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Problem contracts force Morgan Sindall profit warning
Aaron Morby | Fri 24th October | 7:19
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Cost overruns and delays on several projects in London and the south east have forced Morgan Sindall to issue a profit warning this morning.
Morgan Sindall said the problem contracts would erode profit margins at the construction division, now expected to halve from around 1% in 2013 to just 0.3-0.5% this year.
The firm said its problems were mainly down to a small number of fixed price construction contracts due to complete within the next six months that were procured over a year ago.
Morgan Sindall has thrown additional resources at the jobs and has also been hit by inflationary cost pressures since contract win.
John Morgan, chief executive, warned that where programme overruns were now anticipated, forecast contractual penalties had further increased the potential contract costs.
He 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.”
He added that Morgan Sindall has also suffered a hit from the blaze, which destroyed its Nottingham University chemistry lab project.
Work commenced on site in autumn last year and was due for completion in early 2015.
He said that the loss of expected contribution from the time of the fire up to completion had also further impacted divisional performance.
Morgan said that the rest of activities covering affordable housing, urban regeneration and fit-out were in line or ahead of expectations.
Fit-out has traded strongly, with significant levels of bidding activity resulting in the order book of £260m as at the end of September, up 17% from the half year and up 83% from the start of the year.
Overall Morgan Sindall’s committed order book was £2.7bn, down 2% from the half year position but up 12% from the start of the year.
The news sent Morgan Sindall’s share price tumbling more than 13% in early trading.