction & Infrastructure made significant progress with its focus on quality of earnings and contract selectivity, with its margin improving to 1.7% (HY 2017: 1.1%). This resulted in operating profit of GBP11.3m, up 49% on the prior year with revenue down 5% to GBP662m.

Fit Out delivered another excellent performance, with revenue, profit, and margin all increasing. Revenue grew 26% to GBP426m, while profit increased by 29% to GBP18.8m at a margin of 4.4% (HY 2017: 4.3%).

Profit from Urban Regeneration of GBP6.1m was a significant increase on the prior year (HY 2017: GBP2.0m), underpinning the Group's regeneration strategy. However, performance in Partnership Housing was disappointing, with profit down 16% to GBP4.6m (HY 2017: GBP5.5m) primarily impacted by one poor performing contracting project in London. Property Services contributed a small profit of GBP0.5m, benefiting from increased volumes, while Investments made a loss of GBP1.1m as a result of slippage in the timing of a number of its key developments.

The net finance expense increased to GBP1.7m (HY 2017: GBP1.2m), with the increase including a charge of GBP0.6m arising from the adoption of IFRS 16 and including the impact of higher interest payable on non-recourse project financing for Urban Regeneration.

This resulted in adjusted profit before tax of GBP30.2m, up 27% (HY 2017: GBP23.7m). The statutory profit before tax was GBP29.9m, an increase of 29% (HY 2017: GBP23.1m).

The tax charge of GBP5.4m broadly equates to tax at the UK statutory rate.

The adjusted earnings per share of 55.6p was up 28% on the prior year (HY 2017: 43.6p), while the statutory earnings per share was 55.2p (HY 2017: 42.5p).

The Group continues to apply strictly its definitions as to what is reported in its committed order book and regeneration & development pipeline (see Business Review).

The Group's order book at 30 June 2018 was GBP3,604m, 6% lower than at the start of the year. Key movements within this included Fit Out, which grew its order book by 6% to GBP528m, while Construction & Infrastructure was 5% lower at GBP1,761m, reflecting its contract selectivity in line with its strategic focus on quality of earnings and risk management. Partnership Housing was down 20% to GBP418m, reflecting a lower level of activity in its contracting activities.

In Regeneration, the Group's regeneration and development pipeline increased 5% to GBP3,386m. Within this, Investments increased its regeneration pipeline by 62%, up to GBP516m. This includes only GBP113m of work which currently meets the criteria for inclusion from the new property partnership joint venture with Hertfordshire County Council which was announced in the period. Over the course of the 15 year partnership, the ambition is to develop approximately 40 sites with an estimated gross development value in total of GBP2bn.

The Group's balance sheet remains strong. Net cash at the period end was GBP97m (HY 2017: GBP97m).

Importantly, the average daily net cash in the period was GBP113m, which included GBP33m of non-recourse debt relating to specific projects in Urban Regeneration. Based upon current plans, it is expected that the average daily net cash will be in excess of GBP80m for the full year. Looking further ahead in the medium term, as the Group continues to invest across its Regeneration businesses, the Group plans to maintain an overall average daily net cash position.

Over the last twelve month period to 30 June 2018, there has been an operating cash inflow of GBP69.6m, which represents a conversion from operating profit of 92%, and a free cash inflow of GBP57.6m. For the half year period, there was an operating cash outflow of GBP57.9m (HY 2017: outflow of GBP86.5m) and a free cash out flow of GBP65.8m (HY 2017: outflow of GBP96.3m). This outflow in the half year includes the impact of the planned increase in the investment capital employed in the regeneration activities of Urban Regeneration and Partnership Housing of cGBP60m.

The interim dividend has been increased by 19% to 19.0p per share (HY 2017: 16.0p), reflecting the current performance, the strong balance sheet position and the Board's confidence in the future prospects of the Group.

Outlook

Based upon its current trading patterns and order book visibility, the second half outlook for Fit Out is very positive and as a result of this, the Group is on track to deliver a result for the year which is slightly ahead of its previous expectations.

Business Review

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

Headline results by business segment

 
                                     Revenue        Operating Profit/(Loss)     Operating Margin 
                                  GBPm    change      GBPm         change         %       change 
                                 ------  -------  ------------  ------------  --------  --------- 
 Construction & Infrastructure     662     -5%        11.3          +49%        1.7%      +60bps 
 Fit Out                           426     +26%       18.8          +29%        4.4%      +10bps 
 Property Services                 49      +58%        0.5          +67%        1.0%        - 
 Partnership Housing               231     +16%        4.6          -16%        2.0%      -80bps 
 Urban Regeneration                62      -13%        6.1          +205%        n/a       n/a 
 Investments                        3      n/a        (1.1)          n/a         n/a       n/a 
 Central/Eliminations             (10)                (8.3) 
                                 ------  -------  ------------  ------------  --------  --------- 
 Total                            1,423    +9%        31.9          +28%        2.2%      +30bps 
                                 ------  -------  ------------  ------------  --------  --------- 
 

Order book and regeneration & development pipeline

The Group's committed order book(1) at 30 June 2018 was GBP3,604m, a decrease of 6% from the year end position. The divisional split is shown below.

 
                                 HY 2018  FY 2017  Change 
                                  GBPm     GBPm 
-------------------------------  -------  -------  ------ 
 Construction & Infrastructure    1,761    1,855    -5% 
 Fit Out                           528      500     +6% 
 Property Services                 777      836     -7% 
 Partnership Housing               418      523     -20% 
 Urban Regeneration                115      141     -18% 
 Investments                        7        7       - 
 Inter-divisional eliminations     (2)     (13) 
-------------------------------  -------  -------  ------ 
 Group committed order book       3,604    3,849    -6% 
-------------------------------  -------  -------  ------ 
 

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

Specific to the Group's regeneration businesses only, the regeneration & development pipeline(2) was GBP3,386m, up 5% on the year end position.

 
                                    HY 2018  FY 2017 
                                      GBPm     GBPm   Change 
                                    -------  ------- 
 Partnership Housing                  744      851     -13% 
 Urban Regeneration                  2,126    2,063    +3% 
 Investments                          516      319     +62% 
----------------------------------  -------  -------  ------ 
 Group regeneration & development 
  pipeline                           3,386    3,233    +5% 
----------------------------------  -------  -------  ------ 
 

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

 
 
  Construction & Infrastructure 
 
                                  HY 2018  HY 2017  Change 
                                   GBPm     GBPm 
--------------------------------  -------  -------  ------ 
 Revenue                            662      694     -5% 
 Operating profit - adjusted       11.3      7.6     +49% 
 Operating margin - adjusted       1.7%     1.1%    +60bps 
--------------------------------  -------  -------  ------ 
 

Divisional revenue of GBP662m was down 5% on the prior year (HY 2017: GBP694m). Split by activity, Construction (including Design) ('Construction') accounted for 52% of divisional revenue at GBP342m, which was down 16% compared to the prior year, while Infrastructure (48% of divisional revenue) increased 12% to GBP320m.

Operating profit increased significantly to GBP11.3m, up 49%, with further improvement in the operating margin of 60bps, up to 1.7%. In line with the strategy of focusing on quality of earnings, the division is expected to see further margin progression in the second half.

Construction's operating margin for the period was 1.7%, up 70bps from 1.0% in the prior year period. This was achieved by the continued focus on contract selection, risk management and project delivery and resulted in operating profit for the period of GBP5.8m. Infrastructure delivered operating profit of GBP5.5m in the period, reflecting good margin growth up 50bps to 1.7% (HY 2017: 1.2%) and reflected the benefit of the increase in revenue and the work mix in the period.

The committed order book for the division at the period end was GBP1,761m, down 5% from the year end position. The Construction order book of GBP452m was down 5%, as was the Infrastructure order book, down to GBP1,309m. Consistent with its focus on contract selectivity, the appropriate risk profile has been maintained within the Construction order book, with 93% of the value derived through negotiated, framework or two-stage bidding procurement processes (HY 2017: 87%), and only 7% derived through competitive tenders (HY 2017: 13%). Based upon this and progress to date, the revised medium-term target for Construction is an operating margin of 2.5% (previous target of 2%).

In Construction, the focus remains on improving its quality of earnings through contract selectivity and operational delivery. In the education sector, ongoing projects include the delivery of a new GBP20m Mathematics and Science building for Warwick University, the GBP35m Tonyrefail education campus in South Wales and a GBP45m Arts and Humanities facility for the Manchester Metropolitan University. In other sectors, ongoing projects include the GBP18m new build office and laboratory refurbishment for The Centre for the Environment, Fisheries & Aquaculture Science (CEFAS) in Suffolk.

