There was pressure on profits in both the Construction & Infrastructure and the Affordable Housing divisions, attributed to high competition and increased input costs – and neither is likely to get any easier this year.
In the full year to 31 December 2013, Morgan Sindall reported revenue up 2% to £2,095m (2012: £2,047m). Adjusted operating profit was down 30% to £33.6m (2012: £48.1m) and reported pre-tax profit was down 59% to £13.9m (2012: £34.2m).
A total of £14.7m was wiped off the profit line by impairment charges taken on four old construction contracts still held on the balance sheet.
The order book at year-end was up 8% to £2.4bn, an increase of 8%.
Morgan Sindall Group's strategy is focused on two distinct business activities: Construction (92% of revenue) and Regeneration (8%). Construction is split into three divisions: Construction & Infrastructure (59% of total group revenue); Fit Out (20%); and Affordable Housing (13%).
Revenue in 2013 from the Construction & Infrastructure division was up 6% to £1,234m (2012: £1,168m) but, faced with rising cost inflation during the year, the operating margin shrank to just 1%, from 1.7% in 2012. Operating profit dropped 36% to £12.7m (2012: £19.7m). The order book of £1,499m was down 1% on the year before. Of this total, 54% is committed in 2014.
Chief executive John Morgan commented: "2013 has seen challenging conditions predominate across most of our markets, with competitive pressures impacting on margins and profitability. Notwithstanding this, the positive operating cash flow generated by the business has allowed us to make further investment in strategic assets, key skills and resources, which positions the group well to benefit from future growth opportunities.
“Looking ahead to 2014, although there are signs of improving conditions in some of our markets, it is anticipated that upward pressure on supply chain costs and skills availability will provide additional management challenges. Against this backdrop, we remain confident that our robust order book and on-going disciplined approach to contract selectivity will support the delivery of growth in this year and beyond."
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