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Morgan Sindall margins squeezed

Margins are being squeezed at Morgan Sindall as an increasingly competitive market takes its toll on the construction giant.

The group remains on track to meet expectations and has secured several major contract wins in the period but a trading update for the six months to 30 June said operating margins had suffered. 

The overall order book is steady at £3.6 billion but the development pipeline has edged forward by £0.4bn to £1.8bn, with a further £0.8bn of developments at preferred bidder.

Average cash for the period of £44 million is slightly above expectations but below the same time last year.

The company statement said:  “Overall we have had a positive first half of 2011 and, with our track record in growth sectors, broad sector spread and depth of capabilities, we remain well positioned to face the challenges ahead and to benefit from opportunities as they arise.”

In Construction and Infrastructure Morgan Sindall has landed places on several major frameworks including two lots of the £500m Smarte East Alliance and on the £400m South east Wales Schools Capital Working Group framework.

The division also secured major civil engineering projects including the £50m Pudding Mill Lane station works for Crossrail and, in joint venture, the £235m Crossrail Whitechapel and Liverpool Street Station Tunnels contract.

Revenue remains in line with expectations and margins continue to be squeezed.

The group’s housing division has seen a slight improvement in market conditions despite sales remaining constrained by lack of mortgage finance.

Maintenance remains resilient and the company is hoping its planned and responsive maintenance offering makes it well placed to capitalise on low carbon opportunities.

It has also won several significant new build affordable housing schemes including a £20m development in Doncaster, a £30m scheme in Skipton, the £40m programme for Cartrefi Cymunedol Gwynedd, and a place on two major Scottish frameworks valued at up to £210m in total for Port of Leith and West of Scotland housing associations.

In addition, Lovell’s joint venture, Compendium, was selected as preferred bidder for Derby’s £100m Castleward Urban Village development.

The fit out division has increased its revenues but has also been hit by tightening margins and urban regeneration continues to progress after a deal signed with Warrington Borough Council to deliver the £130m Bridge Street regeneration plan.

In investment the company has been boosted by a £350m deal with Bournemouth, reached financial close on the next tranche of schools under the Hull BSF programme and was appointed preferred developer on the £450m Southampton Waterfront scheme.

The update comes ahead of the group’s preliminary results on 8 August.

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