Work won in the period includes a GBP46m mixed use development in Leicester and an GBP18m project to deliver new academic offices for the University of Birmingham, as well as the appointment to the GBP1.1bn Scape Group Regional Construction Framework which will provide construction services for public sector projects across the Midlands and East of England. In addition, Construction has been appointed to the GBP750m Select Property Group framework which will deliver new student accommodation facilities across the UK, with the first award under this framework being for the GBP25m development at the Old BBC Pebble Mill site in Birmingham.

In Infrastructure, the focus remains on the key sectors of Aviation, Highways, Rail, Nuclear, Energy and Water.

In Aviation, current work undertaken at Heathrow Airport as part of the Q6 framework (to which the division was appointed in 2014 and which runs until 2020) includes projects to replace the pavement and ground lighting on the airfield's Alpha North taxiway, with the works being delivered in phases to allow continued use of the area for aircraft departing the Northern Runway. In Highways, work completed on the final stage of the A1(M) Leeming to Barton upgrade, while in Rail, the division completed its works on the Edinburgh to Glasgow Improvement Programme (EGIP) on behalf of Network Rail.

In the Energy sector, work has continued on the four year engineer, procure, construct (EPC) onshore electricity cable framework with National Grid, to which the division was appointed in 2016. Projects awarded under the framework typically vary in value between GBP2m-GBP50m, however the division is currently preferred bidder on the cGBP80m Visual Impact Provision (VIP) Dorset project which will see electricity cables undergrounded across the region in order to reduce the visual impact on the area. In the Nuclear sector, a key business win during the period was the securing of a place on the 10 year Clyde Commercial framework for the Defence Infrastructure Organisation (DIO) on behalf of the Ministry of Defence. In addition, in Water the division continues to deliver the seven-year joint venture project to build the west section of the Thames Tideway Tunnel 'super-sewer'.

 
 
  Fit Out 
 
                               HY 2018  HY 2017  Change 
                                GBPm     GBPm 
-----------------------------  -------  -------  ------ 
 Revenue                         426      339     +26% 
 Operating profit - adjusted    18.8     14.6     +29% 
 Operating margin - adjusted    4.4%     4.3%    +10bps 
-----------------------------  -------  -------  ------ 
 

Fit Out delivered another excellent result in the period, with growth in revenue, profit and margin. Revenue increased by 26% to GBP426m (HY 2017: GBP339m), with operating profit up 29% to GBP18.8m (HY 2017: GBP14.6m) and operating margin increasing to 4.4% (HY 2017: 4.3%). Key drivers of performance remain strong operational delivery, a focus on customer experience and a high quality workload.

Of the revenue in the period, 80% related to the London region, up from 67% in the prior year period, with other regions at 20% (HY 2017: 33%). This equated to growth of some 50% in the London region, driven by ongoing activity on a small number of larger projects which included the fit out of Deloitte's UK headquarters at New Street Square, London comprising of c276,000 sq. ft. of office space.

Split by type of work, there was a slightly higher weighting towards traditional fit out work, which accounted for 87% of revenue (HY 2017: 83%), while 13% related to 'design and build' (HY 2017: 17%). In terms of the nature of work undertaken, the proportion of revenue generated from new office fit out increased to 45% (HY 2017: 34%), also driven by the small number of larger projects referred to above, while the fit out of existing office space reduced to 55% (HY 2017: 66%). Of the fit out of existing office space, 66% related to refurbishment 'in occupation'.

By sector, the commercial office market remains the largest, contributing 86% of revenue (HY 2017: 83%), with higher education at 6% of revenue, retail banking at 3%, and government and local authority work making up the remainder.

The committed order book at 30 June was GBP528m, up 6% from the year end position (FY 2017: GBP500m), however down 7% from the prior year position (HY 2017: GBP568m).

Of this, GBP320m (61%) relates to the second half of the year. The equivalent amount at 30 June 2017 which related to the second half of 2017 was GBP325m. The remaining GBP208m (39%) relates to 2019 and beyond and the equivalent amount at 30 June 2017 which related to 2018 and beyond was GBP243m. This implies 14% lower visibility for future years than at the same time last year.

New contract wins in the period include the appointment to the Department of Work & Pensions Estates Contractor Framework for the London & South East, Scotland and The North East and the fit out and upgrading of 27 storeys including existing office floors and roof repairs for Royal Dutch Shell on London's Southbank. In addition, the division is working with National Grid at their headquarters in Warwick to complete a phased refurbishment in occupation of c50,000 sq ft of office space.

Based upon the financial and operational performance in first half, together with the forward visibility provided by the order book for the second half of the year, it is now anticipated that the divisional result for the year will be higher than previously expected. Further, the revised medium-term target is to deliver annual profit in the range of GBP30m - GBP35m through the cycle (previous target of GBP25m - GBP30m).

 
Property Services 
 
                               HY 2018  HY 2017  Change 
                                GBPm     GBPm 
-----------------------------  -------  -------  ------ 
 Revenue                         49       31      +58% 
 Operating profit - adjusted     0.5      0.3     +67% 
 Operating margin - adjusted    1.0%     1.0%      - 
-----------------------------  -------  -------  ------ 
 

Property Services performed well in the period, with revenue up 58% to GBP49m and operating profit up 67% to GBP0.5m.

Revenue growth was driven both by new contract wins and by an increase in the scope on various existing contracts, primarily being integrated services works for City West Homes and Basildon and planned works for the London Borough of Camden. This has resulted in the division now delivering repairs and maintenance services for more than 160,000 homes, together with a significantly higher level of planned maintenance activity.

Operating profit of GBP0.5m reflected the benefit of the additional contribution from the higher revenue together with the positive impact of a more efficient overhead structure arising from last year's restructuring.

The committed order book of GBP777m, represents an increase of 10% compared to the prior year, although down 7% from the year end position. The strategy remains focusing on long term, 10 year plus, integrated contracts which can deliver sustainable profitable growth. The number of identified market opportunities is strong, with the division currently involved in live integrated tenders with aggregate value of some GBP670m.

 
Partnership Housing 
 
                                 HY 2018  HY 2017  Change 
                                  GBPm     GBPm 
-------------------------------  -------  -------  ------ 
 Revenue                           231      200     +16% 
 Operating profit - adjusted       4.6      5.5     -16% 
 Operating margin - adjusted      2.0%     2.8%    -80bps 
 Average capital employed(1) 
  (last 12 months)                103.5    94.6 
 Capital employed(1) at period 
  end                             118.2    102.4 
-------------------------------  -------  -------  ------ 
 

Revenue increased by 16% in the period up to GBP231m, driven by growth in the mixed-tenure activities. Mixed-tenure revenue (38% of divisional total) was up 50% to GBP87m (HY 2017: GBP58m) and benefited from a number of open market unit completions carried over from the fourth quarter of last year. Contracting revenue (including planned maintenance and refurbishment) was up 1% to GBP144m (62% of divisional total).

In mixed-tenure, 357 units (HY 2017: 315) were completed across open market sales and social housing at an average sales price of GBP244k (HY 2017: GBP184k).

Despite the increase in revenue, operating profit reduced to GBP4.6m, down 16%, with the operating margin down to 2.0% (HY 2017: 2.8%). Profit was impacted in the period by cost and programme delivery issues in Contracting. The mixed-tenure development activities continued to perform as planned.

As previously reported, the division experienced cost escalation on one 'design & build' contract in London in the second half of 2017 and these issues have continued through into the first half impacting results. The contract is due to be completed in the third quarter of the year.

A new senior management team has been appointed to drive the strategic and financial development of the division as well as improving the operational performance of the contracting activities.

Key projects in the period include the commencement of construction on the GBP41m development for Homes England at Priorslee, Telford, which will create 220 affordable and open market homes and a GBP45m joint venture project with Homes England at Leyland, Lancashire, to build 200 homes through the accelerated Construction Programme. In addition, the division has recently been selected by Liverpool city Council's new housing company, Foundations, to build the first homes set to be delivered through Foundations' major new-build programme.

The capital employed at period end was GBP118.2m, an increase of GBP30.2m since the year end position (FY 2017: capital employed GBP88.0m) and an increase of GBP15.8m from the prior year position (HY 2017: capital employed GBP102.4m). The average capital employed for the last 12-month period was GBP103.5m resulting in an overall ROCE(2) of 13% (HY 2017: ROCE(2) of 15%). Capital employed is expected to remain at current levels of cGBP120m for the rest of the year.

