Regeneration Driving Future Growth

Morgan Sindall Group plc 6 June 2017

2

Today’s schedule

1245 Regeneration and the Morgan Sindall Group John Morgan

1300 Overview of Partnership Housing Jonathan Goring

1335 Overview of Urban Regeneration Matt Crompton

1410 End of presentations

1415 Travel to Woolwich

1530 Woolwich: the scheme in detail and site visit Jonathan Goring

1615 Discussion

3

Introduction to speakers

John Morgan Chief Executive, Morgan Sindall Group plc

Jonathan Goring Managing Director, Partnership Housing

Matt Crompton Managing Director, Urban Regeneration

Construction Regeneration

Construction & Infrastructure Fit Out Property

Services Partnership Housing Urban Regeneration

Delivery of vital UK infrastructure and construction

Fit out of new and existing

offices

Housing maintenance programmes

Housing-led regeneration – massive supply/demand

imbalance

Mixed-use urban regeneration is a key UK

priority

Underpinning Group company activities

Morgan Sindall Group today

4

5

Group strengths

Aligned to growth markets

Strong profit growth

momentum

Clear strategy for growth

Well defenced against

cyclicality

Diverse portfolio of businesses

Empowered culture

Strong balance sheet

Long-term relationships

6

What Regeneration means to Morgan Sindall Group

“There is a pressing need to make Europe’s cities more competitive, resilient and sustainable and this challenge is at the heart of the urban regeneration process. However, the successful reuse of brownfield land and the reinvention of redundant or forgotten parts of a city, is a highly complex process and requires insight and cooperation from a diverse range of disciplines.” (Urban Land Institute, 2017) “A process that reverses physical, economic and social decline in an area where market forces will not do this without government intervention.” (UK Government, 2007)

Regeneration

Development agreements

Visibility of pipeline

Long-term profit streams

High on agenda for all

political parties

Understand and react to public sector

needs

Fits the Group’s

culture and skill set

Large, growing market

Addresses need for housing

Urban infrastructure

not fit for purpose

20% ROCE potential

High barriers to entry

Reputation and track

record matters

Long lead-in times

Why Regeneration?

Based on average daily

capital employed

7

Construction activities

58%

Regeneration activities

42%

Urban Regeneration

21% Partnership Housing

21%

Our Regeneration business

% of 2016 Group profit1 • Regeneration activities contributed £26.8m of operating profit in 2016

• Total average capital employed across Regeneration activities in 2016 of c£190m

• Targeting return from Regeneration activities of 20% in the medium term

• Expect to broadly double capital employed in Regeneration activities over next five years

8

1 pre Central costs and Investments

9

Partnership Housing

Jonathan Goring

10

Lovell today

£m 2016

Average capital employed1 111

Revenue 433

Operating profit2 13.4

Housing-led regeneration

1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash/overdraft) less total liabilities 2 Adjusted

mixed tenure homes built 1060

national partnerships 14

employees 901

regional offices 7

57 mixed tenure

sites

Pipeline value

£764m

Order book

£445m 6 new mixed tenure

developments

11 Mixed tenure : Value £78m : 2012 – 2022 : 678 homes

This is what we do…. Hull Ings, Hull

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The Mill, Cardiff This is what we do….

Mixed tenure : Value £110m : 2016 – 2022 : 800 homes

13

Lymington Mews, Dagenham This is what we do….

Mixed tenure : Value £102m : 2014 – 2018 : 416 homes

14

Miles Platting, Manchester This is what we do….

Mixed tenure : Value £135m : 2006 – 2023 : 700 homes

15

This is what we do…. King’s Lynn, Norfolk

Mixed tenure : Value £80m : 2016 – 2022 : 600 homes

16

Beacon Barracks, Stafford

This is what we do….

Contracting : Contract value £52m : 2015 – 2016 : 357 homes delivered in under 12 months

Contracting 53%

Mixed tenure 47%

What we do….

% revenue by activity1

1 For the year ended 31/12/16

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Mixed tenure

• Via development agreements with Housing Associations and Local Authorities

• Schemes include housing built for open market sale and contracted housing for rent

• Primary performance metric is Return on Capital Employed (ROCE)

Contracting • Via construction contracts with Housing Associations and Local

Authorities

• Contracts for new build social housing, refurbishment and planned maintenance

• Primary performance metric is % margin

How we do it – mixed tenure

Identify LAs 1 & HAs 2 looking for partnerships

SECURE DEVELOPMENT AGREEMENTS

Source suitable land to bring to

partnerships

VIABILITY TEST

Build social housing to

rent

Build houses for sale

Stage payments through

construction

Sell houses

Houses handed over

to LA/HA

Cash and profit on completion

and sale

Total scheme ROCE

1 Local Authorities 2 Housing Associations

18

Invest in WIP

Mixed tenure scheme example

Inve

st in

site

infr

astr

uctu

re

19

Who we do it with….

