Problem Faslane contracts contribute to half year loss at Morgan Sindall

Faslane living accommodation
Faslane living accommodation

Problem Ministry of Defence contracts at the Faslane Naval Base have resulted in a pre-tax loss of £27.2 million during the first half of this year for Morgan Sindall.

Announced by the contractor today, the figure is double the £13.0m pre-tax loss for the same period last year though chief executive John Morgan said the firm remains confident it will reach its full year targets.

Morgan Sindall said in May that it expects to take a further £35 million hit over two problem Ministry of Defence contracts at the Faslane Naval Base in West Scotland.

It is now understood this will cost the firm nearly £40m.

Its Construction & Infrastructure business adjusted operating profit down to £0.3m (HY 2014: £5.9m), impacted by continued challenges from older construction contracts in London and the South. The firm said completion is taking longer than previously expected.

Operating profit before amortisation and exceptional operating items was £15.5m (2014: £15.2m) on revenue of £1,152m, a 15 per cent increase over the same period last year (2014: £998m).

The Group reports an order book of £2.6 billion, down slightly (3 per cent) on the previous year (2014: £2.7bn), supported by a £3.2bn pipeline of regeneration schemes (2014: £3.2bn). Adjusted earnings per share for the period was 24.5p (2014: 28.6p). The interim dividend has been maintained at 12p per share (2014: 12.0p).

Highlights include a strong performance from its Fit Out operation, with operating profit up 89 per cent to £10.4m (HY 2014: £5.5m) and good growth expected to continue through the second half. While Urban Regeneration operating profit rose to £5.0m (HY 2014: £3.5m) as a consequence of the ongoing and focused, long-term investment in the development portfolio and an improved performance from response maintenance in Affordable Housing, with loss reduced to £0.8m (HY 2014: loss £1.7m) and further progress expected in the second half towards its target break-even position by 2016.

“We’ve seen a strong performance from Fit Out in the first half and Urban Regeneration continues to deliver good growth as a result of our focused and long-term investment in the development portfolio,” chief executive John Morgan.

“Construction & Infrastructure continues to be impacted by the poor performance of its older and lower margin construction contracts in London and the South and, whilst these are working through to completion, this is happening at a slower rate than previously anticipated which will hold back the divisional performance in the second half of the year. However, it is expected that Fit Out will produce a further strong performance in the second half, with Urban Regeneration and Affordable Housing both making good progress.

“Consequently, the Group remains on track to deliver results for the full year in line with the board’s expectations and the outlook for 2016 and beyond remains unchanged.”

Affordable housing, regeneration and maintenance firm Lovell has contributed to the half year results thanks to a number of contracts with housing associations and local authorities on new affordable housing developments, major housing refurbishment schemes and regeneration programmes across the UK. The company’s order book now stands at £732m.

Key housing projects for Lovell in Scotland include:

  • £67m of work through West Lothian Council’s new-build social housing programme. Lovell is building a series of developments across 16 sites throughout West Lothian which will create 757 new council homes.

  • Four new developments – with a total value of £9.1m – which will create 81 homes for social rent for North Lanarkshire Council in Cumbernauld and Harthill. Construction work on the new cottage flats, houses and bungalows is due to start later this year.
  • A £6.7m development of homes for open market sale at Cherryhill, Larkhall, South Lanarkshire where work recently got under way.
  • The £8.1m second phase – 87 houses and apartments - of a £17.3m new-build development for Places for People at Wester Hailes, Edinburgh.
  • A £2.6m development of 22 environmentally-friendly new council homes at Belmont Drive, East Kilbride, for South Lanarkshire Council.

  • Lovell is building a £3m two-storey development of 29 new amenity flats for Shettleston Housing Association for over-55s in Glasgow’s East End.
  • Work is also continuing on the following schemes: a £4.1m development of 49 social rented homes in Whitburn for Almond Housing Association; 18 one- and two-bedroom flats for West Lothian Council through a £2.8m redevelopment at the site of the former Broxburn Primary School and a £4.8m structural insulation and overcladding programme for three 15-storey blocks of flats in Dumbarton for West Dunbartonshire Council.
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