Morgan Sindall issues profit warning over contract issues

John_Morgan Morgan-Sindall
John Morgan

Morgan Sindall Group issued a profit warning today admitting it expects its full-year results to come in below previous expectations due to problems faced with contracts in its London and South business.

The company said that, while it saw a good performance in its Affordable Housing, Urban Regeneration, Fit Out and Infrastructure arms in recent months, its full-year results would be below its previous expectations, issued on August 5, due to construction contracts in London and the South, which have been delayed and for which the company has incurred extra costs in order to complete.

The main problems came in its Construction & Infrastructure division, where the delivery pressures in London and the South impacted overall performance.

It said the issues were related to a “small number of fixed-price construction contracts” due to be completed in the next six months. Morgan Sindall said it was forced to use additional resources to complete the contracts. In addition, it incurred further costs due to contractual penalties imposed due to the delay to the projects.

In addition, the company said the construction site for the £15.8 million GlaxoSmithKline Carbon Neutral Laboratory of Sustainable Chemistry at the University Of Nottingham was destroyed by a fire.

Due to those problems, the division is now expected to post a full-year performance below expectations, with full year operating profit margins for the Construction & Infrastructure business cut from 1 per cent in 2013 to 0.3-0.5 per cent.

Elsewhere, the group said its Fit Out business traded well and said it expects the full-year result for this business unit to exceed expectations. Its Affordable Housing business has traded in line, but it said some of the projects handled by its Urban Regeneration arm would be delayed to 2015.

Morgan Sindall’s order book at September 30 was £2.7 billion, down 2 per cent on its half-year position at June 30 but 12 per cent ahead of the start of the year.

Chief executive John Morgan said: “We are obviously disappointed that a small number of construction contracts in London and the South have been impacted by timetable slippage and increased estimated costs to complete. This is a short-term and localised issue which is receiving the highest level of management attention and which should be worked through over the next six months.

“We firmly believe that the medium and long term opportunities and prospects for the group remain very attractive, as demonstrated by the higher quality order book and pipeline.”

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