Order book slims down at Morgan Sindall

Construction and regeneration group Morgan Sindall grew profits in a tough first half of the year but is not banking on its markets getting any easier in the short-term.

Despite revenue in the first half of 2012 falling 8% to £1.00bn from £1.09bn the year before, profit before tax rose 13% to £18.8m from £16.7m.

Performance was in line with management's expectations, considering the uncertain business environment. The market continues to be characterised by a high degree of competition and pricing pressures, the group said.

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Adjusted earnings per share climbed 12% to 35.8p from 35.1p the year before while the interim dividend has been maintained at 12p.

The company's cash pile of £43m at the end of June last year had turned into a debt of £36m a year later, reflecting investment in regeneration and reduced levels of cash generated from construction activities.

The order book declined to £1.5bn at the end of June from £1.9bn a year earlier.

The Construction and Infrastructure division saw operating profit slide to £8.5m from £9.5m the year before on revenue that declined to £583m from £617m. The division's margin was held at 1.5%, due to focus on growth sectors and careful cost control. Construction and Infrastructure's order book remains "solid" but slimmed down to £1.5bn from £1.9bn at the end of June 2011.

The Fit Out division's operating profit dipped to £5.5m from £6.1m the year before on revenue that tumbled to £191m from £222m. On the plus side, there was a slight improvement in margin to 2.9% from 2.7% in the first half of 2011, and the order book expanded to £230m from £133m a year earlier, despite the absence of larger projects in the London office market.

The Affordable Housing division increased its operating margin to 3.7% from 3.6% a year earlier. Operating profit decreased to £7.5m from £8.3m the year before, while revenue fell to £202m from £228m a year earlier. The reduced flow of Government grants is having a significant impact on development, despite which the order book was relatively stable at £1.4bn, down from £1.5bn the year before.

The Urban Regeneration is the runt of the litter but the only one boosting revenue and profit; revenue rose to £23m from £19m the year before and operating profit jumped 50% to £1.5m from £1.0m.

The portfolio value of the Investments division at the end of June stood at £56m, up from £42m the year before. The division turned an operating profit of £1.3m in the half-year, having made a loss of £2.1m the year before. In line with its strategy to realise investments as they mature and to recycle capital into new projects, the division completed the £3.8m sale of its interest in the Dorset Fire & Rescue private finance initiative, as well as the sale of its medical properties interests in July for £24m.

"Despite the challenging economic environment, we are encouraged by the continuing opportunities in growth infrastructure sectors and we remain committed to investing in our regeneration business to drive growth over the medium to long term," declared John Morgan, Executive Chairman of the company.

Over a background of the sound of hatches being battened down, Morgan added: "Whilst we expect market conditions to remain challenging in the short term, we believe our strong track record of successful delivery and our ability to provide our customers with creative, integrated solutions leaves us well positioned for the future."

JH