20

Looking ahead

21

• c250,000 houses required per annum – still a severe shortfall • Housing very high on political agenda for all parties • Forward funding available for private and social rental • £10bn Central Government funds for mixed tenure; partnership, infrastructure

and accelerated delivery • Schemes are increasing in size – Local Authorities under pressure to address all

asset alternatives

Market drivers

Order book and pipeline

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Note: Order book represents the share of future revenue that will be derived from signed contracts. The Pipeline represents the share of the development value of the open market housing part of secured mixed tenure schemes.

63% 37%

Order book and secured development pipeline total

value of £1.2bn1

In addition, preferred

bidder on six new mixed tenure developments with

value c£350m

Significant level of ongoing dialogue on partnering

with HAs/LAs

1 As at 31/12/16

Order book 37% Secured

pipeline 63%

East Anglia 12%

Eastern 2%

London 41%

Midlands 13%

NW & N Wales

15%

Scotland 7%

SW & S Wales

10%

Total value of £1.2bn

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Mixed tenure partnership developments

Sales period

Construction start to first legal completion

2017 2018 2019 2020 2021 2022 2023

Long-term visibility of mixed tenure profits

Mix

ed te

nure

site

s

Currently 57 mixed tenure sites • at various stages of construction and sales • average of 102 open market units per site • average site duration of 33 months

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• Accelerated delivery – off site manufacturing and track record secures partner status with HCA

• Unlocking Government land through investment in data to develop land-led partnerships

• Technology platform addresses current buying patterns and secures early sales

• Accessible homes target First Time Buyers

Future success factors

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Route to growth in the medium term

2016 Medium-term target

ROCE 12% >20%

• Positive market for social rent and open market

• Strong order book and pipeline

• Increasing number of larger mixed tenure partnership schemes

• Recycling ‘slower-moving’ capital shared equity1 (£18m) investment properties1 (£7m)

1 Book value as at 31/12/16

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• Ambition to increase capital employed to c£250m over five-year period

current market imbalance accelerates the housing agenda

good visibility of future investment through current order book and pipeline

further leverage off our track record and relationships to support partners with their housing needs

maximise partnership opportunities through rigorous land sourcing

Growth in the longer term

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Urban Regeneration

Matt Crompton

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Muse today

£m 2016

Average capital employed1 80.0

Revenue 156

Operating profit2 13.4 Mixed-use urban regeneration

1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash/overdraft) less total liabilities (excluding corporation tax, deferred tax and inter-company financing). Average non-recourse debt in 2016 was £14.7m and deferred consideration was £11.4m 2 Adjusted before intangible amortisation

29 1st phase urban residential : £375m total project development value : 2006 – 2021

This is what we do.… Lewisham Gateway

Before

30

This is what we do.… Rathbone Market, Canning Town

Three phases of residential : £200m total project development value : 2007 – 2017

Before

31 5th phase neighbourhood residential : £650m total project development value : 2006 – 2026

This is what we do.… Timekeepers Square, Chapel Street, Salford

Before

32 1st phase neighbourhood residential : £115m total project development value : 2011 – 2019

This is what we do.… Wapping Wharf, Bristol

Before

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This is what we do.… One New Bailey, Salford

4th phase city centre offices : £650m total project development value : 2006 – 2025

Before

34 2nd phase (part) town centre offices : £145m total project development value : 2015 – 2027

This is what we do.… One Stockport Exchange

Before

35

This is what we do.… Holiday Inn Express, Stockport

2nd phase (part) town centre hotel : £145m total project development value : 2015 – 2027

Before

36

This is what we do.… The Word, South Shields

1st phase leisure scheme : £100m total project development value : 2013 – 2021

Before

37

This is what we do.… New Bailey Multi-Storey Car Park (MSCP), Salford

3rd phase car park : £650m total project development value : 2006 – 2026

Before

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How we do it….

Schemes usually secured via development agreements

MUSE RESPONSIBILITIES

Secure planning Primary infrastructure

Development management

LANDOWNER RESPONSIBILITIES

Hold land in trust Release on demand

Reward = Profit Reward = Enhanced land value

Terms would include • each phase subject to viability testing • land drawdown at prevailing land value

Establish long term relationships with landowners through development agreements

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How we do it….

LAND

DEVELOPMENT COSTS

MARGIN

MARGIN

DEVELOPMENT COSTS

MARGIN

LAND

LAND MARGIN

base case

£100m Upside

Downside

Muse model Development Agreements ordinarily reflect priority distribution of receipts

1. Development costs

2. Agreed overhead and profit

to Muse

3. Land value

4. Overage agreement above base

Traditional model

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Who we do it with….

