Full year results to 31 December 2017 Morgan Sindall Group plc 22 February 2018
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Full year results to 31 December 2017 · FY 2017 Financial and Operational Review. ... Medium-term targets as set out in February 2017. 4 FY 2017 Financial and Operational Review.
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Full year results to31 December 2017
Morgan Sindall Group plc22 February 2018
2
Agenda
bull Introduction John Morgan
bull FY 2017 Financial and Operational Review Steve Crummett
bull Investments John Morgan
3
Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
4
FY 2017 Financial and Operational ReviewSteve Crummett
5
Highlights
bull Strong profit growth PBT up 46
bull Balance sheet in very good shape
average daily net cash for the year of pound118m
closing net cash of pound193m
no pension concerns
bull High quality order book up 6 to pound38bn
bull Positive outlook for 2018
bull Total dividend up 29
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
2
Agenda
bull Introduction John Morgan
bull FY 2017 Financial and Operational Review Steve Crummett
bull Investments John Morgan
3
Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
4
FY 2017 Financial and Operational ReviewSteve Crummett
5
Highlights
bull Strong profit growth PBT up 46
bull Balance sheet in very good shape
average daily net cash for the year of pound118m
closing net cash of pound193m
no pension concerns
bull High quality order book up 6 to pound38bn
bull Positive outlook for 2018
bull Total dividend up 29
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
3
Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
4
FY 2017 Financial and Operational ReviewSteve Crummett
5
Highlights
bull Strong profit growth PBT up 46
bull Balance sheet in very good shape
average daily net cash for the year of pound118m
closing net cash of pound193m
no pension concerns
bull High quality order book up 6 to pound38bn
bull Positive outlook for 2018
bull Total dividend up 29
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
4
FY 2017 Financial and Operational ReviewSteve Crummett
5
Highlights
bull Strong profit growth PBT up 46
bull Balance sheet in very good shape
average daily net cash for the year of pound118m
closing net cash of pound193m
no pension concerns
bull High quality order book up 6 to pound38bn
bull Positive outlook for 2018
bull Total dividend up 29
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
5
Highlights
bull Strong profit growth PBT up 46
bull Balance sheet in very good shape
average daily net cash for the year of pound118m
closing net cash of pound193m
no pension concerns
bull High quality order book up 6 to pound38bn
bull Positive outlook for 2018
bull Total dividend up 29
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
6
Summary income statement
poundm FY 2017 FY 2016 change
Revenue 2793 2562 +9
Operating profit1
Operating margin168625
48819
+41+60bps
Profit before tax1 661 453 +46
Earnings per share1 1211p 847p +43
Total dividend per share 450p 350p +29
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m and (in the case of earnings per share) deferred tax credit of pound07m)
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
7
Divisional performance
poundm Revenue Operating Profit1
Operating Margin1
FY 2017 FY 2017 FY 2017 bps
Construction amp Infrastructure 1395 +6 204 +129 15 +80bps
Fit Out 735 +16 391 +42 53 +100bps
Property Services 66 +20 (13) na (20) -330bps
Partnership Housing 474 +9 141 +5 30 -10bps
Urban Regeneration 175 +12 100 -25 na na
Investments 11 na 05 na na na
CentralElims (63) (142)
Total 2793 +9 686 +41 25 +60bps
1 Before intangible amortisation of pound12m (FY 2016 intangible amortisation of pound14m)
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
8
Cash flow
1 Before intangible amortisation of pound12m 2 lsquoNon-cash adjustmentsrsquo include depreciation pound56m share option charge pound55m non-cash provision movements pound37m less shared equity valuation movements pound05m and share of JV profits pound41m3 lsquoOtherrsquo includes JV dividends and interest income pound37m shared equity redemptions pound33m investment property disposals pound07m less provision utilisations pound15m and gains on disposals pound01m
poundm
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3 Operating cash flow
Net interest (non JV)
Tax Free cash flow
0
686
(61)
(378)
102
61 410
271
(43)(96)(96)
271
bull Operating cash inflow of pound41m
60 cash conversion
after net investment of pound40m in Regeneration (included in working capital outflow)
Cash Flow
686
(61)
(378)
102
61
410
271
2087
271
(256)
1934
(43)
(96)
(168)
686