The order book has reduced to GBP418m from the start of the year (FY 2017: GBP523m) and reflects the lower level of activity in the contracting activities. The regeneration and development pipeline decreased 13% to GBP744m, however the level of visible opportunities which don't yet meet the strict criteria for inclusion in the regeneration pipeline remains significant.

(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 divided by average capital employed.

 
Urban Regeneration 
 
                                 HY 2018  HY 2017  Change 
                                  GBPm     GBPm 
-------------------------------  -------  -------  ------ 
 Revenue                           62       71      -13% 
 Operating profit - adjusted       6.1      2.0    +205% 
 Average capital employed(1) 
  (last 12 months)                102.1    79.4 
 Capital employed(1) at period 
  end                             114.0    88.7 
-------------------------------  -------  -------  ------ 
 

Urban Regeneration delivered a strong performance in the period, with operating profit of GBP6.1m well up on the prior year (HY 2017: GBP2.0m) resulting from the high level of current activity across the division's development portfolio.

The main contributors to performance in the period were ongoing development profit on a pre-let and forward sold 361,000 sq ft distribution hub at Logic Leeds; development profit on a forward sold 100,000 sq ft headquarters office building pre-let to Conwy County Borough Council; and profit shares on both a residential land sale in Crewe and on the sale of a distribution warehouse at the Eurocentral commercial development, near Motherwell.

In addition, development management fees were generated from the New Bailey development, part of the Salford regeneration scheme managed by English Cities Fund (ECf), a joint venture with Legal & General and Homes England, and from the Warrington Time Square development scheme.

Capital employed at the period end was GBP114.0m, which represented an increase of GBP29.0m from the year end position of GBP85.0m and an increase of GBP25.3m over the prior year period end. Average capital employed for the last 12-month period was GBP102.1m, with an overall ROCE(2) of 12%. Average capital employed is expected to be within the range of GBP100m-GBP110m for the full year.

The market opportunity for the division remains sizeable and a second half weighting to results is expected based upon the current scheduled development completions. The combined regeneration and development pipeline (GBP2.1bn) and committed order book (GBP115m), together totalling GBP2,241m was up 2% from the year end position.

(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 less interest/fees on non-recourse debt in the last twelve months) divided by (average capital employed). Interest and fees on non-recourse debt in the last twelve months was GBP2.2m.

 
Investments 
 
                                      HY 2018  HY 2017  Change 
                                       GBPm     GBPm 
------------------------------------  -------  -------  ------ 
 Operating (loss)/profit - adjusted    (1.1)     0.6     n/a 
------------------------------------  -------  -------  ------ 
 

Investments reported a loss in the period of GBP1.1m. Whilst returns were generated from its established partnerships, most notably from developments through its partnerships with Slough Borough Council and Bournemouth Borough Council, these were lower than anticipated due to key milestones on a number of schemes being delayed. Based upon current schedules and plans, it is now expected that division will show a loss for the full year.

A key benefit of the division is to provide high quality construction and regeneration work for other parts of the Group and during the period, GBP58m of construction and regeneration work on schemes sourced by Investments was delivered across the Group (primarily by Construction & Infrastructure).

Capital employed at the period end was GBP41.8m (HY 2017: GBP27.4m), an increase of GBP3.2m from the year end (FY 2017: capital employed GBP38.6m).

The division was successful in establishing a new property partnership in the period through a joint venture with Hertfordshire County Council. The partnership is for an initial 15-year term, with the option to extend by a further 5 years and has an ambition to develop approximately 40 sites with an estimated gross development value of GBP2bn.

The regeneration & development pipeline of GBP516m was up 62% from the year end position (FY 2017: GBP319m). Of the increase, GBP113m relates to Hertfordshire, being 50% of the GDV of the initially identified sites which meet the criteria for inclusion in the regeneration pipeline. The overall future opportunity remains significant.

 
 Other Financial Information 
 

1. Net finance expense. Net finance expense was GBP1.7m, a GBP0.5m increase versus HY 2017. This included a charge of GBP0.6m which related to the interest expense on lease liabilities under IFRS 16 which was adopted in the period as well as the impact of higher interest payable on non-recourse project financing for Urban Regeneration.

 
                                         HY 2018   HY 2017  % change 
                                          GBPm      GBPm 
---------------------------------------  -------  --------  -------- 
 Interest payable on project 
  financing & other debt                  (0.9)     (0.2)    -350% 
 Amortisation of bank fees & 
  non-utilisation fees                    (1.1)     (1.4)     +21% 
 Interest expense on lease liabilities    (0.6)       -       n/a 
 Interest from JVs                         1.0       0.6      +67% 
 Other                                    (0.1)     (0.2)     +50% 
 Total net finance expense                (1.7)     (1.2)     -42% 
---------------------------------------  -------  --------  -------- 
 

2. Tax. A tax charge of GBP5.4m is shown for the period (HY 2017: GBP4.4m).

 
                                      HY 2018  HY 2017 
                                       GBPm     GBPm 
------------------------------------  -------  ------- 
 Profit before tax                     29.9     23.1 
 Less: share of net profit in taxed 
  joint ventures(1)                    (0.3)      - 
 Profit before tax excluding joint 
  ventures                             29.6     23.1 
 Statutory tax rate                    19.0%   19.25% 
 Current tax charge at statutory 
  rate                                 (5.6)    (4.4) 
 Other adjustments                      0.2       - 
 Tax charge                            (5.4)    (4.4) 
------------------------------------  -------  ------- 
 

(1) Certain 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, less Trade & Other Payables' adjusted as below.

 
                                                    Change 
                                HY 2018   HY 2017    GBPm 
                                 GBPm      GBPm 
------------------------------  -------  -------- 
 Inventories                     316.7     270.9    +45.8 
 Trade & Other Receivables(1)    487.7     428.5    +59.2 
 Trade & Other Payables(2)      (885.8)   (786.2)   -99.6 
 Net working capital            (81.4)    (86.8)     +5.4 
------------------------------  -------  --------  ------- 
 

(1) Adjusted to exclude capitalised arrangement fees (GBP1.1m) (HY 2017: GBP1.6m) and derivative financial assets (GBPnil) (HY 2017: GBP2.0m).

(2) Adjusted to exclude deferred consideration payable (GBPnil) (HY 2017: GBP7.5m), accrued interest (GBP0.2m) (HY 2017: GBP0.2m) and derivative financial liabilities (GBPnil) (HY 2017: GBP1.3m).

4. Cash flow. Operating cash flow for the 12 months to 30 June 2018 was an inflow of GBP69.6m and a free cash inflow of GBP57.6m. For the half year period to 30 June 2018, there was an operating cash outflow of GBP57.9m (HY 2017: outflow GBP86.5m).

 
                                        HY 2018   HY 2017  Last 12 
                                         GBPm      GBPm    months 
--------------------------------------  -------  --------  ------- 
 Operating profit - adjusted             31.9      24.9     75.6 
   Depreciation                           8.5       2.5     11.6 
   Share option expense                   3.1       2.0      6.6 
   Movement in fair value of shared 
    equity loans                         (0.2)     (0.3)    (0.4) 
   Share of net profit of joint 
    ventures                             (1.1)     (2.0)    (3.2) 
   Other operating items (1)              2.6       4.3      4.4 
   Change in working capital(2)         (94.8)    (116.8)  (15.8) 
   Net capital expenditure (including 
    repayment of finance leases)         (8.9)     (1.7)   (13.3) 
   Dividends and interest received 
    from joint ventures                   1.0       0.6      4.1 
 Operating cash flow                    (57.9)    (86.5)    69.6 
    Income taxes paid                    (6.6)     (6.3)    (9.9) 
    Net interest paid (non-joint 
     venture)                            (1.3)     (3.5)    (2.1) 
 Free cash flow                         (65.8)    (96.3)    57.6 
--------------------------------------  -------  --------  ------- 
 

(1) 'Other operating items' includes provision movements (GBP1.7m), shared equity redemptions (GBP1.1m) less gain on disposals (GBP0.2m).

(2) The cash flow for the last 12 months due to a change in working capital excludes a net GBP10.4m comprising: non-cash movement from the change in accounting policy (GBP11.7m), unwind of discounting on land creditors (GBP0.8m), and exchange differences on the translation of overseas operation (GBP0.3m) offset by a non-cash transfer of freehold land and buildings from property, plant and equipment to inventories (GBP2.4m).

