HALF YEAR RESULTS to 30 June 2018 AUGUST 2018 Agenda Introduction - - PowerPoint PPT Presentation

HALF YEAR RESULTS to 30 June 2018 AUGUST 2018

Agenda

Introduction | John Morgan HY 2018 Financial & Operational Review | Steve Crummett Strategy & Prospects | John Morgan

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Strategic and operational progress delivers another strong period of growth Positive momentum set to deliver further growth in the second half Good progress against our medium-term targets1 Strength of balance sheet gives flexibility to invest

Highlights

HY 2018 Financial & Operational Review

Steve Crummett

5

27%

£113m

19%

£1.4bn

HY 2018 Financial Highlights

Revenue up 9% Profit before tax1 up 27% to £30.2m Average daily net cash £97m closing net cash Interim dividend up 19% to 19p per share

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Summary Income Statement

£m HY 2018 HY 2017 % change Revenue 1,423 1,307 +9% Operating profit1

Operating margin1

31.9

2.2%

24.9

1.9%

+28%

+30bps

Profit before tax1 30.2 23.7 +27% Earnings per share1 55.6p 43.6p +28% Interim dividend per share 19.0p 16.0p +19%

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Divisional performance

£m Revenue Operating Profit/(Loss)1 Operating Margin1 HY 2018 % HY 2018 % HY 2018 bps

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 Elims/Central (10) (8.3)

Total 1,423 +9% 31.9 +28% 2.2% +30bps

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£m

Operating Profit 1

Non-cash adjmts 2 Net capex & finance leases Working Capital Other 3

Operating cash flow

Net interest (non JV) Tax

Free cash flow

31.9 (8.9) (94.8) 10.3 3.6 (57.9) (1.3) (6.6) (65.8)

Cash flow – six months to June 2018

• Reflects usual working

capital movements from year end

• Includes increase in capital

employed in regeneration activities of c£60m

• No material change to

pattern of receivables or payables

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£m

Operating Profit 1

Non-cash adjmts 2 Net capex & finance leases Working Capital Other 3

Operating cash flow

Net interest (non JV) Tax

Free cash flow

75.6 (13.3) (15.8) 14.6 69.6 (2.1) (9.9) 57.6 8.5

Cash flow – last 12 months

£69.6m

Operating cash flow

92%

Cash conversion

10

Trade payables & other items

£202m

Trade Payables

at HY 2018

‘Trade Payable Days’1

at HY 2018

• Increase of £2m since HY 2017

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• Reduction of two days from HY 2017 (30 days)
• No change to Trade Receivable Days – 18 days

£98m

Contract Liabilities

at HY 2018

£5m

Net retentions

at HY 2018

• Vs contract asset of £237m

receivable

(£81m)

Total net working capital

at HY 2018

11

Net cash movement

• Total bank facilities of £180m expiring in

2022

• FY 2018 average daily net cash expected

to be > £80m

£m

Opening net cash

Free cash flow Dividends Other 1

Closing net cash

193.4 (12.9) (17.8) (65.8) 96.9

£113m

Average daily net cash

£97m

Period end net cash

shares in the Company by the employee benefit trust (£9.5m), proceeds from the issue of new shares (£3.8m), and proceeds from the exercise of share options (£1.7m)

12

Balance sheet

£m HY 2018 FY 2017

Intangibles 215.5 215.8 PP&E 57.3 14.4 Investments (incl JVs) 94.7 83.9 Shared equity loan receivables 14.7 15.6 Net working capital (81.4) (164.2) Current and deferred tax (18.9) (22.8) Pension scheme 0.1 2.8 Net cash 96.9 193.4 Lease liabilities (44.2) (0.9) Other1 (21.8) (21.4) Net assets - reported 312.9 316.6

Strong balance sheet

Net cash and significant undrawn committed facilities

Pension risk eliminated

‘Buy-in’ completed with Aviva in H1 to insure the benefits of the defined benefit members

IFRS 16

Inclusion of Lease liabilities arising from IFRS 16 adoption. Corresponding increase in PP&E

13

Order book/regeneration & development pipeline

• Down 6% from FY 2017
• Aggregate of various divisional

movements

• Common theme across Group is the

focus on quality of earnings and risk management

• Projects only included in order book

when signed contract or letter of intent in place

• Up 5% from FY 2017
• Only includes secured schemes (no

preferred bidder or ‘prospectives’)

• Our share of Gross Development Value of

schemes

• Long-term in nature. 91% is for 2020
• nwards

£3.6bn

Order book

£3.4bn

Regeneration & development pipeline

Divisional performances

15

Performance again reflects the focus on operational delivery, risk management and quality of earnings Further margin progression expected in H2

Construction & Infrastructure

£m HY 2018 HY 2017 Change Revenue 662 694

• 5%

Operating profit1 11.3 7.6 +49% Margin % 1.7% 1.1% +60bps

Revenue split

52% Construction 48% Infrastructure

Margin vs HY 2017

+70bps Construction (at 1.7%) +50bps Infrastructure (at 1.7%)