(61)
(378)
102
61
410
271
(43)
(96)
(96)
(168)
(256)
271
(153)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
poundm
0
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital
Other 3
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Operating Profit
Non-cash adjustments 1
Net capex amp finance leases
Working Capital
Other operating cash flows 2
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
Dividends
Other 3
Total cash flow
1 Non-cash adjustments include depreciation share option charge shared equity valuation movements and share of JV profit
2 Other operating cash flows include JV dividends and interest income provision movements shared equity redemptions investment property disposals and gains on disposal of property plant and equipment
3 Other includes net loans advanced to JVs consideration paid to acquire interests in JVs proceeds from the issue of new shares and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
9
Working capitaltrade payables
bull Increase in total lsquoTrade amp Other Payablesrsquo of pound112m in year
lsquoTrade amp Other Payablesrsquo of pound864m at year end mainly comprises contract and other accruals pound573m (lsquoOtherrsquo)
bull lsquoTrade Payablesrsquo at year end of pound162m
increase of pound174m in year
Trade Payable Days3 (TPD) = 24
TPD of 23 in 2016
bull Trade receivable days4 of 18 (15 in 2016)
bull Group has never utilised reverse factoring1 cash flow excludes transfer of land between PPampE and inventories2 adjusted to exclude deferred consideration accrued interest and derivative financial liabilities3 Trade Payable Days = (Trade PayablesCost of Sales) x 3654 Trade Receivable Days = ((Trade Receivables less retentions due)Revenue) x 365
Inventories1 (787)
Receivables (713)
Payables2 +1122
Working capital (378)
Change in working capitalpoundm
No significant change to pattern of receivables and
payables
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
10
Net cash movements
bull Year end net cash of pound193m
bull Average daily net cash of pound118m
bull Bank facilities renewed in year Total of pound180m with main pound150m facility expiring in May 2022
bull Further investment in Regeneration expected through 2018 2018 average daily cash expected to be at
least pound50m
1 lsquoOtherrsquo includes net loans advanced to JVs (pound142m) consideration paid to acquire an additional interest in JVs (pound96m) payment to establish an lsquootherrsquo investment (pound11m) proceeds from issue of new shares (pound01m) proceeds from the exercise of share options (pound03m) and payment by the employee benefit trust to acquire shares in the Company (pound11m)
poundm
Opening net cash
Free cash flow
Dividends Other1 Closing net cash
0
2087
271
(256)
1934
(168)
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
11
Summary balance sheet
poundm FY 2017 FY 2016
Intangibles 2158 2170
PPampE 144 166
Investments (incl JVs) 839 635
Shared equity loan receivables 156 184
Net working capital (1642) (2036)
Current and deferred tax (228) (194)
Pension scheme 28 26
Net cash 1934 2087
Other1 (223) (266)
Net assets - reported 3166 2772
1 lsquoOtherrsquo includes provisions finance lease liabilities deferred consideration accruedprepaid interest derivative financial assets and liabilities
bull Strong balance sheet
net cash and significant undrawn committed facilities
pension scheme net surplus
gross liabilities of pound11m
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
12
Order book
bull Group committed order book up 6 to pound38bn
projects only included in order book when signed contract or letter of intent
does not include preferred bidder or lsquoprospectivesrsquo
51 for 2019 and beyond
Order book
poundmpound3849m
pound3637m
FY 16 FY 17 2018 2019 2020 +
49
20
31
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound523m
pound445m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 16
FY 17
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other1
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
13
Regeneration amp development pipeline
bull Group regeneration amp development pipeline up 1 at pound32bn
relevant to Regeneration businesses
only includes secured schemes (no preferred bidder or lsquoprospectivesrsquo)
our share of Gross Development Value of schemes
provides long-term visibility 86 for 2019 and beyond
Regeneration amp development pipeline
poundmpound3210m pound3233m
FY 16 FY 17 2018 2019 2020 +
1419
67
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
14
Divisional Performances
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
15
bull Revenue split Construction 58 Infrastructure 42bull Construction revenue up 2 Infrastructure up 10bull Margin recovery well underway