5. Net cash. Net cash at the period end was GBP96.9m, as a result of a net cash outflow of GBP96.5m.

 
                                   GBPm 
                                  ------ 
 Net cash as at 1 January 
  2018                            193.4 
      Free cash flow (as above)   (65.8) 
      Dividends                   (12.9) 
      Other(1)                    (17.8) 
 Net cash as at 30 June 2018       96.9 
--------------------------------  ------ 
 

(1) 'Other' includes net loans advanced to JVs (GBP11.6m), deferred consideration paid in relation to the acquisition of a joint venture and other investment (GBP2.2m), purchase of shares in the Company by the employee benefit trust (GBP9.5m), proceeds from the issue of new shares (GBP3.8m), and proceeds from the exercise of share options (GBP1.7m).

6. Capital employed by strategic activity. An analysis of the negative capital employed in the Construction activities shows a decrease of GBP48.0m since the previous year, split as follows:

 
 Capital employed(1) in Construction    HY 2018   HY 2017   Change 
                                          GBPm      GBPm     GBPm 
                                       --------  -------- 
 Construction & Infrastructure          (235.3)   (193.2)   -42.1 
 Fit Out                                (49.8)    (42.9)     -6.9 
 Property Services                       11.1      10.1      +1.0 
-------------------------------------  --------  --------  ------- 
                                        (274.0)   (226.0)   -48.0 
-------------------------------------  --------  --------  ------- 
 

An analysis of capital employed in the Regeneration activities shows an increase of GBP41.1m since the previous year, split as follows:

 
 Capital employed(1) in Regeneration    HY 2018   HY 2017   Change 
                                          GBPm      GBPm     GBPm 
                                       --------  -------- 
 Partnership Housing(2)                  118.2     102.4    +15.8 
 Urban Regeneration(2)                   114.0     88.7     +25.3 
                                         232.2     191.1    +41.1 
                                       --------  -------- 
 

(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) Definition as per the Partnership Housing and Urban Regeneration sections in the Business Review.

7. Dividends. The Board of Directors has proposed an interim dividend of 19.0p per share (HY 2017: 16.0p), up 19% on the prior year. This will be paid on 29 October 2018 to shareholders on the register at 12 October 2018. The ex-dividend date will be 11 October 2018.

8. Changes in Accounting Policies. The Group adopted the following accounting standards on 1 January 2018:

8.1 IFRS 9 'Financial instruments'. Introduces changes to the classification and measurement of financial assets, hedge accounting and the model to be applied when assessing whether financial assets are impaired. This has resulted in an impairment provision of GBP2.3m being recognised in relation to loans that were part of the Group's long-term interests in a PFI joint venture and trade and other receivables. The net effect on opening reserves at 1 January 2018 was GBP1.9m net of deferred tax adjustments.

8.2 IFRS 15 'Revenue from contracts with customers'. Introduces a new model for revenue recognition based on the satisfaction of performance obligations. For the Group there are three main areas of change: a greater degree of certainty is required to recognise variable revenue in relation to liquidated damage deductions, revenue for forward-sold, pre-let developments is recognised over time rather than at a point in time where certain conditions are met, and the costs of fulfilling a contract are only capitalised where they are expected to be recovered over the duration of the work and the Group has a contractual entitlement to recover them in the event of a no-fault termination. The effect of these changes on opening reserves at the date of transition was GBP9.8m net of deferred tax adjustments.

8.3 IFRS 16 'Leases'. Requires a right-of-use asset and lease liability to be recognised in respect of all leases other than those that are less than one year in duration or of a low value. The effect of this for the Group has been to recognise a right-of-use asset of GBP42.9m and lease liability of GBP43.4m at the transition date of 1 January 2018. The Group has taken advantage of the practical expedients to grandfather previous conclusions under IAS 17 on which contracts contain leases, to apply the cumulative catch up approach rather than full retrospective application and to measure the right-of-use asset at an amount equal to the lease liability (adjusted for accruals and prepayments) at transition date.

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 2018

 
                                                Six months    Six months 
                                                        to            to   Year ended 
                                              30 June 2018  30 June 2017  31 Dec 2017 
                                               (unaudited)   (unaudited)    (audited) 
                                       Notes          GBPm          GBPm         GBPm 
-------------------------------------  -----  ------------  ------------  ----------- 
Revenue                                  2         1,422.6       1,307.3      2,792.7 
Cost of sales                                    (1,276.4)     (1,177.5)    (2,518.3) 
-------------------------------------  -----  ------------  ------------  ----------- 
Gross profit                                         146.2         129.8        274.4 
Administrative expenses                            (115.4)       (106.9)      (209.9) 
Share of net profit of joint 
 ventures                                              1.1           2.0          4.1 
Operating profit before amortisation 
 of intangible assets                                 31.9          24.9         68.6 
                                       -----  ------------  ------------ 
Amortisation of intangible assets                    (0.3)         (0.6)        (1.2) 
-------------------------------------  -----  ------------  ------------  ----------- 
Operating profit                                      31.6          24.3         67.4 
Finance income                                         1.2           0.8          1.6 
Finance costs                                        (2.9)         (2.0)        (4.1) 
-------------------------------------  -----  ------------  ------------  ----------- 
Profit before tax                                     29.9          23.1         64.9 
Tax                                      1           (5.4)         (4.4)       (12.5) 
-------------------------------------  -----  ------------  ------------  ----------- 
Profit for the period                                 24.5          18.7         52.4 
-------------------------------------  -----  ------------  ------------  ----------- 
 
Attributable to: 
Owners of the Company                                 24.5          18.7         52.4 
-------------------------------------  -----  ------------  ------------  ----------- 
 
Earnings per share 
Basic                                    5           55.2p         42.5p       118.8p 
Diluted                                  5           54.1p         41.0p       112.7p 
-------------------------------------  -----  ------------  ------------  ----------- 
 

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 2018

 
                                               Six months    Six months 
                                                       to            to   Year ended 
                                             30 June 2018  30 June 2017  31 Dec 2017 
                                              (unaudited)   (unaudited)    (audited) 
                                      Notes          GBPm          GBPm         GBPm 
------------------------------------  -----  ------------  ------------  ----------- 
Profit for the period                                24.5          18.7         52.4 
 
Items that will not be reclassified 
 subsequently to profit or loss: 
Actuarial (loss)/gain arising 
 on retirement benefit obligation      10           (2.8)             -          0.1 
Deferred tax on retirement benefit 
 obligation                                           0.5             -            - 
------------------------------------  -----  ------------  ------------  ----------- 
                                                    (2.3)             -          0.1 
------------------------------------  -----  ------------  ------------  ----------- 
 
Items that may be reclassified 
 subsequently to profit or loss: 
Foreign exchange movement on 
 translation of overseas operation                    0.1         (0.3)        (0.2) 
Gains arising during the period 
 on cash flow hedges                                    -           0.4          0.3 
Reclassification from cash flow 
 hedges to the income statement                     (0.5)         (0.7)        (0.7) 
Deferred tax relating to items 
 that may be reclassified                               -             -          0.1 
------------------------------------  -----  ------------  ------------  ----------- 
                                                    (0.4)         (0.6)        (0.5) 
------------------------------------  -----  ------------  ------------  ----------- 
Other comprehensive expense                         (2.7)         (0.6)        (0.4) 
------------------------------------  -----  ------------  ------------  ----------- 
Total comprehensive income                           21.8          18.1         52.0 
------------------------------------  -----  ------------  ------------  ----------- 
 
Attributable to: 
Owners of the Company                                21.8          18.1         52.0 
------------------------------------  -----  ------------  ------------  ----------- 
 