41

Strategic joint ventures

Fund size: £100 million Fund size: £100 million

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Case study – Salford Central (through English Cities fund)

• Public/private Development Agreement

• £650m GDV1

• 20-year agreement • Scale:

- 1,094 residential units

- 390 PRS units

- 1.6m sq ft offices

- 390 hotel bedrooms

- 250,000 sq ft retail/leisure

- 1,258 MSCP2 spaces

1 Gross Development Value (100%) 2 Multi-storey car park

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Case study – Salford Central (through English Cities fund)

Timeline up to the commencement of construction

2006 2007 2008 2009 2010 2011 2012 2013

Development Agreement

Planning guidance

Development Framework

Outline planning consent

CPO1 Inquiry

CPO1 confirmation

Land assembly/ vesting

Start on site

1 Compulsory Purchase Order

44

Case study – Salford Central (through English Cities fund)

Sources of funding to improve returns

Private home buyers ▼ PRS investors ▼

Institutional property investors ▼

Annuity lease structures ▼

Gap funding ►

Cross-subsidy ▼

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Looking ahead

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Market drivers

Residential

• c250,000 homes per annum required

• Housing White Paper focus

• Established national and local relationships

• Private Rented Sector demand

Offices

• Above average regional take-up

• Regional supply continues to fall

• Attractive yields

• Public sector office rationalisation

Industrial & distribution

• Unprecedented on-line retailer demand

• Limited speculative development

• Opportunities for ‘bespoke’ pre-let development

• Convenience stores proving resilient

• Leisure spending continues to grow

• Rise in ‘boutique’ cinema demand

• New hotel entrants and a mix of tenures

Retail/ Leisure

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Forward development pipeline

South East & London

38%

South West 13%

North West 30%

Yorks/NE 16%

Scotland 3%

Development pipeline by region

Offices 32%

Retail 6%

Leisure 6% Industrial

7%

Residential 46%

Other 3%

Development pipeline by sector

Forward pipeline1 of £2.2bn with broad geographic and

sector spread provides long- term visibility

1 As at 31/12/16

Current bidding activity strong, with c£1.5bn GDV of

bid opportunities

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£ GDV Project

170m Brixton

107m Warrington

248m WP Brentford

375m Lewisham

75m Stroudley Walk

200m WP Hale Wharf

107m Aberdeen

250m New Victoria

300m Stockton

200m ECf Canning Town

650m ECf Salford

250m Hucknall

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Expected flow of profit from top projects (by GDV)

£ = profit earned

Long-term visibility of profits

£ £ £

£ £ £ £

£ £ £ £

£ £

£ £

£

£ £ £ £

£ £ £ £ £

£ £

£

£ £ £

£

£

£ £ £ £ £

£ £ £ £ £ £

£ £ £ £ £ £ £ £ £ £

£ £ £ £ £ £ £ £ £ £

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Route to growth in the medium term

2016 Medium-term target

ROCE 15% Towards 20%

• Positive market dynamics

• Growing and strengthening pipeline, augmented by further selective bidding

• Continued efficient use of capital and funding sources

• Recycling ‘slower-moving’ capital

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• Ambition to increase capital employed to c£150m over five-year period expected to be £90m+ in 2017

scheduled completions indicate material phasing of profit to 2018, with lower profit in 2017

• Success factors long-term pipeline significant visible opportunities favourable market dynamics competitive advantage of track record and capability

Growth in the longer term

Regeneration is perpetual …

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Woolwich Regeneration

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A deteriorating estate

Maryon Grove Estate

In 2010, The Royal Borough of Greenwich made the decision to demolish and regenerate three

of their most challenging estates in Woolwich

Connaught Rd Estate

Morris Walk Estate

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The development – a summary

• £450m GDV partnership with Royal Borough of Greenwich

• Major demolition programme • Creating 1,500 high-quality homes (1,000

open market) • Seven phases over three estates; each

triggered by viability tests • Currently one year ahead of our 12-year

construction programme • Partnership awarded based on quality

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Regeneration programme

Peak construction of 250 homes per annum

targeted

2013 Preferred bidder

selection

2011 – 2012 Competitive

dialogue

2013 – 2015 Final

negotiations

2013 – 2015 Planning &

decant

2015 – 2017 Phase 1

construction

2016 – 2018 Site 2 (phase 4) planning

& consultation

2017 – 2030 Phase 2-7 construction

& sales 2015 Contract signature

2016 First sales (off–plan)

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Wider Regeneration offer

• Community Trust established to fund local

projects within Greenwich area • 88 apprenticeships created for the local

community • Engagement with local schools • High Considerate Constructors Score • Supporting local business and employment

Pictured: Social enterprise café supporting local charity and employing vulnerable young people

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Development agreement

• 20-year development agreement • Seven phases over three sites • ROCE and margin used to

determine land value for each phase

• Overage agreements in place • Option to change tenure phase by

phase

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Appendix

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Capital employed in Regeneration

£mRegeneration Partnership

HousingUrban

Regeneration

Total net land & regeneration WIP 196 113 83

Unsold completed units (excl JVs) 4 2 2

Amounts invested in joint ventures 35 - 35

Shared equity loans and investment properties 25 25 -

Other working capital -117 -79 -38

Non-recourse debt -5 - -5

Deferred consideration -8 - -8

Other net assets 3 3 -

Average Capital employed in 2016 191 111 80

Total capital employed at 31 December 2016 133 64 69