Tight margins causing problems, says Morgan Sindall

RUGBY-based construction firm Morgan Sindall says its performance has been affected by margin contraction.

In an interim management statement ahead of today’s AGM, the firm reported that against the backdrop of continued difficult trading conditions in most of its markets group performance in the first quarter was slightly below the board’s expectations.

“Although group revenue levels held up, group margin was adversely impacted by margin contraction in the construction and infrastructure and affordable housing divisions,” it said.

The group’s forward order book as at the end of Q1 was £3.2bn, up 6% from the year end position, reflecting positive levels of selective bidding activity.

In construction and infrastructure the markets continue to be highly competitive, with the operational focus being on careful contract selection, cost and overhead management, and management of cash in a challenging working capital environment,the firm said.

“Margins continue under pressure across all sectors, however the full impact of this has been mitigated in part by the overhead cost savings derived from the restructuring announced in November 2012.”

Affordable housing has seen some recent improvement in market conditions in open market housing activities, as evidenced by an increase in house reservations in Q1 compared to last year.

“However, the benefit of this has been more than off-set primarily by continuing significant pressure on construction revenue and margins.”

There have been some “important milestones” achieved within the urban regeneration area with planning consents granted for new projects in Lewisham, Chester and Doncaster; the commencement of the second phase of construction at its Chatham Place, Reading development; and the recent award of preferred bidder status on a significant redevelopment project by Aberdeen City Council.

The regeneration pipeline at the end of Q1 was level with the year end at £2.1bn.

Net debt as at April 30 was £23m.

During the period, the firm has entered into a £15m three-year bilateral loan issued under the Government’s Funding for Lending Scheme arranged by Lloyds Bank Commercial Banking.

Total committed banking facilities are therefore increased to £125m, which includes £110m of committed banking facilities expiring in June 2015.