黑洞社区

Morgan Sindall鈥檚 boss has insisted that a number of problem projects that saw the firm take a 拢13m hit to its profit over the first half of the year are historic and will have no ongoing impact.

Speaking to 黑洞社区 after Morgan Sindall , chief executive John Morgan said the small number of problem contracts, which led to the firm making a 拢13m provision in its accounts, were 鈥渧ery old contracts that are nothing to do with current trading鈥�.

鈥淭hat is the critical thing for me. The jobs are done and dusted and historic,鈥� he said.

Morgan declined to say how many jobs were involved, or comment further on the nature of the contracts.

鈥業t鈥檚 been pretty competitive out there鈥�

Reporting its results for the six months to 30 June 2013, Morgan Sindall posted pre-tax profit of 拢1m, down from 拢18.8m for the same period the previous year, after making the 拢13m provision.

The firm said it had received legal advice on the contracts and believed that the amounts were recoverable, but due to the protracted nature of pursuing legal action it had made provision for the shortfall in its accounts.

Overall, revenue across the group rose 2% to 拢1,019m, with operating profit, before the deduction of the 拢13m in exceptional items, of 拢16.2m, down 22% on 拢20.8m the previous year.

The firm鈥檚 construction and infrastructure business reported revenue of 拢593m for the period, up slightly on 拢583m for the same period last year, with operating profit of 拢6.4m - before the exceptional items - down 25% from 拢8.5m.

The construction division鈥檚 operating margin fell from 1.5% to 1.1%.

鈥榃e鈥檙e now focusing on growth鈥�

Morgan said the firm could see signs of the market recovering, but it would take time for this to flow through into improved margins. He said he expected margins over the full-year 鈥渘ot to get any worse鈥�.

鈥淢argins have been tight - it鈥檚 been pretty competitive out there. We鈥檙e seeing a little bit of light at the end of the tunnel, there鈥檚 a little more work around, it will probably take a little time for that to come through into the margins because obviously it does take time for work to be completed and slightly better margins to come through,鈥� he said.

After the firm restructured last year, which cost the business 拢10m in one-off costs but led to up to 拢15m in annualised savings, Morgan said the business was now focused on positioning itself to take advantage of the upturn in the market.

He said: 鈥淲e took a lot of cost out 鈥� and that is not where we are now, it鈥檚 a matter of looking more toward the growth agenda than the cost cutting agenda.

鈥淚鈥檓 not saying we鈥檙e not taking out any more cost but overall we will probably end up at the end of the year employing more people than when we started.鈥�

He said the firm would continue to focus on selective bidding and 鈥渨inning bigger more complicated jobs, often working with other companies鈥�.

Education miss a 鈥榙isappointment鈥�

Last month Morgan Sindall missed out on the Education Funding Agency鈥檚 shortlist for its new 拢4bn contractors鈥� framework, meaning the firm will not be able to bid for capital-funded schools work coming through the government鈥檚 flagship school building programme. However, the firm will still be able to bid for privately-financed schools work

Morgan said that missing out on framework shortlist was 鈥渄isappointing鈥�. Currently around a quarter of the firm鈥檚 construction revenue is in education, and Morgan admitted that this was now likely to fall, particularly as the government鈥檚 private finance schools programme was so small, but he said the firm would seek to compensate by increasing its work in other areas, as well as winning work in the higher education market.

鈥淲e expect education to remain strong, but I suspect it will fall as a percentage as our work increases in other areas relative to education.

鈥淚t was disappointing [to miss out on the EFA framework], but luckily we have lots of other work we are pricing.

鈥淭he PFI [schools programme] isn鈥檛 going to be huge. We have to be realistic. [But] the universities [market] is very big and that鈥檚 where we鈥檙e very strong.

鈥淎 lot of the areas that we are moving into will compensate the education.鈥�

Affordable housing still gloomy

The affordable housing business posted a fall in revenue of 8%, down from 拢202m last year to 拢185m, with operating profit down 64% from 拢7.5m to 拢2.7m. The operating margin in the affordable housing business fell sharply from 3.7% to 1.5%.

Morgan said he would like for the affordable housing business 鈥渢o do better鈥�, but stressed the firm was now focusing on more complicated mixed-tenure scheme to boost returns.

However, he said this did not mean that it would pull out new build affordable housing contracting. 鈥淲e will continue to do it and the market will rise and it will fall. It鈥檚 just not a brilliant market at the moment.

鈥淲e鈥檙e not looking to come out of it and of course we do a lot of new build and use the same skills in the mixed tenure work.鈥�

鈥淎s a percentage [new build] it will fall but it remain important to us.鈥�

Regeneration business a bright note

He said he was particularly pleased at the performance of the regeneration business, which was working increasingly closely with the affordable housing arm.

In the results the firm鈥檚 regeneration business posted revenue of 拢34m, up 48% from 拢23m the previous year, with operating profit of 拢400k, down from 拢1.5m the previous year, with a regeneration pipeline of 拢2.2bn.

Morgan said: 鈥淭hat鈥檚 what distinguishes us from other contractors - our regeneration pipeline that we鈥檝e been working very hard at for the last five years.

鈥淎nd more of these schemes are now coming onto site - and very often on those schemes we will be working in conjunction with [affordable housing arm] Lovell, who will deliver the affordable housing. So that鈥檚 an exciting prospect for us.鈥�

Meanwhile, the firm鈥檚 fit-out business posted revenue of 拢203m, up from 拢191m, with an adjusted operating profit of 拢5m, down 9% from 拢5.5m the previous year. The operating margin tightened from 2.9% to 2.5%.

Morgan said he expected to see an improvement in the fit-out business. 鈥淚鈥檇 be disappointed if [the fit-out business] didn鈥檛 do just a little bit better than it is going forward. Enquiries are fairly positive, but it鈥檚 not going to rush away with itself. It鈥檚 not going to do worse and should do slightly better.

Morgan said the overall construction market was 鈥渁 little bit better than it was six months ago鈥�.

鈥淏ut let鈥檚 not get to carried away - there鈥檚 no doubt that in London and the South-east the market is not too bad , indeed we鈥檙e finding Scotland good, but it鈥檚 going to take time for it to come through in margins,鈥� he said.

鈥淢argins are still very tight, but there is a little more work around.鈥