Morgan Sindall Group plc has issued a profits warning with the publication this morning of its latest Interim Management Statement for the Period from 1 July 2014 to date.
The statement says the Group has been adversely impacted by a small number of construction contracts in London and the South which have experienced timetable slippages and increased estimated costs to complete. As a result, the Morgan Sindall Board said it now expects the full year result will be below previous expectations set at the time of the half year results announced on 5 August 2014.
Commenting on the Group’s operating performance, the statement says:
“In Construction & Infrastructure, whilst the Infrastructure business continues to perform in line with expectations, delivery pressures in London and the South's construction activities have adversely impacted performance with programme slippage and increases in costs to complete projects both contributing factors.”
“The deterioration in performance over the Period relates mainly to a small number of fixed price construction contracts which are due to complete within the next six months and were procured over a year ago.”
“Additional resources have been required to complete these contracts which, when added to inflationary pressures since contract win, have increased forecast costs to complete. Also, where programme overruns are now anticipated, forecast contractual penalties have further increased the potential contract costs.”
As a result, the division is now expected to deliver a full year performance below previous expectations, with full year operating profit margins reduced from 1% in 2013 to around 0.3%-0.5%.
The Construction & Infrastructure committed order book was £1,550m as at 30 September 2014, down 5% from the half year end - but up 3% from the start of the year.
The Group's total committed order book as at 30 September 2014 was £2.7bn, down 2% from the half year position but up 12% from the start of the year.
Looking further ahead, the Board said it remains confident that with the market positions held and the development opportunities being pursued, together with the strong order book and the more positive general market conditions, the Group is well-positioned to benefit from the significant growth opportunities available.
John Morgan, Chief Executive, 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.”
“The rest of the business is performing well, particularly Fit Out, and we expect an improved performance from Urban Regeneration in the year, supporting our long-term strategy of investment in regeneration. 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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