Revenue vs HY 2017

• 16% Construction (at £342m)

+12% Infrastructure (at £320m)

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£1,855m £1,761m

Infrastructure Construction

FY 17 HY 18 £1,309m £1,377m £478m £452m

Divisional order book of £1.76bn Down 5% from year end with continued focus on quality

93% of Construction order book by value continuing to be derived through negotiated/framework/two-stage bidding processes

Construction & Infrastructure

Order book

17

£m HY 2018 HY 2017 Change Revenue 426 339 +26% Operating profit1 18.8 14.6 +29% Margin % 4.4% 4.3% +10bps

Record H1 revenue and profit Further margin improvement, up to 4.4%

Fit Out

80% London 20% Other regions 87% Traditional fit out 13% ‘Design & build’ 55% Existing office space 45% New office space

• Driven by operational delivery, focus on customer experience

and a high quality workload

Revenue split

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Next six months Beyond six months

HY 17 HY 18

Order Book

Fit Out

Order Book of £528m

• Down 7% on HY 2017’s record order book
• Up 6% compared to year end

Order Book beyond six months of £208m

• Down 14% from £243m at HY 2017
• Relatively short-term visibility

Work load indicates a strong H2

• £320m orders for H2. Similar to last year
• FY performance likely higher than expected

£325m £320m £243m £208m

£568m £528m

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Significant revenue growth, up 58%

• Driven by new contract wins and increase of scope on various existing contracts
• Revenue expected to be > £100m for FY 2018

Profit up 67%

• Operational leverage benefit coming through, plus more efficient overhead structure from

previous restructuring

Property Services

£777m Order book

• Up 10% from HY 2017
• Down 7% from FY 2017

£m HY 2018 HY 2017 Change Revenue 49 31 +58% Operating profit1 0.5 0.3 +67% Margin % 1.0% 1.0%

20

Profit down 16%, impacted by Contracting activities

• Mixed-tenure performing as planned
• Operational delivery issues in Contracting

Partnership Housing

£m HY 2018 HY 2017 Change Revenue 231 200 +16% Operating profit1 4.6 5.5

• 16%

Margin % 2.0% 2.8%

• 80bps

38% Mixed-tenure (up 50%) 62% Contracting (up 1%)

One under-performing ‘design & build’ contract subject to further delays

• Cost escalation and penalties; due to complete in Q3

New management team appointed

• Immediate focus on operational improvement

Revenue split

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Partnership Housing

£m HY 2018 HY 2017 Capital employed1 at period end 118.2 102.4 LTM average capital employed1 103.5 94.6

Increase in capital employed as planned

• Capital employed up by £30.2m from FY 2017; up £15.8m from HY 2017
• Last 12 months average capital employed up to £103.5m, resulting in ROCE2 of 13%

Capital employed estimated to broadly remain at current levels of c£120m for the rest of the year

£418m order book

• up 11% from HY 2017
• down 20% from FY 2017
• reflects lower construction activity

£744m regeneration pipeline

• down 13% from FY 2017
• significant visible opportunities don’t yet

meet criteria for inclusion

22

Urban Regeneration

£m HY 2018 HY 2017 Change Capital employed1 at period end 114.0 88.7 +£25.3m LTM average capital employed1 102.1 79.4 +£22.7m Revenue 62 71

• 13%

Operating profit3 6.1 2.0 205%

non-recourse debt in the last twelve months was £2.2m

Good performance with profit up to £6.1m

• High level of current activity across the development portfolio

£114m

• includes £42m of non-recourse debt
• up £25.3m from HY 2017
• up £29.0m from FY 2017

capital employed at period end

£102m

• ROCE2 of 12%. Suppressed by higher

capital despite higher profits

• full year average capital expected to

be in range £100m-£110m

average capital employed LTM Profit generated across all sectors and geography

• Benefiting from diverse pipeline

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Regeneration & development pipeline up 3% to £2.1bn

Preferred bidder > £350m GDV not included Broad geographic and sector split Significant activity currently ‘on site’

Scotland 1% Yorks & NE 18% North West 32% South West 2% SE & London 47% BY S E C TO R Residential 52% Other 2% Offices 28% Retail 3% Leisure 6% Industrial 9%

Urban Regeneration Pipeline

BY R E G I O N

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£ GDV (100%) Project

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028+ 180m Victoria Station, Manchester      130m Chester         130m Logic Leeds      100m Rolls Royce Hucknall          90m South Shields       300m Lewisham      150m Basingstoke        100m Brixton     100m Stroudley Walk     600m ECF Salford        210m WP Brentford      330m ECF Canning Town         Key:  Profit earned

Urban Regeneration Pipeline

Expected flow of turnover and profit from top projects (by GDV of schemes)