Condensed consolidated balance sheet

At 30 June 2018

 
                                        30 June 2018  30 June 2017  31 Dec 2017 
                                         (unaudited)   (unaudited)    (audited) 
                                 Notes          GBPm          GBPm         GBPm 
-------------------------------  -----  ------------  ------------  ----------- 
Assets 
Goodwill and other intangible 
 assets                                        215.5         216.4        215.8 
Property, plant and equipment                   57.3          15.5         14.4 
Investment property                              5.9           6.3          5.9 
Investments in joint ventures                   87.5          63.8         76.7 
Other investments                                1.3             -          1.3 
Shared equity loan receivables     6            14.7          16.9         15.6 
Retirement benefit asset          10             0.1           2.6          2.8 
-------------------------------  -----  ------------  ------------  ----------- 
Non-current assets                             382.3         321.5        332.5 
Inventories                                    316.7         270.9        295.0 
Trade and other receivables        7           488.8         432.1        404.1 
Cash and cash equivalents          8           139.9         112.3        221.2 
Current assets                                 945.4         815.3        920.3 
-------------------------------  -----  ------------  ------------  ----------- 
Total assets                                 1,327.7       1,136.8      1,252.8 
-------------------------------  -----  ------------  ------------  ----------- 
Liabilities 
Trade and other payables           9         (875.9)       (793.5)      (854.1) 
Current tax liabilities                        (7.7)         (5.0)        (8.9) 
Lease liabilities                             (10.3)         (0.5)        (0.5) 
Borrowings                         8          (43.0)        (15.2)       (27.8) 
Current liabilities                          (936.9)       (814.2)      (891.3) 
-------------------------------  -----  ------------  ------------  ----------- 
Net current assets                               8.5           1.1         29.0 
Trade and other payables                      (10.1)         (1.7)        (9.6) 
Lease liabilities                             (33.9)         (0.4)        (0.4) 
Deferred tax liabilities                      (11.2)        (12.5)       (13.9) 
Provisions                                    (22.7)        (21.1)       (21.0) 
-------------------------------  -----  ------------  ------------  ----------- 
Non-current liabilities                       (77.9)        (35.7)       (44.9) 
-------------------------------  -----  ------------  ------------  ----------- 
Total liabilities                          (1,014.8)       (849.9)      (936.2) 
-------------------------------  -----  ------------  ------------  ----------- 
Net assets                                     312.9         286.9        316.6 
-------------------------------  -----  ------------  ------------  ----------- 
Equity 
Share capital                                    2.3           2.2          2.2 
Share premium account                           37.5          33.8         33.8 
Other reserves                                 (0.7)         (0.4)        (0.3) 
Retained earnings                              273.8         251.3        280.9 
-------------------------------  -----  ------------  ------------  ----------- 
Equity attributable to owners 
 of the Company                                312.9         286.9        316.6 
Total equity                                   312.9         286.9        316.6 
-------------------------------  -----  ------------  ------------  ----------- 
 

Condensed consolidated cash flow statement

For the six months ended 30 June 2018

 
                                                    Six months    Six months 
                                                            to            to   Year ended 
                                                       30 June 
                                                          2018  30 June 2017  31 Dec 2017 
                                                   (unaudited)   (unaudited)    (audited) 
                                            Notes         GBPm          GBPm         GBPm 
------------------------------------------  -----  -----------  ------------  ----------- 
Operating activities 
Operating profit                                          31.6          24.3         67.4 
Adjusted for: 
 Amortisation of intangible assets                         0.3           0.6          1.2 
 Share of net profit of equity 
  accounted joint ventures                               (1.1)         (2.0)        (4.1) 
 Depreciation                                              8.5           2.5          5.6 
 Share option expense                                      3.1           2.0          5.5 
 Gain on disposal of property, 
  plant and equipment                                    (0.2)         (0.1)        (0.1) 
 Movement in fair value of shared 
  equity loan receivables                                (0.2)         (0.3)        (0.5) 
Disposals of investment properties                           -           0.3          0.7 
Repayment of shared equity loan 
 receivables                                               1.1           1.8          3.3 
Increase in provisions                                     1.7           2.3          2.2 
Operating cash inflow before movements 
 in working capital                                       44.8          31.4         81.2 
Increase in inventories                                 (31.7)        (57.0)       (78.7) 
Increase in receivables                                 (84.7)        (98.9)       (71.3) 
Increase in payables                                      21.6          39.1        112.2 
------------------------------------------  -----  -----------  ------------  ----------- 
Movements in working capital                            (94.8)       (116.8)       (37.8) 
------------------------------------------  -----  -----------  ------------  ----------- 
Cash (outflow)/inflow from operations                   (50.0)        (85.4)         43.4 
------------------------------------------  -----  -----------  ------------  ----------- 
Income taxes paid                                        (6.6)         (6.3)        (9.6) 
------------------------------------------  -----  -----------  ------------  ----------- 
Net cash (outflow)/inflow from 
 operating activities                                   (56.6)        (91.7)         33.8 
------------------------------------------  -----  -----------  ------------  ----------- 
Investing activities 
Interest received                                          1.4           0.8          1.4 
Dividend from joint ventures                                 -             -          2.6 
Proceeds on disposal of property, 
 plant and equipment                                       0.3           0.1          0.6 
Purchases of property, plant and 
 equipment                                               (1.5)         (1.4)        (6.3) 
Net increase in loans to joint 
 ventures                                               (11.6)         (4.9)       (14.2) 
Payment for the acquisition of 
 subsidiaries, joint ventures and 
 other businesses                                        (2.0)             -        (9.6) 
Payment for other investments                            (0.2)             -        (1.1) 
Net cash outflow from investing 
 activities                                             (13.6)         (5.4)       (26.6) 
------------------------------------------  -----  -----------  ------------  ----------- 
Financing activities 
Interest paid                                            (1.7)         (3.7)        (4.6) 
Dividends paid                                4         (12.9)         (9.7)       (16.8) 
Repayments of lease obligations                          (7.7)         (0.4)        (0.4) 
Proceeds from/(repayment of) borrowings       8           15.2         (4.6)          8.0 
Proceeds on issue of share capital                         3.8           0.1          0.1 
Payments by the Trust to acquire 
 shares in the Company                                   (9.5)         (1.0)        (1.1) 
Proceeds on exercise of share options                      1.7           0.2          0.3 
------------------------------------------  -----  -----------  ------------  ----------- 
Net cash outflow from financing 
 activities                                             (11.1)        (19.1)       (14.5) 
------------------------------------------  -----  -----------  ------------  ----------- 
Net decrease in cash and cash equivalents               (81.3)       (116.2)        (7.3) 
Cash and cash equivalents at the 
 beginning of the period                                 221.2         228.5        228.5 
------------------------------------------  -----  -----------  ------------  ----------- 
Cash and cash equivalents at the 
 end of the period                            8          139.9         112.3        221.2 
------------------------------------------  -----  -----------  ------------  ----------- 
 

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2018

 
                                      Share  Share premium      Other   Retained    Total 
                                    capital        account   reserves   earnings   equity 
                                       GBPm           GBPm       GBPm       GBPm     GBPm 
---------------------------------  --------  -------------  ---------  ---------  ------- 
  1 January 2018                        2.2           33.8      (0.3)      280.9    316.6 
  Effect of change in accounting 
   policies (note 1)                      -              -          -     (11.7)   (11.7) 
---------------------------------  --------  -------------  ---------  ---------  ------- 
  As restated                           2.2           33.8      (0.3)      269.2    304.9 
  Total comprehensive income              -              -      (0.4)       22.2     21.8 
  Share option expense                    -              -          -        3.1      3.1 
  Issue of shares at a premium          0.1            3.7          -          -      3.8 
  Exercise of share options 
   and vesting of share awards            -              -          -        1.7      1.7 
  Purchase of shares in the 
   Company by the Trust                   -              -          -      (9.5)    (9.5) 
  Dividends paid                          -              -          -     (12.9)   (12.9) 
---------------------------------  --------  -------------  ---------  ---------  ------- 
  30 June 2018 (unaudited)              2.3           37.5      (0.7)      273.8    312.9 
---------------------------------  --------  -------------  ---------  ---------  ------- 
 
 
                                    Share  Share premium      Other   Retained    Total 
                                  capital        account   reserves   earnings   equity 
                                     GBPm           GBPm       GBPm       GBPm     GBPm 
-------------------------------  --------  -------------  ---------  ---------  ------- 
  1 January 2017                      2.2           33.7        0.2      241.1    277.2 
  Total comprehensive income            -              -      (0.6)       18.7     18.1 
  Share option expense                  -              -          -        2.0      2.0 
  Issue of shares at a premium          -            0.1          -          -      0.1 
  Purchase of shares in the 
   Company by the Trust                 -              -          -      (0.8)    (0.8) 
  Dividends paid                        -              -          -      (9.7)    (9.7) 
-------------------------------  --------  -------------  ---------  ---------  ------- 
  30 June 2017 (unaudited)            2.2           33.8      (0.4)      251.3    286.9 
-------------------------------  --------  -------------  ---------  ---------  ------- 
 
 
                                    Share  Share premium      Other   Retained    Total 
                                  capital        account   reserves   earnings   equity 
                                     GBPm           GBPm       GBPm       GBPm     GBPm 
-------------------------------  --------  -------------  ---------  ---------  ------- 
  1 January 2017                      2.2           33.7        0.2      241.1    277.2 
  Total comprehensive income            -              -      (0.5)       52.5     52.0 
  Share option expense                  -              -          -        5.5      5.5 
  Tax relating to share option 
   expense                              -              -          -      (0.6)    (0.6) 
  Issue of shares at a premium          -            0.1          -          -      0.1 
  Exercise of share options 
   and vesting of share awards          -              -          -        0.3      0.3 
  Purchase of shares in the 
   Company by the Trust                 -              -          -      (1.1)    (1.1) 
  Dividends paid                        -              -          -     (16.8)   (16.8) 
-------------------------------  --------  -------------  ---------  ---------  ------- 
  31 December 2017 (audited)          2.2           33.8      (0.3)      280.9    316.6 
-------------------------------  --------  -------------  ---------  ---------  ------- 
 

Other reserves

Other reserves include:

-- Capital redemption reserve of GBP0.6m (30 June 2017: GBP0.6m, 31 December 2017: GBP0.6m) which was created on the redemption of preference shares in 2003.

