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Morgan Sindall 2011 profits fall as public sector bites

Morgan Sindall saw a drop in construction and infrastructure margins as pre tax profit across the group fell by 12 per cent in the year to 31 December 2011.

Revenue was up six per cent, from £2.1 billion in 2010 to £2.22bn, while profit before tax, amortisation and non recurring items dipped from £51.3 million to £45.3m.

Although the firm won more work, with revenue up across its divisions, construction, fit out and affordable housing margins fell. Urban regeneration performed well (SEE BELOW).

The total order book sits at £3.4bn, slightly down on £3.6bn last year, with a quarter of this expected from frameworks.

Average cash balance is £23m (2010: £63m), reflecting investment in regeneration and growth of shared equity and increase in investment properties. The firm has £109m in the bank at year end, down from £149m last time.

John Morgan, executive chairman, said:  “We are pleased to report a solid set of results for 2011 in line with expectations, despite continued challenging markets.

“We are benefiting from being a broadly based business, offering creative, integrated solutions for increasingly complex projects, with a track record of delivery. We are focused on maximising opportunities in sectors we believe offer the most growth and reward.

“We continue to invest for sustainable growth in the medium-term whilst maintaining a strong balance sheet and dividend.”

Analysts said the results are in line with expectations.

Howard Seymour, from Numis Securities, said:  “A significant shift away from the public sector is taking place as the group also develops greater integration of its operations into infrastructure, maintenance and regeneration markets and will underpin profits in the short term ahead of recommencing growth in 2013 and beyond.”

He noted the drop in public sector share to 50 per cent, from 70 per cent a year before.

By sector:

Construction and infrastructure:
Operating profit is £21.1m (2010: £26.9m) on increased revenue of £1.27bn (2010: £1.25bn).
The company said the competitive market has led to margin at 1.7 per cent, dwon from 2.2 per cent.
Order book is £1.6bn (2010: £2bn); projects at preferred bidder stage of £0.3bn.
Reducing public sector exposure, though “opportunities remain in education and infrastructure”.

Fit out:
Revenue up by 6 per cent to £438m (2010: £415m) in a “fiercely competitive market”.
Operating profit of £12.4m (2010: £14.8m) resulting in margin of 2.8 per cent (2010: 3.6 per cent).
Order book is £216m (2010: £180m) and “stable outlook”

Affordable Housing:
Operating profit up 14.1 per cent to £18.6m (2010: £16.1m) on revenue of £462m (2010: £387m)
Growth driven by full year impact of Connaught acquisition; now integrated and debt recovery on target at £20m
Margin at 4 per cent (2010: 4.2 per cent), due to changing work mix
Forward order book at £1.5bn (2010: £1.5bn)

Urban Regeneration
Operating profit almost doubling to £3.9m (2010: £2.0m) on increased revenue of £57m (2010: £46m)
Regeneration increasing activity; on-site with £100m of construction work
Five new regeneration schemes secured during the year valued at £800m
Increased importance of regeneration driven by public sector land release
Regeneration pipeline of £1.6bn (2010: £1.4bn), with a further £0.6bn at preferred developer stage underpins expected progress in 2012

Investments
Directors’ portfolio valuation of £49m (2010: £41m) at 31 December 2011
Total equity invested of £19m (2010: £15m) with further £10m committed (2010: £12m); carrying value of £23m (2010: £18m)
Notable schemes achieved financial close in the year; £0.4bn Bournemouth regeneration scheme and second tranche of the £0.4bn Hull Building Schools for the Future programme
Focus on land-swap opportunities as public sector grant funding reduces

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