Morgan Sindall pre-tax profits hit by £10m restructuring

Aaron Morby 10 years ago

Pre-tax profits at Morgan Sindall fell 15% to £32.4m after a £10m one-off restructuring cost at the construction and affordable housing arms.

Revenues in the year to December also fell 8% to around £2bn as demand dropped across construction.

The slide in construction revenues combined with clients demanding longer payment terms squeezed cash balances by more than half to £50m over the year.

Demand for greater working capital and investment in regeneration work also saw Morgan Sindall’s average debt during the year soar to £40m from net cash of £23m last year.

In early trading Morgan Sindall’s share price dropped 9.5% after it announced it would halve its dividend.

John Morgan was presenting the first set of results following the boardroom shake-up last year, which saw him return to the post of chief executive.

He said that Morgan Sindall continued to face challenges from reduced public spending, deferred investment decisions and fierce competition.

The firm has put in place rigorous risk management processes to identify, monitor and, where possible, mitigate potential risks.

Morgan said: “Our strategy remains to invest the cash generated from our construction-related activities in our regeneration-related activities, namely affordable housing and urban regeneration.

“As a founder of the business I have steered the group through prosperous years and through downturns and I intend to draw on this experience to lead the group through the current challenging market conditions and ensure we are positioned to take advantage of the opportunities that lie ahead.

“We have made progress in 2012 but there is always scope for improvement.”

He added: “We have re-shaped the construction business within the construction and infrastructure division as we have become increasingly selective in our contract bidding.

“We are also focused on growing its infrastructure business where there are market opportunities. In non-infrastructure sectors, including the education and commercial sectors, we are increasing our focus on long-term frameworks.”

Morgan said: “Changes have also been made to the affordable housing division to improve its operational efficiency and to match the level of resources with its current and medium-term workload.”

“We are positioning the group to come out of the downturn stronger by realigning resources.”

Morgan Sindall group trading

Construction and Infrastructure
· Operating profit of £19.7m (2011: £21.1m) on revenue of £1,168m (2011: £1,268m)
· Steady margin of 1.7% (2011: 1.7%) due to rebalancing workload towards growth infrastructure sectors and construction sectors
· Encouraging order book of £1.5bn (2011: £1.6bn) with projects at preferred bidder stage valued at £0.5bn (2011: £0.3bn)

Fit Out
· Operating profit of £11.3m (2011: £12.4m) on revenue of £427m (2011: £438m)
· Slight reduction in margin to 2.6% (2011: 2.8%) due to competitive market
· Order book of £170m (2011: £216m) Medium term outlook better driven by an expected surge in lease events

Affordable Housing
· Operating profit decreased to £11.5m (2011: £18.5m) on revenue of £386m (2011: £462m) as new-build social housing orders hit
· Business restructured in response to pressure on margins, which decreased to 3.0% (2011: 4.0%)
· £110m response maintenance opportunities secured in the year
· Order book down slightly at £1.3bn (2011: £1.5bn)

Urban Regeneration
· Increased revenue to £62m (2011: £57m)
· Operating profit reduced to £2.7m (2011: £3.9m) due to the subdued market conditions and increased share of costs of ISIS Waterside Regeneration joint venture
· Secured £45m of Government funding to unlock stalled housing developments
· Growing regeneration pipeline of £1.9bn (2011: £1.6bn), with a further £0.3bn (2011: £0.6bn) at preferred developer stage

· Directors’ portfolio valuation of £32m (2011: £49m)
· Operating profit of £7.4m (2011: loss of £3.9m) principally due to the £7.0m profit on disposal of mature medical properties investment and good performance from joint venture investments

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