continued focus on operational delivery and quality of earnings not volume
Construction margin of 13 up 130bps 16 margin in H2
Infrastructure margin of 17 up 10 bps stronger H2 due to work mix
Construction amp Infrastructure
poundm FY 2017 FY 2016 change
Revenue 1395 1321 +6
Operating profit1 204 89 +129
Margin 15 07 +80bps
1 Adjusted
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
16
poundm pound1886m pound1855m
Infrastructure
Construction
FY 16 FY 17
pound1377mpound1296m
pound590m pound478m
bull Divisional order book down 2 to pound1855m
significant contract wins in Infrastructure with order book up 6 to pound1377m
Construction order book down 19
positive evidence of contract selectivity and focus on quality not chasing volume
93 of Construction order book by value continuing to be derived through negotiatedframework2-stage bidding processes
Construction amp InfrastructureO
rder
Boo
k
Expect further margin improvement in 2018
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound410m
pound257m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound466m
pound1499m
pound2826m
pound341m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 15
FY 16
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
17
Fit Out
poundm FY 2017 FY 2016 change
Revenue 735 634 +16
Operating profit1 391 275 +42
Margin 53 43 +100bps
1 Adjusted
bull Another very strong performance All key metrics showing further progress record revenue of pound735m up 16
operating profit up 42 to pound391m
margin up 100bps to 53
focus on operational delivery
bull 77 of revenue relates to fit out of existing office spacebull London region accounts for 71 of revenue
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
18
poundmpound500m
pound466m
12 month forward order book
Order book beyond 12 months
FY 16 FY 17
pound468m
pound410m
Fit Out
bull Order book of pound500m
increase of 7 compared to previous year end
down 12 from the half year position
12 month forward order book 14 higher than last year
still relatively short term visibility
Ord
er B
ook
Positive outlook for 2018 another strong performance expected
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
19
67
Regeneration capital
Divisional order book
51
32
17
8
14
78
85
62
38
15
34
25
41
pound468m
pound410m
34
34
pound1377m
pound1296m
pound590m
pound478m
pound590m
pound1296m
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Affordable Housing Construction amp Services
Construction amp Infrastructure
Fit Out
poundm
poundm
pound3637m
poundm
pound1537m
poundm
pound1499m
pound500m
pound2826m
pound466m
pound445m
pound342m
Work secured through frameworks two stage tenders negotiated and PFI-type work
12 month forward order book
Order book beyond 12 months
Work secured through competitive fixed price procurement
FY 15
FY 16
2017
2018
2019 +
FY 13
FY 14
FY 16
FY 17
FY 15
FY 16
poundm
pound3283m
pound3210m
FY 16
HY 17
2017
2018
2019 +
Infrastructure
poundm
pound1296m
poundm
pound1886m
pound1855m
pound849m
Infrastructure
Construction
FY 15
FY 16
2017
2018
2019 +
FY 16
FY 17
poundm
pound1886m
poundm
poundm
pound1886m
pound1595m
Infrastructure
Infrastructure
Construction
Construction
FY 15
FY 16
FY 16
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3233m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
19
Property Services
poundm FY 2017 FY 2016 change
Revenue 66 55 +20
Operating (loss)profit1 (13) 07 na
Margin (20) 13 -330bps
1 Adjusted
bull Revenue up 20 as new work mobilised
bull Operating loss of pound13m includes closure of insurance business and exit from loss-making contracts
bull New work secured to support future growth order book up 22 to pound836m including pound102m for 2018
Benefit of restructuring and new work will drive profit in 2018
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
20
bull Slightly disappointing result lower Q4 open market sales in mixed-tenure cost escalation on one contracting job in London due to finish H1 2018
bull Revenue increase driven by Contracting activities Contracting revenue up 27 (pound290m) ndash 61 of division lower lsquocontractorrsquosrsquo margin
bull Mixed-tenure revenue down 10 to pound184m missed some Q4 completions due to programme slippage total 887 units sold (private and social) 16 lower than 2016
Partnership Housing
1 Adjusted
poundm FY 2017 FY 2016 change
Revenue 474 433 +9
Operating profit1 141 134 +5
Margin 30 31 -10bps
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
21
Partnership Housing
bull Capital employed at year end up pound24m to pound88m but average capital down to pound100m
