18th Feb 2014 11:08
LONDON (Alliance News) - Construction company Morgan Sindall Group PLC Tuesday said it is continuing to face challenges reported in the first-half, with margins under pressure and increased competition affecting profit.
The firm, which builds houses and refurbishes offices, said full-year profit for the period ended December 31 2013 fell 59% to GBP13.9 million, from GBP34.2 million a year earlier.
At the half-year, the company said profits had been dented after it booked exceptional operating items of GBP13 million as a provision against amounts recoverable in relation to a small number of construction contracts.
During the second-half, there has been commercial resolution achieved on one of these contracts, whilst another has been impaired to reduce the carrying value to nil, said the company.
The firm also saw its share of net profit from joint ventures drop to GBP900,000 during the period, from GBP5.7 million in the corresponding year.
Morgan Sindall said despite the market showing signs of improvement it is, "still pretty tough out there" and, "there are things to be done".
"What we have seen is that it has been a year of two halves. The first half of competition that impacted margins and in the second half we had partly competition and then we had the addition of cost inflation, materials cost and subcontractor costs and wage inflation," Finance Director, Steve Crummett said in a telephone interview.
"If you look at our construction and infrastructure division, our operating margin was 1% and I think its fair to say in the range of competition there is more for us to be doing," he added.
"However, we believe that we are doing the right things in terms of our order book going forward, we are being a lot more selective and much more rigorous in our cash management and working capital management and in turn its the big focus on operational excellence and we believe we have a path to drive those margins forward as the market conditions come back," said Crummett.
Revenue rose 2% to GBP2.09 billion from GBP2.04 billion boosted in part by the construction and infrastructure division.
The division reported a 6% increase in revenue to GBP1.23 billion, from GBP1.16 billion despite challenging market conditions through the year, which significantly impacted overall profitability.
Although divisional revenue rose, operating margin declined to 1.0% from 1.7% impacted by competitive pressures and by cost inflation, which resulted in operating profit of GBP12.7 million, from GBP19.7 million in 2012.
Fit Out revenue and Affordable Housing revenue did not fare as well, with the divisions reporting revenue declines of 2% and 1%, respectively.
Although official figures showing that housebuilding and construction recovery is on the rise, Morgan Sindall said it is not yet benefiting.
"It is the housebuilders that are doing particularly well at the moment, contractors on the whole aren?t doing so much better," Chief Executive John Morgan told Alliance News. "There is no doubt that the market is recovering, there is no doubt that we have to manage that that recovery. We are saying that the early part of the recovery will be price or cost inflation which will hold margins back a bit at the start of the recovery."
On a positive note, the firm's order book held steady, with group committed order book rising 8% to GBP2.40 billion from GBP2.22 billion in 2012. The committed order book comprises the secured order book and framework order book.
However, Crummett remained cautious and said the challenge was turning an order book into profit.
"I think with all contractors you can have whatever order book you want. There is a lot of demand and activity out there, and you can see all the cranes in London for example, but what the industry needs to crack is turning revenue and projects into returns," he said.
"Only time will tell how that order book will generate profit and that's not just down to what you bid at, its all about delivery and excellence and managing cost inflation. I think what we are saying about the order book is yes it is a good start but proof will be turning that into profit," Crummett added.
Financially, net cash at the end of the period was GBP69.7 million an increase of GBP19.3 million from January 1 2013.
"2013 has seen challenging conditions predominate across most of our markets, with competitive pressures impacting on margins and profitability," Morgan said.
"Notwithstanding this, the positive operating cash flow generated by the business has allowed us to make further investment in strategic assets, key skills and resources, which positions the group well to benefit from future growth opportunities," he added.
The board declared an unchanged final dividend of 15.0 pence per share, resulting in a total dividend for the year of 27.0 pence - again unchanged from 2012.
Shares in the construction firm were trading at 739.50 pence Tuesday morning, down 51.00 pence or 6.5%.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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