Morgan Sindall’s pre-tax profit shrank by 95 per cent to just £1m in the first half of 2013, down from £18.8m in the same period last year.
In its half-year update, Morgan Sindall reported revenue of £1.02bn, up 2 per cent on the same period last year, but it has had to account for exceptional items of around £13m due to a “small number of construction contracts held on the balance sheet under amounts due from construction contract customers and trade receivables”.
The board said it believed the money was recoverable but, based on current progress, expected time, cost and associated risk of taking legal action to recover the money, it has provided against these balances to “an amount it considers is a prudent estimate of overall likely resolution”.
In its construction and infrastructure division, margins shrank to 1.1 per cent, down from 1.5 per cent in H1 2012.
Divisional revenue of £593m was 2 per cent up, but operating profit shrank by a quarter to £6.4m.
Construction and infrastructure
Transport (Rail, Aviation, Roads), at 26 per cent of divisional revenue, is a “key strategic growth area”.
Construction of the Network Rail operating centres in Manchester and Rugby in rail utilise “the division’s capabilities” in this market, the company said.
In roads, the division “maintains a key strategic relationship with the Highways Agency”, implementing a number of managed motorway and other schemes.
Aviation saw the commencement of the Heathrow Airport runway refurbishment project.
Education remains one of the largest served markets (26 per cent of revenue), with other significant markets being water (14 per cent) and commercial (10 per cent).
In affordable housing, revenue was down 8 per cent to £185m (HY 2012: £202m) and operating profit was down 64 per cent to £2.7m (HY 2012: £7.5m).
Operating margin was 1.5 per cent, down from 3.7 per cent.
Urban Regeneration was a positive division in H1, with revenue up to £34m (HY2012: £23m). However, “due to timing of profit recognition from the current mixture of schemes”, operating profit has fallen to £0.4m from £1.5m.
Morgan Sindall’s regeneration pipeline remained strong, rising 5 per cent to hit £2.2bn, which is the division’s share of the gross development value of committed schemes.
Operating margin in fit-out was down to 2.5 per cent, compared with 2.9 per cent in 2012. Revenue grew by 6 per cent to £203m, but operating profit fell to £5m from £5.5m.
Morgan Sindall said the technology and media sectors had been the most active in taking up space in the London office market, which accounts for broadly two-thirds of fit-out revenue.
It added: “Besides the traditional office corporate business, the division has also seen solid growth in the university sector, and while public sector work has generally been relatively slow, the division has increased its presence with a number of notable local authority project wins.”
The total group committed order book at 30 June 2013 was £3.1bn, an increase of 1 per cent since the year end.
Of this, £1.56bn was in construction and infrastructure, while almost £1.3bn was in affordable housing.
The fit-out order book shrank by 20 per cent to £136m, but urban regeneration was up 40 per cent to £91m.
Chief executive John Morgan said: “The first half has seen difficult market conditions across all of our markets, with competitive pressures impacting on margins and profitability.
“The improved positive cash position, however, demonstrates the underlying strength of the business and the benefit of a sustained focus on cash management, which will remain.
“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.”