Morgan Sindall : 2023 Half year results announcement

3 August 2023

MORGAN SINDALL GROUP PLC

('Morgan Sindall' or 'Group')

The Construction & Regeneration Group

RESULTS FOR THE HALF YEAR (HY) ENDED 30 JUNE 2023

Strong first half, on track for record full year performance

	HY 2023	HY 2022	Change
Revenue	£1,935m	£1,698m	+14%
Operating profit - adjusted1	£59.1m	£56.9m	+4%
Profit before tax - adjusted1	£59.8m	£54.6m	+10%
Earnings per share - adjusted1	98.9p	95.8p	+3%
Period end net cash	£263m	£274m	-£11m
Interim dividend per share	36.0p	33.0p	+9%
Operating profit - reported	£57.3m	£56.0m	+2%
Profit before tax - reported	£58.0m	£53.7m	+8%
Basic earnings per share - reported	100.0p	94.3p	+6%

1 'Adjusted' is defined as before intangible amortisation of £2.2m and exceptional building safety credit of £0.4m (HY 2022: before intangible amortisation of £0.9m)

Strong trading performance in first half

1. Revenue up 14% to £1.9bn

1. Adjusted profit before tax up 10% to £59.8m
   Continued balance sheet strength

1. Net cash of £263m (HY 2022: £274m)

1. Average daily net cash of £268m (HY 2022: £264m)
   High quality and growing secured order book
   o Order book of £9.1bn, up 7% on year end (FY 2022: £8.5bn)
   Interim dividend up 9% to 36.0p per share (HY 2022: 33.0p) Divisional highlights

1. Excellent performance from Fit Out; operating profit up 43% to £30.4m (HY 2022: £21.2m). Medium-term target significantly upgraded to reflect market opportunities and high quality of business

1. Construction delivering good revenue growth with margin in its target range; revenue up 20% to £470m (HY 2022: £392m) at an operating margin of 2.6%. Operating profit up 6% to £12.0m (HY 2022: £11.3m)

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1. Strong performance from Infrastructure; revenue up 15% to £428m (HY 2022: £372m) at an
   operating margin of 3.7% (HY 2022: 3.4%). Operating profit up 24% to £15.9m (HY 2022: £12.8m)

1. Cost pressures and operational challenges in Property Services driving trading loss; operating loss1 of £4.1m (HY 2022: operating profit £2.5m). Medium-term target downgraded to reflect current performance

1. Partnership Housing demonstrating resilience in its business model despite challenging market conditions; revenue up 31% to £373m (HY 2022: £284m), however operating profit 27% lower at £10.1m (HY 2022: £13.9m)

1. Long-termregeneration schemes progressing as planned in Urban Regeneration; operating profit of £6.0m (HY 2022: £7.3m)

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

"We've had a record first half of the year, notably from our Fit Out business which has delivered another outstanding performance in the period, demonstrating the high quality of this business.

Although the wider economic backdrop remains challenging, conditions have generally eased across many of our markets as the year has progressed. Our strong balance sheet, with a substantial net cash position, allows us to continue operating efficiently and effectively and to focus on making the right decisions to drive for long-term sustainable growth.

The positive momentum across the Group is driven by our high-quality and substantial order book across a number of sectors covering the built environment. We upgraded our expectations for the full year in June, primarily based on an anticipation of continued outperformance from Fit Out. Since then, there has been no change to our overall expectations for the Group and we remain confident of delivering another record performance."

	Enquiries
Morgan Sindall Group	Tel: [phone]
John Morgan
Steve Crummett
Brunswick	Tel: [phone]
Jonathan Glass
Nina Coad

Presentation

• There will be an analyst and investor presentation at 09.00am at Numis Securities Limited, 45 Gresham Street, London EC2V 7BF. Coffee and registration will be from 08.30am
• A copy of these results is available at: www.morgansindall.com
• 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.

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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 7,600 employees and operating in the public, regulated and private sectors. It reports through six 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 of the UK economy which are expected to see increasing opportunities in the medium to long term and which support the UK's current and future sustainable regeneration and affordable housing needs.

Through its Construction and Infrastructure divisions, the Group is also well positioned to meet the demand for ongoing sustainable investment in the UK's social and physical infrastructure. Construction is focused on key areas of education, healthcare and commercial, while Infrastructure is focused on the highways, rail, energy, nuclear and water markets.

The Fit Out division is the market leader in its field and delivers a consistently strong operational performance. Fit Out, together with both the Construction and Infrastructure divisions, generates cashflow 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 six reporting divisions as follows:

Construction activities comprise the following operations:

• Construction: Focused on the education, healthcare, commercial, industrial, leisure and retail markets
• Infrastructure: Focused on the highways, rail, energy, nuclear and water markets. It 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 but are seen as more useful in assessing the performance of the business on a comparable basis and are used by management to monitor the performance of the Group.

In all cases the term 'adjusted' excludes the impact of intangible amortisation of £2.2m (HY 2022: £0.9m) and an exceptional building safety credit of £0.4m (HY 2022: £nil).

Group operating review

Headline financial results

The Group delivered a strong performance in the first half, driven mainly by the Fit Out division. Group revenue increased by 14% up to £1,935m (HY 2022: £1,698m), while adjusted operating profit increased 4% to £59.1m (HY 2022: £56.9m), held back by an operating loss of £4.1m in Property Services. Operating margin was 3.1%, 30bps lower than the prior year period (HY 2022: 3.4%).

The Group benefited from higher interest rates on its cash balances compared to the prior year period, with a net finance income of £0.7m (HY 2022: expense of £2.3m) resulting in adjusted profit before tax of £59.8m, up 10% (HY 2022: £54.6m). The statutory profit before tax was £58.0m, an increase of 8% (HY 2022: £53.7m).

The adjusted tax charge for the period was £14.0m (statutory tax charge of £11.7m), an effective rate of 23%.

The adjusted earnings per share increased 3% to 98.9p (HY 2022: 95.8p), with the statutory basic

earnings per share of 100.0p, up 6% (HY 2022: 94.3p).

Market backdrop

The challenging general market conditions coming into 2023 have continued to ease throughout the period, with inflation abating and falling in certain areas; particularly in trade and labour costs and certain materials. Although still a headwind for the Group, the general trading environment has become more predictable and manageable as the year has progressed. Raw material supplies have become more consistent and any constraints in delivery are now only sporadic and localised. During the period, however, the ongoing stability of the supply chain has become more uncertain with liquidity issues increasingly common, requiring additional vigilance both pre-construction and during the delivery of projects. The risk is mitigated to some extent by the diligence taken before project commencement and the fact that no division is overly reliant on any one supplier.

Most projects in Construction and Infrastructure currently underway have appropriate inflationary protection contained within the overall contract pricing and this is not now seen as a significant risk. Where projects are being priced for future delivery, the inflationary environment continues to place some project budgets under pressure, which in turn has led to some delays in decision-making and project commencement. However, the impact of this has not been material and both still retain sizeable and high-quality secured order books. In many cases, any client budget constraints are being addressed by adjustments to project scopes, thereby allowing projects to proceed.

The market for Fit Out's services has remained very strong. There continue to be a number of positive structural changes in the market with the main drivers being lease-related events, the requirement for greater energy efficiency from offices, the move towards more flexible and collaborative

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