25

Loss in period due to slippage in scheme completions

• Profit generated from residential sales and PRS deal through

strategic JVs

• £58m of construction work sourced by Investments and delivered

by other Group divisions

Investments

£516m

£m HY 2018 HY 2017 Change Operating (loss)/profit (1.1) 0.6 n/a

Regeneration pipeline

• Up 62% from FY 2017

£2bn

GDV of Hertfordshire CC partnership

• Only £113m currently included in

pipeline

Operating loss expected for FY

26

Strong performance in H1 FY 2018 slightly higher than previously expected

• Fit Out order book visibility and current performance
• Continued margin improvement in Construction & Infrastructure
• Development completions in Urban Regeneration indicate further good performance

Average daily net cash for FY 2018 to be in excess of £80m Interim dividend up 19%

Summary and Outlook for remainder of 2018

Strategy and Prospects

John Morgan

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We are in the sectors we want to be in Self help and

• rganic growth

Strong balance sheet

Important for all stakeholders Expect to retain net average daily cash

Overview

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Margin in Infrastructure

Progress

Margin in Construction Profits in Fit Out Margin in Property Services ROCE in Partnership Housing ROCE in Urban Regeneration

Medium-term target1 Forecast

2% >3% margin £25m-£30m p.a. 2.5% >20% ROCE Towards 20% ROCE Ahead On Track Well Over On Track Slightly Behind Slightly Ahead

30

Construction & Infrastructure

CONSTRUCTION

Progress ahead of target 1 Margin improvement priority over turnover Disciplined bidding and great execution Medium-term target increased to 2.5%

INFRASTRUCTURE

Progress comfortably on target 1 Strong pipeline of bid opportunities Expect turnover to increase in the medium term Too early to increase 2.5% margin targets

31

Fit Out

Expecting record profits in 2018 Growth in markets outside of London More frameworks available Profit target increased to £30m-£35m through the cycle

32

Property Services

Strong good quality order book Long-term visibility Concentrating on operational excellence Fragmented market Excellent opportunity

33

Partnership Housing

Slightly behind targets Opportunity is as strong as ever New MD and FD Excellent track record throughout the UK Strong pipeline of schemes from 2020 onwards

34

Urban Regeneration

Progress slightly ahead of target Strong visibility next few years Ambition to invest £150m in the medium term Strong pipeline of new schemes

35

Investments

Good flow of bid opportunities Very important for partnership housing and construction Target 20% ROCE Working on the biggest opportunities for the Group

36

Summary

Very Strong Teams Clear Strategy Strong Balance Sheet Continuing Positive Momentum FY 2018 slightly higher than previously expected

STRONG POSITION

Questions

Appendices

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Capital employed in Regeneration

£m Regeneration Partnership Housing Urban Regeneration Total net land & regeneration WIP 298 180 118 Unsold completed units (excl JVs) 3 3

• Amounts invested in joint ventures

53 6 47 Shared equity loans and investment properties 21 21

• Other working capital
• 103
• 94
• 9

Non-recourse debt

• 42
• 42

Other net assets 2 2

• Total capital employed at 30 June 2018

232 118 114 As at 31 December 2017 173 88 85

40

Net Finance Expense

£m HY 2018 HY 2017 Interest payable on project finance & other debt (0.9) (0.2) Amortisation of fees & non-utilisation fees (1.1) (1.4) Interest expense on lease liabilities (0.6)

• Interest from JVs

1.0 0.6 Other (0.1) (0.2) Total (1.7) (1.2)

41

Tax

£m HY 2018 HY 2017 Profit before tax 29.9 23.1 Less: share of net JV profit1 (0.3)

• Profit subject to tax

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)

42

Adjusted earnings per share

£m HY 2018 HY 2017 Profit after tax and minority interest 24.5 18.7 Adjusted for: Amortisation of intangibles (net of tax) 0.2 0.5 Adjusted earnings 24.7 19.2 Average number of shares 44.4m 44.0m Adjusted earnings per share 55.6p 43.6p

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IFRS 15

Recognition of uncertain revenue: ‘probable’ vs ‘highly probable’ (Construction, Infrastructure, Partnership Housing)

• Deduction from revenue of liquidated damages where contractually-entitled
• Formalised tests to meet higher threshold

Recognition of revenue for forward-sold, pre-let developments (Urban Regeneration)

• Move from ‘risk/reward transfer’ to performance obligations in contract

Costs of fulfilment (Property Services)

• Mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on

early termination

Areas of difference for Group:

44

IFRS adjustment to opening reserves in 2018

£m Adjustment at 1 Jan 2018 Recognition of uncertain revenue (£9m) Recognition of revenue for forward-sold, pre-let developments £1m Costs of fulfilment (£4m) Tax effect of the above £2m Increase/(decrease) in opening equity (£10m)

45

IFRS 16

‘IFRS 16 Leases’ being adopted a year early to align with implementation of IFRS 15

• Requires all leases to be recognised on the balance sheet as a right of use asset with a

corresponding lease liability

• Mainly relates to property leases
• Balance sheet impact is an increase in assets and liabilities of £42m
• Expense in the income statement comprises depreciation and finance costs rather

than rental payments

• Increase in operating profit and interest expense of £1.2m in FY (£0.6m HY 2018)