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ISG's profits plummet 70pc as construction margin reaches 0.2pc

ISG’s construction margin fell to 0.2 per cent last year while group profits fell to £3 million, prompting the firm to merge its food retail and banking retail divisions.

ISG reported a 9 per cent rise in revenue for the year ending 30 June 2012, to £1.28 billion (2011: £1.17bn), while pre-tax profits fell from £10.2m to £3m. The firm had issued a profit warning in January.

Construction revenue increased by 17 per cent to £533m (2011: £455m) on the back of the overlay works on the London Organising Committee of the Olympic and Paralympic Games, following the successful handover of the velodrome.

Operating profit fell from £3.6m to £0.9m, with the margin dropping from 0.8 per cent to 0.2 per cent. The firm said its South-west construction division returned to profitability in Q4 after a restructuring of business.

ISG said in its statement that on 1 July it had combined its bank branch rollout programmes, the high street retail fit-out and the food retail fit-out, which were previously managed separately.

The group incurred £3m costs from the consolidation, along with further rationalisation of the construction business and relocation of all UK IT departments to Ipswich.

In food retail, revenue declined by 9 per cent to £199m (2011: £218m), reflecting a fall in new-build project activity.

Operating profit halved to to £2.3m (2011: £5.2m), as margins, impacted by customers focusing on reducing costs, dropped to 1.2 per cent (2011: 2.4 per cent).

In fit-out, revenue increased to £347m (2011: £342m), but operating profit was 19 per cent lower at £6.5m (2011: £8.0m) as margin dropped to 1.9 per cent (2011: 2.3 per cent).

ISG said the London office fit-out market remains competitive, with project sizes smaller. The firm said it had made significant advances in the expanding data centre market.

The company said the UK market continues to be challenging, with fewer large-scale projects, a focus on refurbishment of existing space rather than new build, public sector cutbacks and generally increased competition.

Chief executive David Lawther said: “ISG has delivered a resilient performance in market conditions that continue to be challenging. 

“In the UK, we have maintained our market-leading positions and have successfully delivered substantial projects for LOCOG as well as for our key customers and frameworks.

“Looking ahead, the group is well placed to benefit from a recovery in the UK and from our presence in key global locations that are attracting inward investment. We are confident of our strategy and will continue to target growth both organically and via acquisition.”

The group order book was £378m and weighted 65 per cent towards private sector (2011: 55 per cent). Subsequent to year-end, banking facilities were renewed until September 2015.

Total full year dividend was reduced to 9p per share (2011: 15.06p).

Average staff numbers are up, from 2,527 last year to 2,604.

Profits from overseas business nearly quadrupled to £3.5m. International activities accounted for 27 per cent of group earnings and increased following the acquisitions of Alpha in Europe and Realys in Asia.

Revenue and profits were up in Asia and European fit-out.  Turnover increased in the Middle East, but schemes were impacted by project start delays, overheads based on a growing business and start up costs of Qatar.

Howard Seymour, analyst at Numis Securities, said he expects ISG to be ‘one of the first to recover’ as investment in specific growth areas and mix of business take effect from 2013 onwards. He expects Asian acquisitions as ISG looks to exploit group investment into growth areas.

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