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ISG reports 'best ever' revenue as construction profits halve

ISG reported its ‘best ever revenue’ despite construction profits being sliced in half by its struggling South west division.

The fit out specialist saw pre-tax profits of £9 million in the year to 30 June 2011, compared with £8.7m the year before, on the back of a 23 per cent spike in revenue, up from £972m to £1.19 billion. The order book was £750m (2010: £742m), weighted 78 per cent towards the private sector (2010: 64 per cent).

The company, which delivered the Olympic Velodrome ahead of time and budget, saw operating profit in its construction division tumble from £5.6 million to £2.7m, after forking out £2m of restructuring costs on its loss-making South west construction business.

Those losses were blamed on a lack of work in the region, along with broader industry pressures, and resulted in construction margins declining to 0.6 per cent, compared with 1.2 per cent the year before.

Construction revenue remained stable at £476m (2010: £474m), with successes including the Velodrome hand-over and the Olympics legacy contract win for temporary facilities and services - from seating to drainage. A new office opened in Scotland, staffed with the ex-Rok plc construction team, and has so far secured £60m of contracts. The order book for construction stood at £377m (2010: £390m), with £333m expected to be delivered in the current financial year (2010: £356m), weighted 55 per cent towards the private sector (2010: 32 per cent).

In fit out, the company saw a 32 per cent increase in revenue to £342m, with operating profit up 27 per cent to £8m (from £6.3m last year). This was largely down to a strong performance in London fit out – albeit with fewer large-scale projects.  Margin was down slightly, from 2.4 to 2.3 per cent.

The firm said it will focus on medium sized projects because the short-term pipeline has diminished for major fit out projects in the corporate office sector.
There is also an increased demand for infrastructure upgrades to improve efficiency, it said. The order book stood at £170m (2010: £172m).

In food retail, revenue increased by 84 per cent to £218m on the back of new build projects, while operating profit increased to £5.2m (2010: £3.6m). A lot of work was under frameworks carried out for the four major UK supermarket brands, and the order book stood at £140m (2010: £113m). ISG doubled its revenue from Tesco.

The company said it expects the trend for smaller projects to continue this year, with the demand for large-scale works likely to return in 2013.

But it warned:  “In the UK, whilst the private sector is improving in the South east led by the retailers and property developers, it is not recovering fast enough to compensate for the falling public sector market elsewhere.  However, we expect a strong recovery of the corporate office sector in London in 2013.”

Chief executive officer David Lawther said:  “We are successfully implementing our strategy of broadening and deepening our service offering, which will enable us to win a greater volume of work, especially with repeat customers and overseas.”

Continental Europe fit out saw a 122 per cent per cent hike in revenue to £73m, but suffered losses on a Geneva project for a major blue chip client, while the Middle East saw sales of £20m after making a small loss last year. Asia saw a slow start to the year with margins under pressure despite the acquisition of 85 per cent of Shanghai-based design-led project management, Realys Group.

Overall, the company reported an improved net cash balance of £36.1m (2010: £31.0m).

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