Morgan Sindall : 2022 Full year results announcement

23 February 2023

MORGAN SINDALL GROUP PLC

('Morgan Sindall' or 'Group')

The Construction & Regeneration Group

RESULTS FOR THE FULL YEAR (FY) ENDED 31 DECEMBER 2022

	FY 2022	FY 2021	Change
Revenue	£3,612m	£3,213m	+12%
Operating profit - adjusted1	£139.2m	£131.3m	+6%
Profit before tax - adjusted1	£136.2m	£127.7m	+7%
Earnings per share - adjusted1	237.9p	226.0p	+5%
Net cash at year end	£355m	£358m	-£3m
Total dividend per share	101.0p	92.0p	+10%
Operating profit - reported	£88.3m	£129.8m	-32%
Profit before tax - reported	£85.3m	£126.2m	-32%
Basic earnings per share - reported	132.7p	212.4p	-38%

1 'Adjusted' is defined as before intangible amortisation of £2.0m and exceptional building safety charge of £48.9m

(FY 2021: before intangible amortisation of £1.5m and (in the case of earnings per share) deferred tax charge of £5.1m)

FY 2022 summary:

• Record results reflect a strong year of operational and strategic progress despite market headwinds
  o Revenue up 12% to £3.6bn
  o Adjusted profit before tax up 7% to £136.2m
• Continued balance sheet strength

1. Net cash of £355m (FY 2021: £358m)

• 1. Average daily net cash of £256m (FY 2021: £291m)
• High quality and substantial order book with secured workload of £8.5bn
• 1. 2% lower than prior year end
• Total dividend up 10% to 101p per share
• Exceptional charge for Building Safety in line with previous guidance of £48.9m
• Continued leadership in sustainability

1. MSCI 'AAA' rating retained for Group's ESG performance

• 1. CDP 'A' rating retained for Group's leadership on climate change
• Divisional highlights

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1. Another excellent performance from Fit Out; operating profit up 18% to £52.2m (FY 2021: £44.2m)

1. Steady performance from Construction & Infrastructure; operating margin of 3.3% (FY 2021: 3.8%) and operating profit of £52.1m (FY 2021: £58.1m) against strong prior year comparatives

1. Property Services' operating profit1 up 5% to £4.3m (FY 2021: £4.1m)

1. Strong contribution from Partnership Housing with revenue up 22% to £696m (FY 2021: £572m) and operating profit1 up 13% to £37.4m (FY 2021: £33.2m)

1. Good progress by Urban Regeneration; operating profit1 up 56% to £18.9m (FY 2021: £12.1m) and return on capital1 in year of 20%

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

"The Group delivered a strong performance in 2022, with significant strategic and operational progress made across the business despite the market headwinds. These results are another record for the Group and they reflect the high quality of our operations and the talent and commitment of our people.

With the more challenging economic backdrop, our strong balance sheet including our substantial net cash position provides us with confidence and enables us to continue operating efficiently and effectively. Particularly, it allows us to continue making the right decisions for the long term, to maximise our competitive advantage, and to best position us in our markets for continued sustainable long-term growth.

We remain committed to delivering economic, social and environmental value for all our stakeholders, and I am particularly pleased that the Group has retained both its 'AAA' rating from MSCI and its 'A' rating from CDP for our leadership on climate change.

While there remains significant macroeconomic uncertainty, Morgan Sindall is a strong and agile business which is well-placed to overcome the challenges of the coming year and also well-positioned to take advantage of the opportunities that arise in this type of environment. There are early signs that inflation, particularly labour inflation, has plateaued and is starting to fall in some areas. We look forward with optimism and although it is still early in the year, we're well-positioned to deliver a result for 2023 which is in line with our current expectations."

	Enquiries
Morgan Sindall Group	Tel: [phone]
John Morgan
Steve Crummett
Instinctif Partners	Tel: [phone]
Matthew Smallwood
Bryn Woodward

Presentation

• There will be an analyst and investor presentation at 09.00am at Numis Securities Limited, 45 Gresham Street, London EC2V 7BF. Coffee and registration will be from 08.30am

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• A copy of these results is available at: www.morgansindall.com
• Today's presentation will be available via live webcast from 09.00am at www.morgansindall.com. The presentation will be available via playback on our website in the afternoon.

Note to Editors

Morgan Sindall Group

Morgan Sindall Group plc is a leading UK Construction & Regeneration group with annual revenue of £3.6bn, employing around 7,200 employees and operating in the public, regulated and private sectors. It reports through five divisions of Construction & Infrastructure, Fit Out, Property Services, Partnership Housing and Urban Regeneration.