-- Hedging reserve of (GBP0.8m) (30 June 2017: (GBP0.3m), 31 December 2017: (GBP0.3m)) 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 (GBP0.5m) (30 June 2017: (GBP0.7m), 31 December 2017: (GBP0.6m)) 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 2018 was 339,627 (30 June 2017: 619,535, 31 December 2017: 555,104) with a cost of GBP4.7m (30 June 2017: GBP4.7m, 31 December 2017: GBP4.2m).

Notes to the consolidated financial statements

For the six months ended 30 June 2018

1 Basis of preparation

General information

The financial information for the year ended 31 December 2017 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 2018 and 2017 and for the six months ended 30 June 2018 and 2017 are therefore unaudited.

Basis of preparation

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

Going concern

As at 30 June 2018, the Group had net cash of GBP96.9m and total undrawn committed banking facilities of GBP180m 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 foreseeable future. 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 foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

Tax

A tax charge of GBP5.4m is shown for the six month period (six months to 30 June 2017: GBP4.4m, year ended 31 December 2017: GBP12.5m). 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.

Seasonality

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

Changes in accounting policies

The Group adopted the following accounting standards on 1 January 2018:

-- IFRS 9 'Financial instruments'. Introduces changes to the classification and measurement of financial assets, hedge accounting and the model to be applied when assessing whether financial assets are impaired. This has resulted in an impairment provision of GBP2.3m being recognised in relation to loans that were part of the Group's long-term interests in a PFI joint venture and trade and other receivables. The net effect on opening reserves at 1 January 2018 was GBP1.9m net of deferred tax adjustments.

-- IFRS 15 'Revenue from contracts with customers'. Introduces a new model for revenue recognition based on the satisfaction of performance obligations. For the Group there are three main areas of change: a greater degree of certainty is required to recognise variable revenue in relation to liquidated damage deductions, revenue for forward-sold, pre-let developments is recognised over time rather than at a point in time where certain conditions are met, and the costs of fulfilling a contract are only capitalised where they are expected to be recovered over the duration of the work and the Group has a contractual entitlement to recover them in the event of a no-fault termination. The effect of these changes on retained earnings at the date of transition was GBP9.8m net of deferred tax adjustments.

-- IFRS 16 'Leases'. Requires a right-of-use asset and lease liability to be recognised in respect of all leases other than those that are less than one year in duration or of a low value. The effect of this for the Group has been to recognise a right-of-use asset of GBP42.9m and lease liability of GBP43.4m at the transition date of 1 January 2018. The Group has taken advantage of the practical expedients to grandfather previous conclusions under IAS 17 on which contracts contain leases, to apply the cumulative catch up approach rather than full retrospective application and to measure the right-of-use asset at an amount equal to the lease liability (adjusted for accruals and prepayments) at transition date.

The effect of the accounting policy changes on 1 January 2018 can be summarised as follows:

 
 GBPm                           As previously             Adjustments 
                                     reported 
-----------------------------  --------------  ---------------------------------  ------------ 
 
                                                  IFRS 9     IFRS 15     IFRS 16   As restated 
-----------------------------  --------------  ---------  ----------  ----------  ------------ 
 
 Property, plant and 
  equipment                              14.4          -           -        42.9          57.3 
 Investments in joint 
  ventures                               76.7      (1.9)           -           -          74.8 
 Inventories                            295.0          -      (10.0)           -         285.0 
 Trade and other receivables            404.1      (0.4)         3.2       (0.7)         406.2 
 
 Change in total assets                            (2.3)       (6.8)        42.2 
 
 Trade and other payables 
  - current                           (854.1)          -       (5.0)         1.2       (857.9) 
 Lease liabilities - 
  current                               (0.5)          -           -      (10.2)        (10.7) 
 Lease liabilities - 
  non-current                           (0.4)          -           -      (33.2)        (33.6) 
 Deferred tax liabilities              (13.9)        0.4         2.0           -        (11.5) 
 
 Change in total liabilities                         0.4       (3.0)      (42.2) 
 
 Change in total equity                            (1.9)       (9.8)           - 
-----------------------------  --------------  ---------  ----------  ----------  ------------ 
 

The Group's new accounting policies are set out below. Other than those described below, there have not been any other 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 2017.

Revenue and margin recognition

The principal revenue streams within the Group are as follows:

   (a)        Construction and infrastructure services contracts 

Construction & Infrastructure, Fit Out, Property Services, Partnership Housing and Urban Regeneration all derive a significant portion of their revenue from construction and infrastructure services contracts. These services are provided to customers across a wide variety of sectors and the size and duration of the contracts can vary significantly from a few weeks to more than 10 years.

The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. Whilst the scope of works may include a number of different components, in the context of construction and infrastructure services activities these are usually highly interrelated and produce a combined output for the customer.

Contracts are typically satisfied over time. For fixed price construction contracts progress is measured through a valuation of the works undertaken by a professional quantity surveyor, including an assessment of any elements for which a price has not yet been agreed such as changes in scope. For cost reimbursable infrastructure services contracts progress is measured based on the costs incurred to date as a proportion of the estimated total cost and an assessment of the final contract price payable.

Variations are only included in the estimated total contract price when the customer has agreed the revised scope of work. Where the scope has been agreed but the corresponding change in price has not yet been agreed, only the amount that is considered highly probable not to reverse in the future is included in the estimated total contract price. Where delays to the programme of works are anticipated and liquidated damages would be contractually due, the estimated total contract price is reduced accordingly. This is only mitigated by expected extensions of time or commercial resolution being achieved where it is highly probable that this will not lead to a significant reversal in the future.

For cost reimbursable contracts, expected pain share is recognised in the estimated total contract price immediately whilst anticipated gain share and performance bonuses are only recognised at the point that they are agreed by the customer.

In order to recognise the profit over time it is necessary to estimate the total costs of the contract. These estimates take account of any uncertainties in the cost of work packages which have not yet been let and materials which have not yet been procured, the expected cost of any acceleration of or delays to the programme or changes in the scope of works and the expected cost of any rectification works during the defects liability period.

Once the outcome of a construction contract can be estimated reliably, margin is recognised in the income statement in line with the stage of completion. Where a contract is forecast to be loss-making, the full loss is recognised immediately in the income statement.

    (b)       Service contracts 

Service contracts include design, maintenance and management services in Construction & Infrastructure, Property Services, Urban Regeneration and Investments. Contracts are typically satisfied over time and revenue is measured through an assessment of time incurred and materials utilised as a proportion of the total expected or percentage of completion depending upon the nature of the service.

   (c)        Sale of land and properties 

Partnership Housing, Urban Regeneration and Investments derive a significant portion of revenue from the sale of land, and the development and sale of residential and commercial properties.

Contracts are typically satisfied at a point in time. This is usually deemed to be legal completion as this is the point at which the Group has an enforceable right to payment. The only exception to this is pre-let forward-sold developments where the customer controls the work in progress as it is created; or where the Group is unable to put the asset being constructed to an alternative use due to legal or practical limitations and has an enforceable right to payment for the work completed to date. Where these conditions are met, the contract is accounted for as construction contract in accordance with paragraph (a) above.

Revenue from the sale of land, residential and commercial properties is measured at the transaction price agreed in the contract with the customer. While deferred payment terms may be agreed in rare circumstances, the deferral rarely exceeds twelve months. The transaction price is therefore not adjusted for the effects of a significant financing component. The Group no longer utilises shared equity loan schemes for the sale of residential properties.

