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Morgan Sindall boss 'disappointed' on HS2 as profit soars 47%

Morgan Sindall’s chief executive has told Construction News he was “disappointed” to miss out on HS2 civils contracts but praised group performance after the firm posted improved revenue and profit.

John Morgan said the group was on track to improve margins after becoming increasingly selective in its construction arm, while its fit-out arm posted a record set of half-year results with a margin of 4.3 per cent.

The contractor saw revenue rise 14 per cent to £1.31bn for the six months to 30 June 2017, up from £1.15bn in the same period a year earlier, while adjusted pre-tax profit was up 47 per cent to £23.7m, compared with £16.1m.

Mr Morgan said margin improvement in both its construction arm was “still coming through”, but added that his firm’s margin targets were “perhaps more modest” than some of its competitors.

“We’re coming from a place where our margins have been lower,” he said.

“We said in February that we expected to make normalised margins of 2 per cent in construction and 2.5 per cent in civil engineering in the medium term,” though he declined to put a timescale on when these margins would be hit.

Morgan Sindall’s results: 5 things we learned from CEO John Morgan

The group reported an operating margin of 1.1 per cent in its construction and infrastructure arm for the six months, up from 0.5 per cent a year earlier. Overall group margin stood at 1.9 per cent.

In its infrastructure arm, Mr Morgan admitted he was “obviously disappointed” to miss out on a place on HS2’s £6.6bn civils contracts, despite being shortlisted for four of the seven packages in a joint venture with Bam Nuttall and Ferrovial.

However, he said the company’s “saving grace” was its place on the £900m enabling works package for the project, alongside the same joint venture partners, coupled with a strong order book.

Morgan Sindall’s infrastructure order book has grown 16 per cent in the last six months, its latest results show.

“Our infrastructure [division] has grown quite dramatically [in the last six months] so we have an order book of around £1.5bn,” he said.

Contract wins in the last year include a place on London Underground’s Future Stations civils and tunnelling works framework, while the contractor is also working in a joint venture with Bam Nuttall and Balfour Beatty on the western section of the Thames Tideway Tunnel in a £500m deal.

Fit-out was the stand-out sector in the business with adjusted operating profit up 27 per cent to £14.6m in the six months, while margin hit 4.3 per cent compared with 3.9 per cent a year earlier.

Its fit-out arm had already reported a record order book of £544m in May this year, while the London market currently accounts for 67 per cent of the division’s revenue.

Mr Morgan said the group was seeing increasing fit-out opportunities in the North of England, particularly around Manchester where fit-out arm Overbury is undertaking a 42,000 sq ft project for EY in the city centre.

“Back-office [functions] and government departments are moving, and it’s much easier to recruit graduates in cities like Manchester, so we see a great future for the provinces,” he said.

Morgan Sindall’s net cash position as of 30 June 2017 rose to £97m, up from £36m a year earlier, while average daily net cash hit £132m, compared with a daily net debt of £24m a year earlier.

City analysts were also positive on the group’s performance, with Numis and Peel Hunt upgrading expectations for the year ahead.

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