combination of turning non-performing capital into cash and slower investment in new schemes than anticipated
poundm FY 2017 FY 2016
Capital employed1 at year end 880 639
LTM average capital employed1 997 1108
1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing)3 Return on average capital employed = adjusted operating profit divided by average capital employed
Improvement in profit and ROCE expected in 2018
bull LTM ROCE2 of 14 up from 12 prior yearbull Order book up 18 to pound523mbull Regeneration amp development pipeline up 11 to pound851m
currently 45 active mixed-tenure sites average 102 units average duration 39 months
bull Average Capital Employed estimated to increase to cpound120m in 2018
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
22
Urban Regeneration
poundm FY 2017 FY 2016 change
Capital employed1 at year end 850 689 +23
LTM average capital employed1 885 800 +11
Revenue 175 156 +12
Operating profit2 100 134 -25
bull Lower profit in year as expected In line with scheduled development completionsbull Average capital employed increased to pound885m as schemes are developed for sale
in 2018 and beyond
LTM ROCE3 of 9 Well below target threshold
capital employed in 2018 expected to be in range of pound100m-pound110m 1 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities (excluding corporation tax deferred tax and inter-company financing) At period end non-recourse debt was pound265m (FY 2016 pound48m) and deferred consideration was poundnil (FY 2016 pound75m) LTM non-recourse debt was pound154m (FY 2016 pound147m) and LTM deferred consideration was pound35m (FY 2016 pound114m)2 Adjusted3 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed)
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
23
Urban Regeneration
Pipeline schedule indicates uplift in profit and ROCE in 2018
bull Regeneration amp development pipeline down 8 to pound21bn preferred bidder gt pound200m GDV
not included
broad geographic and sector split
bull Significant activity currently lsquoon sitersquo cpound400m of construction work
currently ongoing further cpound420m to be procured in
year
South East amp London
44
South West3
North West35
YorksNE17
Scotland1
Development pipeline by region
Offices30
Retail3Leisure
6Industrial
8
Residential51
Other2
Development pipeline by sector
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
24
Investments
poundm FY 2017 FY 2016 change
Operating profit(loss)1 05 (20) na
bull Year of evolution for Investments role of securing work for other divisions in the Group
cpound135m of construction and regeneration work secured for future delivery across the Group
now also expected to be a profit contributor with own returns target
bull Work delivered mainly through strategic JVs property partnerships with Slough Borough Council Bournemouth Borough Council etc
bull Small profit in year due to residential sales in strategic JVsbull Capital employed2 in all of its partnerships of pound39m (average for year of pound31m)
1 Adjusted2 Capital employed is calculated as total assets (excluding goodwill intangibles and cashoverdraft) less total liabilities
Consistent profit contribution with medium term 20 ROCE target
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
25
Accounting PoliciesIFRS 15 amp 16
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
26
IFRS 15
bull IFRS 15 lsquoRevenue from Contracts with Customersrsquo
bull Effective from 1 January 2018
bull No impact on cash flow
bull No impact on lifetime profitability of contracts
bull Does not fundamentally change the way we report or operate
not restating prior years
instead adjustment to opening reserves adjusts for revenue taken in previous years which wouldnrsquot fulfil IFRS 15 criteria
net adjustment to reserves of pound7m relating to revenue recognised prior to 31 December 2017 which would have been deferred to later years
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
27
bull lsquoIFRS 16 Leasesrsquo 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 Estimated gross asset and liability on transition of cpound40m-pound45m
mainly relates to property leases
future expense in the income statement will comprise depreciation and finance costs rather than rental payments
impact not expected to be material
increase in operating profit and interest expense of cpound1m
IFRS 16
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
28
Summary and Outlook
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
29
Progress against medium-term targets1
Medium-termtarget1
Construction Activities
Margin in Construction 2
Opnl leverage in Property Services gt3 margin
Maintain profits at Fit Out pound25m-pound30m pa
25Margin in Infrastructure
FY16
0
16
pound275m