Proceeds from the sale of properties taken in part exchange is not included in revenue but is treated as a reduction in costs.

In order to recognise profit it is necessary to estimate the total costs of a development. These estimates take account of any uncertainties in the cost of work packages which have not yet been let and materials which have not yet been procured and the expected cost of any rectification works during the defects liability period which is 12 months for commercial property and 24 months for residential property.

Profit is recognised by allocating the total costs of a scheme to each unit at a consistent margin. For mixed tenure schemes which also incorporate a construction contract, the margin recognised for the open market units is consistent with the construction contract element of the development.

   (d)        Contract costs 

Costs to obtain a contract are expensed unless they are incremental, i.e. they would not have been incurred if the contract had not been obtained, and the contract is expected to be sufficiently profitable for them to be recovered.

Costs to fulfil a contract are expensed unless they relate to an identified contract, generate or enhance resources that will be used to satisfy the obligations under the contract in future years and the contract is expected to be sufficiently profitable for them to be recovered.

Where costs are capitalised, they are amortised over the shorter of the period for which revenue and profit can be forecast with reasonable certainty and the duration of the contract except where the contract becomes loss making. If the contract becomes loss making, all capitalised costs related to that contract are immediately expensed.

   (e)        Government grants 

Funding received in respect of developer grants, where funding is awarded to encourage the building and renovation of affordable housing, is recognised as revenue on a stage of completion basis over the life of the project to which the funding relates.

Funding received to support the construction of housing where current market prices would otherwise make a scheme financially unviable is recognised as revenue on a legal completion basis when the properties to which it relates are sold.

Government grants are initially recognised as deferred income at fair value when there is reasonable assurance that the Group will comply with the conditions attached and the grants will be received.

   (f)         Leases 

Where the Group is a lessee, a right-of-use asset and lease liability are recognised at the outset of the lease. The lease liability is initially measured at the present value of the lease payments that are not paid at that date based on the Group's expectations of the likelihood of lease extension or break options being exercised. The lease liability is subsequently adjusted to reflect imputed interest, payments made to the lessor and any lease modifications. The right-of-use asset is initially measured at cost, which comprises the amount of the lease liability, any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs incurred by the Group and an estimate of any costs that are expected to be incurred at the end of the lease to dismantle or restore the asset. The right-of-use asset is subsequently depreciated in accordance with the Group's accounting policy on property, plant and equipment. The amount charged to the income statement comprises the depreciation of the right-of-use asset and the imputed interest on the lease liability.

2 Revenue

An analysis of the Group's revenue which depicts the nature, timing and uncertainty of the different revenue streams is as follows:

 
                                    Six months    Six months 
                                            to            to   Year ended 
                                  30 June 2018  30 June 2017  31 Dec 2017 
                                          GBPm          GBPm         GBPm 
--------------------------------  ------------  ------------  ----------- 
Construction and design                  342.2         409.1        807.3 
Infrastructure                           319.6         284.6        587.5 
--------------------------------  ------------  ------------  ----------- 
Construction and Infrastructure          661.8         693.7      1,394.8 
 
Traditional fit out                      371.0         283.2        616.5 
Design and build                          55.4          56.1        118.4 
--------------------------------  ------------  ------------  ----------- 
Fit Out                                  426.4         339.3        734.9 
 
Property Services                         48.9          31.4         66.2 
 
Contracting                              144.5         141.9        290.1 
Mixed tenure                              86.8          58.0        183.4 
--------------------------------  ------------  ------------  ----------- 
Partnership Housing                      231.3         199.9        473.5 
 
Urban Regeneration                        61.6          70.7        175.3 
 
Investments                                3.3           5.5         10.6 
 
Eliminations                            (10.7)        (33.2)       (62.6) 
--------------------------------  ------------  ------------  ----------- 
Total revenue                          1,422.6       1,307.3      2,792.7 
--------------------------------  ------------  ------------  ----------- 
 

3 Business segments

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

-- Construction & Infrastructure: provides infrastructure services in the highways, rail, aviation, energy, water and nuclear markets, including tunnel design; and construction services in education, healthcare, defence, commercial, industrial, leisure and retail. BakerHicks offers a multidisciplinary design and engineering consultancy.

-- Fit Out: Overbury specialises in fit out and refurbishment in commercial, central and local government offices, further education and retail banking. Morgan Lovell provides design and build services for the office sector.

-- Property Services: provides planned asset management and responsive maintenance to social housing and the wider public sector.

-- Partnership Housing: works in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sale and affordable rent, design and build contracting and planned maintenance and refurbishment.

-- Urban Regeneration: works with landowners and public sector partners to transform the urban landscape through the development of multi-phase sites and mixed-use regeneration, including residential, commercial, retail and leisure.

-- Investments: works to provide the Group with construction and regeneration opportunities through various strategic partnerships to develop under-utilised property assets.

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, information technology services, interest revenue and interest expense. The divisions are the basis on which the Group reports its segmental information as presented below:

 
Six months to 30 June 
 2018 
------------------------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
                  Construction 
                             &    Fit  Property  Partnership         Urban                    Group 
                Infrastructure    Out  Services      Housing  Regeneration  Investments  Activities  Eliminations    Total 
                          GBPm   GBPm      GBPm         GBPm          GBPm         GBPm        GBPm          GBPm     GBPm 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
External 
 revenue                 651.1  426.4      48.9        231.3          61.6          3.3           -             -  1,422.6 
Inter-segment 
 revenue                  10.7      -         -            -             -            -           -        (10.7)        - 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
Total revenue            661.8  426.4      48.9        231.3          61.6          3.3           -        (10.7)  1,422.6 
 
Operating 
 profit/(loss) 
 before 
 amortisation 
 of intangible 
 assets                   11.3   18.8       0.5          4.6           6.1        (1.1)       (8.3)             -     31.9 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 
Amortisation 
 of intangible 
 assets                      -      -     (0.3)            -             -            -           -             -    (0.3) 
Operating 
 profit/(loss)            11.3   18.8       0.2          4.6           6.1        (1.1)       (8.3)             -     31.6 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 
 
Six months to 30 June 
 2017 
------------------------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
                  Construction 
                             &    Fit  Property  Partnership         Urban                    Group 
                Infrastructure    Out  Services      Housing  Regeneration  Investments  Activities  Eliminations    Total 
                          GBPm   GBPm      GBPm         GBPm          GBPm         GBPm        GBPm          GBPm     GBPm 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
External 
 revenue                 660.5  339.3      31.4        199.9          70.7          5.5           -             -  1,307.3 
Inter-segment 
 revenue                  33.2      -         -            -             -            -           -        (33.2)        - 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
Total revenue            693.7  339.3      31.4        199.9          70.7          5.5           -        (33.2)  1,307.3 
 
Operating 
 profit/(loss) 
 before 
 amortisation 
 of intangible 
 assets                    7.6   14.6       0.3          5.5           2.0          0.6       (5.7)             -     24.9 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 
Amortisation 
 of intangible 
 assets                      -      -     (0.3)        (0.2)         (0.1)            -           -             -    (0.6) 
Operating 
 profit/(loss)             7.6   14.6         -          5.3           1.9          0.6       (5.7)             -     24.3 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 
 
Year ended 31 December 
 2017 
                  Construction 
                             &    Fit  Property  Partnership         Urban                    Group 
                Infrastructure    Out  Services      Housing  Regeneration  Investments  Activities  Eliminations    Total 
                          GBPm   GBPm      GBPm         GBPm          GBPm         GBPm        GBPm          GBPm     GBPm 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
External 
 revenue               1,332.6  734.5      66.2        473.5         175.3         10.6           -             -  2,792.7 
Inter-segment 
 revenue                  62.2    0.4         -            -             -            -           -        (62.6)        - 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
Total revenue          1,394.8  734.9      66.2        473.5         175.3         10.6           -        (62.6)  2,792.7 
 
Operating 
 profit/(loss) 
 before 
 amortisation 
 of intangible 
 assets                   20.4   39.1     (1.3)         14.1          10.0          0.5      (14.2)             -     68.6 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 
Amortisation 
 of intangible 
 assets                      -      -     (0.6)        (0.4)         (0.2)            -           -             -    (1.2) 
Operating 
 profit/(loss)            20.4   39.1     (1.9)         13.7           9.8          0.5      (14.2)             -     67.4 
--------------  --------------  -----  --------  -----------  ------------  -----------  ----------  ------------  ------- 
 

During the period ended 30 June 2018, the period ended 30 June 2017 and the year ended 31 December 2017, inter-segment sales were charged at prevailing market prices and significantly all of the Group's operations were carried out in the UK.

