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Profits and revenues fall at Morgan Sindall

Morgan Sindall has posted an 8 per cent fall in revenues for 2012 while profit before tax tumbled 15 per cent after it incurred restructuring costs of £10m.

The firm’s shares dipped 9 per cent by 9.30am after it reported that revenues fell 8 per cent to £2.047 billion and profits dropped 14 per cent to £34.2m.

Only one of the firm’s four construction sectors saw improvement during the year.

Revenues from urban generation climbed £5m to £62m, but sank to £11.5m in affordable housing (previously £18.5m), £11.3m in fit-out (£12.4m) and £19.7m in construction and infrastructure (£21.1m).

Morgan Sindall’s cash reserve was halved to £50m and debt reached £40m, compared to a £23m positive balance in 2011.

The firm said its rise in debt was “as expected” and reflected an “increase in working capital deployed across the group and reduction of construction-related revenue”.

During 2012 Morgan Sindall disposed of mature investments worth £26m which will be reinvested into major housing and urban regeneration schemes. Its results include a £7.0m gain on the disposal of medical properties investment.

The firm plans to invest cash generated from construction activities in regeneration schemes to secure greater returns over the medium term, and said it had bid selectively in 2012 and streamlined it business “to match the expected medium-term workload”.

Morgan Sindall’s order book fell slightly to £3.1bn (2011: £3.4bn) with projects at preferred bidder of £0.5bn (2011: £0.3bn). It will focus on growing its infrastructure sectors and expects public sector land release will drive regeneration in medium term despite expectations of a “challenging” market due to the delayed economic recovery.

Investment banking group Numis said the market’s focus will be on the firm’s reduced dividend – down 36 per cent to 27p – but was positive on Morgan Sindall’s prospects.

“The key here is not worsening market outlook or a weaker balance sheet, but a resetting of dividend policy based on the view that 2013 is the trough from which the company can resume growth in profits and shareholder returns,” it said.

“The shares are likely to be impacted today on the dividend news, but we argue here that after a period of share price weakness based on uncertainty about the dividend, shareholders should now focus on the clear and significant value within the company.”

Bankers Panmure Gordon added: “The outlook for UK construction is extremely tough at the moment and the group’s contribution of a profit warning does not help investor sentiment.

“The dividend cut, while not a major surprise is a bit disappointing, but it does show that management are taking action in these tough times.”

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