11
1 Medium-term targets as set out in February 2017
FY17
13
17
pound391m
(20)
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
30
Progress against medium-term targets1
Medium-termtarget1
Regeneration Activities
ROCE in Partnership Housing gt 20
ROCE in Investments Towards 20
Towards 20ROCE in Urban Regeneration
FY16
12
15
1 Medium-term targets as set out in February 2017
FY17
14
9
1
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
31
Summary amp Outlook for 2018
bull Strong set of results for FY 2017 profit margin cash all improved
bull Well-positioned for further growth in 2018
margin improvement in Construction amp Infrastructure good prospects for Fit Out better year in Partnership Housing more development completions scheduled in Urban Regeneration Property Services back into profit positive contribution from Investments no material impact of the Carillion situation
bull Total dividend up 29
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
32
InvestmentsJohn Morgan
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
Construction RegenerationConstruction
amp Infrastructure
Fit Out PropertyServices
PartnershipHousing
Urban Regeneration
Investments
Investments underpins Group activities
Morgan Sindall Group today
33
Group structure
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
34
Our Regeneration businesses
Urban Regeneration
Developer only large mixed-use schemes schemes have multi-phases schemes of long duration
Partnership Housing
Builder and developer houses for sale and rent in partnership with local authorities and housing associations
Investments
Developer only long-term strategic partnerships incorporate multiple smaller schemes individual schemes of relatively short duration delivery by other Group companies
ldquoInvesting cash generated from the Construction divisions into development partnerships with the public sectorrdquo
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
35
Investments today
5 public private partnerships
poundm FY 2017 FY 2016 change
Operating profit(loss) 05 (20) na
Average capital employed 307 207 +48
2 Independent Living JVs
5 Public Private Partnerships
pound143m Sister Company revenue delivered in 2017
Potential pound26bn
GDV from current partnerships 1 Investment
Partnership Fund
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
36
Investments today
bull Local Authorities
bull County Councils
bull NHS Foundation Trusts
Who our partners are How we win work
bull Public procurement (OJEU)
bull Proactive early engagement with identified prospective partners to shape thinking and approach to market
bull allows the Group to win work which individual divisions could not win
bull provides a long-term profit stream and visibility of work
bull provides high quality construction work for rest of the Group
Role of division in the
Group
bull Construction margin for other Group companies
How we make money
bull Development profits
bull Development management fees
plus
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
37
Investments today
bull length of potential relationship 15-25 year strategic partnership
bull a true 5050 partnership
bull scale that justifies building a business around the partnership
bull political and Officer stability
bull local ambition
bull multiple schemes which need delivering at scale and pace
Characteristics we look for in partners
Large barriers to entry
Reputation and track record count
Long lead in times
Experience of the softer issues of publicprivate partnerships
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
38
Current partnerships within Investments
JV Property Partnerships
Independent Supported Living
FundStrategic Estates Partnerships
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
39
Property Partnership JVs
bull Manage all projects from inception to delivery using Group capabilities and resources as appropriate
includes funding and investment expertise
pound500m GDV
pound1bn GDV
pound400m GDV
Capital employed pound105m
Capital employed pound60m
Capital employed pound06m
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
40
Strategic Estates Partnerships
bull Provide access to arrange and deliver private sector capital to finance new projects
bull New projects may involve
capital and refurbishment works
disposal andor acquisition of land
facilities to support NHS related health and social care services
commercial development opportunities
A partnership with
A partnership with
pound200m GDV
pound60m GDV
Two strategic estates property partnerships in early stages
Capital employed pound0m
Capital employed pound0m
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
41