4 Dividends

 
Amounts recognised as distributions to equity 
 holders in the period: 
---------------------------------------------------  ------------  ----------- 
                                         Six months    Six months 
                                                 to            to   Year ended 
                                       30 June 2018  30 June 2017  31 Dec 2017 
                                               GBPm          GBPm         GBPm 
-------------------------------------  ------------  ------------  ----------- 
Final dividend for the year ended 
 31 December 2017 of 29.0p per share           12.9             -            - 
Final dividend for the year ended 
 31 December 2016 of 22.0p per share              -           9.7          9.7 
Interim dividend for the year ended 
 31 December 2017 of 16.0p per share              -             -          7.1 
-------------------------------------  ------------  ------------  ----------- 
                                               12.9           9.7         16.8 
-------------------------------------  ------------  ------------  ----------- 
 

The proposed interim dividend of 19.0p per share was approved by the Board on 8 August 2018 and will be paid on 29 October 2018 to shareholders on the register on 12 October 2018. The ex-dividend date is 11 October 2018.

5 Earnings per share

 
                                        Six months    Six months 
                                                to            to   Year ended 
                                      30 June 2018  30 June 2017  31 Dec 2017 
                                              GBPm          GBPm         GBPm 
-----------------------------------   ------------  ------------  ----------- 
Profit attributable to the owners 
 of the Company                               24.5          18.7         52.4 
Adjustments: 
 Amortisation of intangible 
  assets net of tax                            0.2           0.5          1.0 
Adjusted earnings                             24.7          19.2         53.4 
------------------------------------  ------------  ------------  ----------- 
 
 
Basic weighted average ordinary 
 shares (m)                                   44.4          44.0         44.1 
Dilutive effect of share options 
 and conditional shares not vested 
 (m)                                           0.9           1.6          2.4 
------------------------------------  ------------  ------------  ----------- 
Diluted weighted average ordinary 
 shares (m)                                   45.3          45.6         46.5 
------------------------------------  ------------  ------------  ----------- 
 
 
Basic earnings per share                     55.2p         42.5p       118.8p 
Diluted earnings per share                   54.1p         41.0p       112.7p 
Adjusted earnings per share                  55.6p         43.6p       121.1p 
Diluted adjusted earnings per 
 share                                       54.5p         42.1p       114.8p 
------------------------------------  ------------  ------------  ----------- 
 

The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options and long-term incentive plan shares was based on quoted market prices for the period that the options were outstanding. The weighted average share price for the period was GBP13.37 (30 June 2017: GBP10.38, 31 December 2017: GBP12.03).

A total of 1,072,901 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 2018 (30 June 2017: 2,263,006, 31 December 2017: 38,938).

6 Shared equity loan receivables

 
                                       30 June 2018  30 June 2017  31 Dec 2017 
                                               GBPm          GBPm         GBPm 
------------------------------------   ------------  ------------  ----------- 
1 January                                      15.6          18.4         18.4 
Net change in fair value recognised 
 in the income statement                        0.2           0.3          0.5 
Repayments by borrowers                       (1.1)         (1.8)        (3.3) 
-------------------------------------  ------------  ------------  ----------- 
End of period                                  14.7          16.9         15.6 
-------------------------------------  ------------  ------------  ----------- 
 

Basis of valuation and assumptions made

There is no directly observable fair value for individual loans arising from the sale of properties under the scheme, and therefore the Group has developed a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases, expected loan defaults and a discount factor which reflects the interest rate expected on an instrument of similar risk and duration in the market. Details of the key assumptions made in this valuation are as follows:

 
                                     30 June 2018  30 June 2017  31 Dec 2017 
----------------------------------   ------------  ------------  ----------- 
Assumption 
Period over which shared equity 
 loan receivables are discounted: 
 First Buy and Home Buy schemes          20 years      20 years     20 years 
 Other schemes                            9 years       9 years      9 years 
Nominal discount rate                        5.3%          5.4%         5.3% 
Weighted average nominal annual 
 property price increase                     2.4%          2.3%         2.4% 
Forecast default rate                        6.8%          2.0%         4.6% 
Number of loans under the shared 
 equity scheme outstanding at the 
 period end                                   449           543          489 
-----------------------------------  ------------  ------------  ----------- 
 

The fair value measurement for shared equity loan receivables is classified as Level 3 as defined by IFRS 7 'Financial Instruments: Disclosures'.

Sensitivity analysis

At 30 June 2018, if the nominal discount rate had been 100bps higher at 6.3% and all other variables were held constant, the fair value of the shared equity loan receivables would decrease by GBP0.3m with a corresponding reduction in both the result for the period and equity (excluding the effects of tax).

At 30 June 2018, if the period over which the shared equity loan receivables (excluding those relating to the First Buy and Home Buy schemes) are discounted had been 10 years and all other variables were held constant, the fair value of the shared equity loan receivables would decrease by GBP0.4m with a corresponding reduction in both the result for the period and equity (excluding the effects of tax).

7 Trade and other receivables

 
                                  30 June 2018  30 June 2017  31 Dec 2017 
                                          GBPm          GBPm         GBPm 
-------------------------------   ------------  ------------  ----------- 
Contract assets                          236.5         200.7        174.2 
Trade receivables                        223.9         198.9        208.0 
Amounts owed by joint ventures             1.3           1.2          2.1 
Prepayments                               18.2          19.6         10.2 
Other receivables                          8.9          11.7          9.6 
--------------------------------  ------------  ------------  ----------- 
                                         488.8         432.1        404.1 
 -------------------------------  ------------  ------------  ----------- 
 

8 Net cash

 
                                   30 June 2018  30 June 2017  31 Dec 2017 
                                           GBPm          GBPm         GBPm 
--------------------------------   ------------  ------------  ----------- 
Cash and cash equivalents                 139.9         112.3        221.2 
Non-recourse project financing 
 due in less than one year               (41.5)        (15.2)       (26.5) 
Borrowings due in less than one 
 year                                     (1.5)             -        (1.3) 
Net cash                                   96.9          97.1        193.4 
---------------------------------  ------------  ------------  ----------- 
 

The non-recourse project finance borrowings were drawn from separate facilities to fund specific projects. These borrowings are without recourse to the remainder of the Group's assets.

9 Trade and other payables

 
                                                30 June 
                                  30 June 2018     2017  31 Dec 2017 
                                          GBPm     GBPm         GBPm 
-------------------------------   ------------  -------  ----------- 
Trade payables                           201.9    200.1        162.0 
Contract liabilities                      98.0     60.8         58.3 
Amounts owed to joint ventures             0.2      0.2          0.2 
Other tax and social security             23.5     18.9         37.5 
Accrued expenses                         531.9    472.6        573.3 
Deferred income                            2.7      0.8          2.7 
Other payables                            17.7     40.1         20.1 
--------------------------------  ------------  -------  ----------- 
                                         875.9    793.5        854.1 
 -------------------------------  ------------  -------  ----------- 
 

10 Retirement benefit asset

The Morgan Sindall Retirement Benefits Plan ('the Retirement Plan') was established on 31 May 1995 and currently operates on defined contribution principles for employees of the Group. The Retirement Plan also includes a defined benefit section comprising liabilities and transfers of funds representing the accrued benefit rights of active and deferred members and pensioners of pension plans of companies which are now part of the Group. These include salary related benefits for members in respect of benefits accrued before 31 May 1995 (and benefits transferred in from The Snape Group Limited Retirement Benefits Scheme accrued up to 1 August 1997). No further defined benefit membership rights can accrue after those dates. The scheme duration is an indicator of the weighted-average time until benefit payments are expected to be made. For the scheme as a whole, the duration is around 15 years.

On 23 May 2018 the Trustees of the Retirement Plan completed a buy-in transaction with Aviva to insure the benefits of the Defined Benefit members. The buy-in policy is an asset of the Plan that provides payments that are an exact match to the pension payments made to the Defined Benefit members covered by the policy. The insurance policy was initially recognised as an asset at an amount equal to its cost. It was then immediately remeasured to its fair value in accordance with IAS 19, giving rise to an actuarial loss of GBP2.8m, leaving an accounting surplus of GBP0.1m.

11 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.

12 Subsequent events

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

The directors confirm that to the best of their knowledge:

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

By order of the Board

   John Morgan                           Steve Crummett 
   Chief Executive                       Finance Director 

8 August 2018

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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