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ISG's order book soars 26% but construction profits dip

ISG’s order book has swollen by more than £200m, but operating profit from construction fell nearly £600,000 to £100,000 in the final six months of 2013 compared with the same period in 2012.

The contractor said its strong 2012, boosted by its work on the London Olympic Games, contributed to a construction revenue dip of £46m to £234m, according to the interim accounts for the six months to 31 December 2013.

Overall revenue grew 8 per cent to £708m, up from £659m, while pre-tax profit was £2.4m, up from £2.2m. Net cash was £33.3m, up from £25.3m.

Margins were likely to remain low in 2014, it said, as it works through projects won at lower prices during the downturn. But it expected to improve profitability from 2015 onwards.

It said the quality and size of construction projects was improving but trading conditions “remain difficult”.

The construction operating profit does not include the £1.4m the firm paid in the period to restructure its construction division.

This is in addition to the £3.1m it paid in the full year to 30 June 2013 for the restructure, which included reorganising construction into three divisions from its original seven.

The group’s pre-tax profits, including £2.5m of exceptional costs that were mostly down to the construction restructure, rose by £147,000 to £2.4m between the final six months of 2013 and 2012.

The group’s order book at the end of December 2013 totalled £968m, up from £766m at the same point in 2012.

Its UK fit-out and engineering services business produced the strongest results with operating profit, excluding exceptional costs, above £3m, having been below £2m in the same period last year.

Engineering services, which carried out several international data centre projects, made up more than half of the £210m revenue of the division in the period.

ISG said there had also been “a strong recovery” in the London office fit-out market, with revenue up by more than 40 per cent as a result of big projects.

The firm is working on six London schemes each worth more than £20m with a combined value of more than £300m.

Just after the period covered by the accounts, it won one of its biggest-ever projects: a £125m construction management fit-out job at investment bank UBS’s new headquarters in London.

ISG said supermarkets had moved towards refurbishment of their stores and new convenience stores and away from large, new-build shops.

It expected banks to require more fit-out work in response to regulatory change and digital technology. It also said high street retail fit-out was showing signs of recovery.

The company said it would continue consider expanding into new countries.

ISG chief executive David Lawther said: “Undoubtedly our markets are recovering. We will continue to target growth sectors, to invest in our overseas businesses and to manage our cost base. We remain confident of meeting the board’s expectations for the full year.”

Numis Securities director of equity analysis Howard Seymour said UK fit-out and engineering services had showed “strong growth” and would be the driver of the group.

UK Construction’s profitability was “below expectations” but its order book was ahead and could be “an area of strong growth” in 2015 once the low-margin projects won during the downturn had been completed, he said.

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