Bad debts drag Morgan Sindall

The company’s half-year accounts show exceptional operating items of £13.0m as a provision against money owed on a small number of old construction contracts.

This pushed reported pre-tax profit down to just £1.0m, compared to £18.8m for the same period last year.

Even at an operating level, adjusted profits were down 22% to £16.2m (2012 H1: £20.8m).

With turnover up 2% to £1,019m (2012 H1: £1,000m), the adjusted operating margin was 1.6%, down from 2.1% last year because of "competitive pressures".

The operating margin in Morgan Sindall’s Construction & Infrastructure division was even slimmer, at 1.1%. Divisional revenue of £593m was up 2% (2012 H1: £583m), but adjusted operating profit was down 25% to £6.4m.

There was growth in infrastructure work, thanks to tunnelling activities on Crossrail and the Lee Tunnel project for Thames Water, and to the start of work at Sellafield. 

With regard to the outstanding bad debts, the company has taken legal advice and believes that they are recoverable.  However, given that it will take time and money to do so, “the board believes it is now appropriate to provide against these balances to an amount it considers is a prudent estimate of overall likely resolution”.

Overall order book was up 1% to £3.1bn as of 30 June 2013. Construction & Infrastructure, accounting for roughly half of this, saw its order book grow 3% to £1,558m. (See table below.)

Chief executive John Morgan said: "The first half has seen difficult market conditions across all of our markets, with competitive pressures impacting on margins and profitability.  The improved positive cash position, however [from £12m down to £40m up], demonstrates the underlying strength of the business and the benefit of a sustained focus on cash management, which will remain.

“Looking ahead to the second half, overall market conditions are not expected to significantly improve.  The business will continue to focus on cash management and will look to improve the order book selectively, such that it is well-positioned to take advantage of the growth and investment opportunities in its markets as they arise."

Morgan Sindall’s order book: 30 June 2013

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