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Cost inflation weighs down Morgan Sindall

4 Aug 14 Despite an upturn in UK construction output, Morgan Sindall has yet to find profits any easier to make, the company said today.

Chief executive John Morgan
Chief executive John Morgan

Announcing half-year results, chief executive John Morgan said: “For the remainder of 2014, the operating environment for general construction is expected to remain challenging with no easing of pressure on margins.”

Morgan Sindall’s prospects were improved, however, by growth in its urban regeneration business, Muse.

Group revenue was down 2% for the six months to 30 June 2014 to £998m (2013 H1: £1,019m). Adjusted operating profit (excluding intangible amortisation) was down 6% to £15.2m (2013 H1: £16.2m). Reported pre-tax profit for the first half was £14.0m, up from £1.8m last year.

The urban regeneration business contributed £3.5m of operating profit, up from £400,000 last time.

Within the construction & infrastructure division, revenue was down 4% to £567m and adjusted operating profit was down 8% to £5.9m. “The overall trading environment for construction & infrastructure has remained difficult throughout the period,” Mr Morgan said. “The combination of lower margins from work tendered in 2012-13 and cost inflation, both at a time of improving general market activity, has provided some significant on-going challenges particularly in the construction activities.”

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The group's committed order book as at 30 June 2014 was £2.7bn, an increase of 14% since the previous year end, driven primarily by growth in the order books of fit-out (up 57%), affordable housing (up 27%) and construction & infrastructure (up 9%).  The regeneration & development pipeline was £3.2bn, an increase on the previous year end of 5%.

Mr Morgan said: "The first half has seen an important shift in the balance of our profits, with an increase in the contribution from the urban regeneration business. This trend is expected to continue into the second half and beyond and reinforces our long-term strategy of focusing on both construction and regeneration activities.

“For the remainder of 2014, the operating environment for general construction is expected to remain challenging with no easing of pressure on margins.  However, with continued positive momentum anticipated within both fit-out and urban regeneration, the group remains on track to deliver results for the full year in line with the board's expectations.

“We are encouraged by the improvement in the quality of our order book reflecting the higher level of activity in the market, which positions us well for the medium to long term."

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