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Group Strategy

The Group's strategy is focused on its well-established core strengths of Construction and Regeneration in the UK. The Group has a balanced business which is geared toward the increasing demand for affordable housing, urban regeneration and infrastructure and construction investment.

Morgan Sindall's recognised expertise and market positions in affordable housing (through its Partnership Housing division) and in mixed-use regeneration development (through its Urban Regeneration division) reflect its deep understanding of the built environment developed over many years and its ability to provide solutions for complex regeneration projects. As a result, its capabilities are aligned with sectors which support the UK's current and future regeneration and affordable housing needs.

Through its Construction & Infrastructure division, the Group is also well positioned to meet the demand for ongoing investment in the UK's physical infrastructure, while its geographically diverse construction activities are focused on key areas of education, healthcare and commercial.

The Fit Out division is the market leader in its field and delivers a consistently strong operational performance. Fit Out, together with the Construction & Infrastructure division, generates cash resources to support the Group's investment in affordable housing and mixed-use regeneration. The Group also has an operation in Property Services which is focused on response and planned maintenance activities provided to the social housing and the wider public sector.

Group Structure

Under the two strategic lines of business of Construction and Regeneration, the Group is organised into five reporting divisions as follows:

Construction activities comprise the following operations:

• Construction & Infrastructure: Focused on the education, healthcare, commercial, industrial, leisure and retail markets in Construction; and on the highways, rail, energy, water and nuclear markets in Infrastructure. Infrastructure also includes the BakerHicks design activities based out of the UK and Switzerland
• Fit Out: Focused on the fit out of office space with opportunities in commercial, central and local government offices and further education
• Property Services: Focused on response and planned maintenance activities provided to the social housing and the wider public sector

Regeneration activities comprise the following operations:

• Partnership Housing: Focused on working in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sale and for social/affordable rent, 'design & build' house contracting and planned maintenance & refurbishment
• Urban Regeneration: Focused on transforming the urban landscape through partnership working and the development of multi-phase sites and mixed-use regeneration

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Basis of Preparation

In addition to presenting the financial performance of the business on a statutory basis, adjusted performance measures are also disclosed. Refer to the Other Financial Information section which sets out the basis for the calculations. These measures are not an alternative or substitute to statutory UK IAS measures, however are seen as more useful in assessing the performance of the business on a comparable basis and are used by management to monitor the performance of the Group.

In all cases the term 'adjusted' excludes the impact of intangible amortisation of £2.0m and of the exceptional building safety charge of £48.9m. For FY 2021, 'adjusted' excluded the impact of intangible amortisation of £1.5m and (in the case of earnings per share) a deferred tax charge of £5.1m.

Group Operating Review

Summary Group financial results

The Group delivered a strong performance in 2022, with significant strategic and operational progress made across the business despite the market headwinds. The results were another record for the Group and reflected the high quality of the Group's operations and the talent and commitment of its people.

Group revenue increased by 12% up to £3,612m (FY 2021: £3,213m), while adjusted operating profit

increased 6% to £139.2m (FY 2021: £131.3m). Adjusted operating margin was 3.9%, 20bps lower than

the prior year (FY 2021: 4.1%). The net finance expense reduced to £3.0m (FY 2021: £3.6m) resulting

in adjusted profit before tax of £136.2m, up 7% (FY 2021: £127.7m).

The statutory profit before tax was £85.3m, a decrease of 32% (FY 2021: £126.2m). This was mainly due to the exceptional Building Safety charge of £48.9m incurred in the year (see below) which was in line with the guidance issued in August with the half year results.

The adjusted tax charge for the period was £27.0m (statutory tax charge of £24.4m), an effective rate of 19.8% on adjusted profit before tax.

The adjusted earnings per share increased 5% to 237.9p (FY 2021: 226.0p). The statutory basic

earnings per share of 132.7p was down 38% (FY 2021: 212.4p), similarly impacted by the exceptional Building Safety charge of £48.9m incurred in the year.

General market conditions

Across the Group, inflationary pressures and supply issues have been a significant headwind throughout the year. Rising energy prices, supply constraints on certain materials and increased trade and labour costs have continued to place upward pressure on total build costs, which in turn has placed increased strain on the stability of the supply chain. Towards the end of the year and going into 2023, there were early signs that inflation, particularly labour inflation, had plateaued and was starting to fall.

Where projects are active and underway, the additional costs arising have generally been offset by a combination of contractual protection, operational efficiencies, flexible sourcing and (in the case of Partnership Housing) by house sales price inflation. On projects where it has not been possible to mitigate all such additional costs in full, the resulting impact on margins has been unavoidable.

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