Independent Supported Living JVs
bull Capital and resource is provided to deliver pipeline of developments across the UK
bull HBV specialise in providing independent supporting living for people with complex care needs
pound250m GDV
pound200m GDV bull JV with Ashley House to develop extra care housing
bull Support and capabilities from Group helps deliver pipeline at an increased pace and scale
50 stakes held in two independent supported living JVs
Capital employed pound56m
Capital employed pound41m
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
42
The Fund
bull JV with Universities Superannuation Scheme Ltd (USS) and Investments to form Supported Housing Investment Limited Partnership (SHIP)
bull Committed pound100m to SHIP
bull USS providing 95 of the capital Investments retain 5
bull Financial benefits
fees from managing portfolio
profits from sale of portfolio
Manager of a fund holding supported housing property investments
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
43
Projects
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
44
Slough Urban Renewal
Old library site
bull Objective to create value for the Council and improve the image of Slough through a programme of development and regeneration
bull Term 25 year partnership currently in year 5
bull 8 developments completed library schools housing sports and community facilities
bull 9 developments on site leisure centres housing schools
bull 11 jobs in the design phase
bull Group companies involved Urban Regeneration | Partnership Housing | Construction
bull Original value pound250m but has grown to cpound1bn
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
45
Bournemouth Development Company
Bournemouth town centre
bull Objective to deliver 20 year town centre vision
bull Term 20 year partnership currently in year 6
bull Completed schemes
Student accommodation Multi-storey car park Residential and retail
bull On site
113 unit private rental scheme
bull In planning
mixed-use schemes (352 residential 5000m2 leisure 2000m2 retail and car park)
46 unit private rental scheme 44 open market residential
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
46
HB Villages
Example development in Leamington Spa
bull JV to provide specialised living for vulnerable adults allowing them to live in an independent setting
bull Delivered 36 schemes to date
bull Expect to deliver another 40 schemes over the next twothree years
bull Average size of each development - pound3m GDV
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
47
InvestmentsLooking ahead
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
48
Prospects
bull Investments is an important part of our Regeneration strategy
bull Maximise benefit from existing portfolio
pipeline of opportunities from current developments is very strong indicates a potential investment of up to pound50m in medium term
bull Medium-term target is to increase ROCE up towards 20
expect consistent future profit contribution
bull Long-term work loads of high quality work mainly for Construction and Partnership Housing
bull Expect more major wins this year
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
49
Group Summary
2
Strength of balance sheet gives flexibility to invest in the business
Good progress made against our medium-term targets 1
Following a simple strategy of self-help and organic growth
Strong performance in 2017
Positive momentum to deliver continued growth in 2018 and beyond4
1 Medium-term targets as set out in February 2017
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
50
QuestionsThank you
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
51
Appendices
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
52
Net finance expense
poundm FY 2017 FY 2016
Interest payable on project financing amp other debt (09) (18)
Amortisation of fees amp non-utilisation fees (26) (21)
Interest from JVs 13 11
Other (03) (07)
Total (25) (35)
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
53
Tax
poundm FY 2017 FY 2016
Profit before tax 649 439
Less share of net JV profit1 (41) (74)
Profit subject to tax 608 365
Statutory tax rate 1925 200
Current tax charge at statutory rate (117) (73)
Tax of joint venture profits1 (06) (12)
Effect of tax rate change on deferred tax - 07
Other adjustments (02) 07
Tax charge (125) (71)
1 Certain of the Grouprsquos joint ventures are reported net of tax Other joint ventures are partnerships where profits are taxed within the Group rather than the joint venture
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
54
Adjusted earnings per share
poundm FY 2017 FY 2016
Profit after tax and minority interest 524 368
Adjusted for
