Morgan Sindall's profit slumps after problem jobs

Morgan Sindall has seen its profit slump to £1m over the first half of the year after problems on a number of construction jobs left the contractor £13m out of pocket.

Reporting its results for the six months to 30 June 2013, Morgan Sindall posted pre-tax profit of £1m, down from £18.8m for the same period the previous year, after making provisions of £13m against amounts on a small number of construction contracts.

The firm said it had received legal advice on the contracts and believed that the amounts were recoverable.

“However, based upon an assessment of current progress made towards recovering these amounts and the expected time, cost and associated risk of pursuing legal remedies to achieve recovery, 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,” the firm added.

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

The firm’s construction and infrastructure business reported revenue of £593m for the period, up slightly on £583m for the same period last year, with operating profit of £6.4m - before the exceptional items - down 25% from £8.5m. The construction division’s operating margin fell from 1.5% to 1.1%.

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

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

The firm said it had “suffered a significant decline in both revenue and margin as a result of general competitive pressures in the contract new build social housing market”.

Meanwhile, the firm’s regeneration business posted revenue of £34m, up 48% from £23m the previous year, with operating profit of £400k, down from £1.5m the previous year.

Net cash at the end of the period was £39.7m, a reduction of £10.7m from 1 January 2013.

Morgan Sindall chief executive John Morgan said the firm did not expect to see a major pick up in the overall market in the second half of the year: ” “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.”