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Morgan Sindall boss predicts further fallout across industry

Morgan Sindall’s chief executive has said he expects more downsizing across the industry this year and that companies are still coming to terms with a less cash-rich market.

John Morgan, who moved back in to the chief executive role in November, spoke to CN after Morgan Sindall posted a 15 per cent drop in 2012 profits.

Those results included £10 million in restructuring costs after the firm realigned from six to four construction divisions and streamlined their affordable housing arm, Lovell.

The company cut its final dividend by 36 per cent to 27p. By last Friday, the share price was down 9 per cent on a week earlier, to 530 pence.

Mr Morgan had already conceded there is “room for improvement” at the company and said that, as the market is unlikely to improve, it required “self-help to be in a better position”.

He told CN: “I think 2013 is going to be pretty hard and I don’t think that 2014 is going to be much better, though I don’t see it getting worse again.

“I think the industry is still too big for the market. I think there will be some more downsizing.”

“I think 2013 is going to be pretty hard and I don’t think that 2014 is going to be much better”

John Morgan, Morgan Sindall

Asked if that meant more restructuring for his company, he said the nature of the market is that firms are always changing. But he added: “I’m not envisaging any changes; we are where we want to be.”

Revenues fell 8 per cent to £2.05 billion year, with profits of £34.2m. Morgan Sindall’s cash reserve was halved to £50m and debt reached £40m, compared with a £23m positive balance in 2011.

“I think traditional construction is going to be tough for some time,” Mr Morgan said. “Construction, where the margins are tightest, is the bit that produces the cashflow.

“Our construction and affordable housing turnover has fallen, so cash has reduced as a result. That’s in straight construction, not housebuilding.”

He added: “I think the reality is that we have been used to having lots of cash and we are having to learn how to manage a different environment.”

“There is no doubt that payment terms are longer than they used to be”

John Morgan, Morgan Sindall

The move to infrastructure has also affected the cash balance, but the founder of the business sees this as “a growing part of our business” with a growing order book.

Mr Morgan said he has also seen a change in payment terms from clients. “There is no doubt that payment terms are longer than they used to be,” he said.

The CEO said he sees fit-out coming back first, with some recovery in affordable housing, which is a market where Morgan Sindall has been particularly affected.

Asked why he expects an upturn in affordable housing, he said: “I think it is local authorities using their land and using their land in order to get affordable housing going.They still have a lot of money tied up in bricks and mortar.”

Mr Morgan has said his aim in taking over from Paul Smith was “sharpening the strategy”. He told CN: “I think it’s a matter of rolling our sleeves up and moving faster to implement the strategy we have – more pace.”

Mr Morgan said for him that means being more visible on the ground and “more meetings with levels of management”. “We have got some very good people and it’s great fun to be working with them,” he said.

Results in numbers

Construction and infrastructure

  • Operating profit declined to hit £19.7m (2011: £21.1m) on revenue of £1.17bn (2011: £1.27bn)
  • Margin held steady at 1.7% (2011: 1.7%)
  • Order book totalled £1.5bn (2011: £1.6bn) with projects at preferred bidder stage valued at £0.5bn (2011: £0.3bn)

Fit-out

  • Operating profit* fell to £11.3m (2011: £12.4m) on revenue of £427m (2011: £438m)
  • Margin contracted slightly to 2.6% (2011: 2.8%)
  • Order book down to £170m (2011: £216m)

Affordable housing

  • Operating profit fell to £11.5m (2011: £18.5m) on revenue of £386m (2011: £462m)
  • Business restructured in response to pressure on margins, which declined to 3% (2011: 4%)
  • Order book down slightly at £1.3bn (2011: £1.5bn)

Urban regeneration

  • Revenue increased to £62m (2011: £57m)
  • Operating profit fell to £2.7m (2011: £3.9m)
  • Growing regeneration pipeline grew to £1.9bn (2011: £1.6bn), with a further £0.3bn (2011: £0.6bn) at preferred developer stage

Investments

  • Directors’ portfolio valuation of £32m (2011: £49m)
  • Operating profit of £7.4m (2011: loss of £3.9m) principally due to the £7m profit on disposal of mature medical properties investment and good performance from joint venture investments

 

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