Amortisation of intangibles (net of tax) 10 11
Deferred tax credit 1 - (07)
Adjusted earnings 534 372
Average number of shares 441m 439m
Adjusted earnings per share 1211p 847p
1 Due to reduction in UK statutory tax rate
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
55
Capital employed in Regeneration at year end
poundmRegeneration Partnership
HousingUrban
Regeneration
Total net land amp regeneration WIP 263 154 109
Unsold completed units (excl JVs) 8 7 1
Amounts invested in joint ventures 40 2 38
Shared equity loans and investment properties 22 22 -
Other working capital -137 -100 -37
Non-recourse debt -27 - -27
Deferred consideration 0 - 0
Other net assets 4 3 1
Total capital employed at 31 December 2017 173 88 85
As at 31 December 2016 133 64 69
Cash Flow
686
(61)
(378)
65
98
410
271
2087
271
(256)
1934
(43)
(96)
(168)
Order book
49
20
31
14
18
68
Regeneration capital
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
poundm
Regeneration
Partnership Housing
Urban Regeneration
Total net land amp regeneration WIP
263
154
109
Unsold completed units (excl JVs)
8
7
1
Amounts invested in joint ventures
40
2
38
Shared equity loans and investment properties
22
22
-
Other working capital
-137
-100
-37
Non-recourse debt
-27
-
-27
Deferred consideration
0
-
0
Other net assets
4
3
1
Total capital employed at 31 December 2017
173
88
85
As at 31 December 2016
133
64
69
poundm
pound3849m
pound3637m
FY 16
FY 17
2018
2019
2020 +
poundm
pound3210m
pound3133m
FY 16
FY 17
2018
2019
2020 +
poundm
0
Operating Profit 1
Non-cash adjmts 2
Net capex amp finance leases
Working Capital 36
Other 4
Operating cash flow
Net interest (non JV)
Tax
Free cash flow
poundm
0
Opening net cash
Free cash flow
Dividends
Other
Closing net cash
FY 2017
Non-cash
Other
poundm
poundm
poundm
Operating profit - adjusted
686
Depreciation
56
56
Share option expense
55
55
Movement in fair value of shared equity loans
-05
-05
Gains on disposal of joint ventures
-
-
Gain on disposal of PPE
-01
Share of net profit of joint ventures
-41
-41
Additional pension contributions
0
Gain on disposal of PPE
0
0
Investment property disposals
07
Impairment of investments
-
-
Shared equity redemptions
33
Other operating items
61
61
Provision movements
22
Change in working capital
-378
Total other operating items
61
Net capital expenditure (including repayment of finance leases)
-61
Dividends and interest received from joint ventures
37
37
Operating cash flow
410
65
98
Income taxes paid
-96
Net interest paid (non-joint venture)
-43
Free cash flow
271
56
IFRS 15
Areas of difference for Group
bull Recognition of uncertain revenue lsquoprobablersquo vs lsquohighly probablersquo (Construction Infrastructure Partnership Housing)
deduction from revenue of liquidated damages where contractually-entitled
formalised tests to meet higher threshold
bull Recognition of revenue for forward-sold pre-let developments (Urban Regeneration)
move from lsquoriskreward transferrsquo to performance obligations in contract
bull Costs of fulfilment (Property Services)
mobilisation costs on service contracts only capitalised when there is a contractual right to reimbursement on early termination
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m
Costs of fulfilment (pound3m)
Tax effect of the above pound1m
Increase(decrease) in opening equity (pound7m)
Slide Number 1
Agenda
Summary
Slide Number 4
Highlights
Summary income statement
Divisional performance
Cash flow
Working capitaltrade payables
Net cash movements
Summary balance sheet
Order book
Regeneration amp development pipeline
Slide Number 14
Construction amp Infrastructure
Construction amp Infrastructure
Fit Out
Fit Out
Property Services
Partnership Housing
Partnership Housing
Urban Regeneration
Urban Regeneration
Investments
Slide Number 25
IFRS 15
IFRS 16
Slide Number 28
Progress against medium-term targets1
Progress against medium-term targets1
Summary amp Outlook for 2018
Slide Number 32
Slide Number 33
Our Regeneration businesses
Investments today
Investments today
Investments today
Current partnerships within Investments
Property Partnership JVs
Strategic Estates Partnerships
Independent Supported Living JVs
The Fund
Slide Number 43
Slough Urban Renewal
Bournemouth Development Company
HB Villages
Slide Number 47
Prospects
Group Summary
Slide Number 50
Slide Number 51
Net finance expense
Tax
Adjusted earnings per share
Capital employed in Regeneration at year end
IFRS 15
IFRS 15 adjustment to opening reserves in 2018
57
IFRS 15 adjustment to opening reserves in 2018
poundmEstimated
adjustment at 1 Jan 2018
Recognition of uncertain revenue (pound6m)
Recognition of revenue for forward-sold pre-let developments pound1m