Morgan Sindall demonstrates resilience through ‘challenging period’
Morgan Sindall said it expects profit before tax for 2020 to be in the range of £50m-£60m as it released details of the “inevitable impact” on its business of the coronavirus pandemic.
The group had a strong start to the year, with revenue in the first quarter up 17% on the prior year.
With the subsequent lockdown restrictions imposed across the UK in late March, trading and activity across all divisions were then significantly impacted.
The company said it decentralised approach allowed significant flexibility of response and enabled each division to adopt its own specific approach to suit their employees, clients and supply chain partners’ requirements in the evolving circumstances.
Group revenue for the second quarter was down 23% on the prior year. For April alone, revenue was 35% down on the prior year. As a result, total group revenue for the half year period decreased by 4% to £1,363m (HY 2019: £1,421m).
The gross margin impact of this lower revenue, together with additional costs arising through site closures, lower productivity on sites, and from implementing new safety processes and procedures, have impacted profitability during this period. In addition, construction delays on many of the development schemes in the regeneration activities, together with lower revenue in the mixed-tenure activity of Partnership Housing, have further reduced profit in the period.
As a result, the adjusted operating profit was down 52% to £18.1m (HY 2019: £37.5m), at an adjusted operating margin of 1.3%, down from 2.6% on the prior year. Consequently, the adjusted profit before tax was £15.7m, down 57% (HY 2019: £36.3m) and the adjusted earnings per share of 27.4p was also 57% lower (HY 2019: 64.2p)
Through the period, Morgan Sindall placed a number of its employees on furlough and accessed the UK Government’s Coronavirus Job Retention Scheme (CJRS). At the peak, c1,900 employees were furloughed across the group and as at 30 June, the group had claimed £9.3m under the CJRS. As at the start of August, there remained c200 employees on furlough, primarily within the Property Services and Infrastructure divisions with this number expected to reduce further through the month.
Other measures were taken to reduce discretionary costs and improve cash flow included the agreement of permissions to defer VAT, PAYE and other tax payments and the cancellation of the 2019 final dividend. In addition, the chair, non-executive directors, executive directors and senior management team all volunteered salary reductions of 20% for the three months to June 30.
Chief executive John Morgan said: “These results reflect the inevitable impact on our business of the COVID-19 pandemic.
“The business is having to continually adapt in this changing environment and I am extremely thankful to all our employees for their professionalism and dedication as we adjust to new ways of working safely and productively.
“Throughout this challenging period, the group has demonstrated its resilience, with an improved cash position strengthening our balance sheet and providing significant available liquidity. This in turn has enabled us to maintain our focus on making the right decisions based upon the best long-term interests of the business.
“Our proven strategy remains the same, based on organic growth and operational improvement. We have a balanced business geared towards future demand for affordable housing, urban regeneration and infrastructure and construction investment. Together with our high-quality secured workload, we are confident of future growth and success.
“We now have greater clarity of the extent of the impact of COVID-19 on the current year’s performance and on the assumption of no further significant business interruptions arising from any widespread secondary lockdown, we expect profit before tax for 2020 to be in the range of £50m-£60m.”