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News » UK » Amec inheritance drives Morgan Sindall into the red » published 23 Feb 2016

Amec inheritance drives Morgan Sindall into the red

Morgan Sindall has reported a pre-tax loss of £14.8m for 2015 after writing off £46.9m on two old construction contracts.

Chief executive John Morgan Above: Chief executive John Morgan

The offending contracts are at the Faslane nuclear submarine base for the Ministry of Defence, building a floating jetty and accommodation. They were inherited as part of the acquisition of the design and project services division of Amec back in 2007. The extent of problems on the contracts was first identified in 2013.

On the plus side, the loss means that there is a tax credit for the year of £4.8m.

Group revenue for 2015 was up 7% on 2014 at £2,385m, driven by 20% revenue growth in Fit Out of 20% and supported by 5% growth in Construction & Infrastructure and 29% growth in Affordable Housing (Lovell).

Adjusted divisional results are shown below.

The order book as at 31st December 2015 was £2.8bn, an increase of 6% compared to the start of the year, with Fit Out (order book up 41%), Construction & Infrastructure (order book up 4%) and Affordable Housing (order book up 4%) all contributing to the increase.

Revenue from the Construction & Infrastructure division reached £1,232m. Split by type of activity, Construction (including Design) accounted for 55% of divisional revenue at £682m, which was up 7% on 2014; Infrastructure was 45% of divisional revenue at £550m, up 3% on 2014.

Operating margin for Construction & Infrastructure was just 0.3% (2014: 0.3%), giving an operating profit of £3.8m (2014: £3.5m). However, at the half-year stage the operating profit was just £300,000, so things picked up in the second half as older contracts priced before recent cost increases were closed out.

The committed order book for the Construction & Infrastructure division at year-end was £1,595m, up 4% since the start of the year.  Within this, the Construction order book was up 25% to £746m but Infrastructure was down 10% at £849m. Of the Construction order book, 89% by value has been derived through negotiated/framework/two-stage bidding procurement processes, with only 11% from competitive tender processes.  This is quite a shift from just three ago when only 33% of the Construction order book by value at that time was work derived through negotiated/framework/two-stage bidding, which is generally regarded as a less cut-throat business model, with more scope for profit and less likelihood of later legal wrangles. 

The Fit Out division generated revenues of £607m (2014: £507m) and operating profit of £24.0m (2014: £15.0m), giving an operating margin of 4.0%. The commercial office sector provided 83% of Fit Out's revenue and London accounted for 67% of revenues.

Chief executive John Morgan said: "We are pleased with the year-end result which is evidence of the strategic and operational progress made across the group during the year and this, together with a positive outlook going into 2016, has enabled us to raise the final dividend.

“Fit Out has performed very strongly, with record revenue levels coupled with significant margin growth, whilst Urban Regeneration has again delivered a strong profit performance thereby reinforcing our long-term strategic investment in our regeneration activities. Margins in Construction & Infrastructure have remained low as expected, however the second half of the year has seen an improvement in its performance as a result of the considerable progress made in closing out its older and lower margin construction contracts in London and the south, and which then puts the division on a stronger footing going forward.     

“Looking ahead to 2016, the positive momentum across the group is expected to continue.  A strong level of performance from Fit Out is anticipated, together with further strategic progress in Urban Regeneration and profit growth in Affordable Housing, driven by its mixed-tenure regeneration activities. With a further steady recovery in the performance of Construction & Infrastructure also expected, the Group is in a strong position to deliver on its expectations."

 

Morgan Sindall 2015 results (adjusted*) by business segment

 

 

Revenue

Operating Profit

Operating Margin

 

£m

change

£m

change

%

change

Construction & Infrastructure

1,232

+5%

3.8

+9%

0.3%

-

Fit Out

607

+20%

24.0

+60%

4.0%

+100bps

Affordable Housing

426

+1%

8.6

+43%

2.0%

+60bps

Urban Regeneration

110

-3%

12.9

+29%

11.7%

n/a

Investments

13

n/a

(1.5)

n/a

n/a

n/a

Central/Elims

(3)

 

(9.0)

     

Total

2,385

+7%

38.8

+34%

1.6%

+30bps

 

* Adjusted is defined as before intangible amortisation (£2.2m) and exceptional operating items (£46.9m)

 

MPU

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This article was published on 23 Feb 2016 (last updated on 24 Feb 2016).

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