24 October 2014

Morgan Sindall Group plc

Interim Management Statement

Morgan Sindall Group plc ('the Group') today announces its Interim Management Statement for the Period from 1 July 2014 to date ('the Period').

Group Performance and Outlook

Whilst the Group's Affordable Housing, Urban Regeneration, Fit Out and Infrastructure activities have performed well during the Period, 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 Board 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.

Further details are as set out below.

Operating Performance

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.  

Additionally, during the Period the construction site for the £15.8m construction of the GlaxoSmithKline Carbon Neutral Laboratory of Sustainable Chemistry for The University of Nottingham was destroyed by fire. Work commenced on site in autumn 2013 and was due for completion in early 2015 and therefore the loss of expected contribution from the time of the fire up to completion has further impacted divisional performance.  

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, however up 3% from the start of the year.

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.

It is currently anticipated that the positive revenue and profit growth momentum will continue through to the end of the year and beyond and therefore the full year result is now expected to be above previous expectations.

In Affordable Housing, progress has been as expected, with sales of open market houses for the year currently expected to be level with the prior year, although a significant proportion are scheduled for construction and completion in the fourth quarter of the year. Investment has continued in developing mixed-tenure sites which will benefit the division from late 2015 and, particularly, in 2016 and beyond. The Response Maintenance activities continue to perform broadly in line with the repositioning and turnaround as detailed at the time of the half year results.

The Affordable Housing committed order book was £734m as at 30 September 2014, level with the half year end and up 26% from the start of the year

The key market sectors for Urban Regeneration being residential, commercial and industrial all remain strong. Current and forecast progress on the portfolio of active development schemes indicates that the division is on track to deliver a strong performance for the year, with significant progress being made towards its targeted return of 15%. However, as is normal for its activities, the division's short-term profit performance is in part dependent upon third party construction programmes and completions, some of which are currently scheduled for completion in the final quarter of the year. As a consequence, some of these activities may now complete in 2015.

During the Period, Investments headed up the consortium appointed as Preferred Bidder for the North West batch of the Priority Schools Building Programme under the Government's PF2 initiative, for projects with a capital value of between £80-120m.

Order Book

The Group's committed order book¹ as at 30 September 2014 was £2.7bn, down 2% from the half year position but up 12% from the start of the year.  The Regeneration & development pipeline² as at 30 September 2014 was £3.2bn, level with the half year position and up 5% from the start of the year

Financial Position

Net debt as at 22 October was £32.0m.  Average daily net debt from the start of the year to 22 October was £7.7m. 

Directorate Change

Geraldine Gallacher will be retiring from the Board as a non-executive director and member of the audit, remuneration and nomination committees with effect from 31 December 2014.   The Board would like to thank Geraldine for her commitment and significant contribution to the Group over the last seven years.

Outlook

Whilst the Group's Affordable Housing, Urban Regeneration, Fit Out and Infrastructure activities have performed well during the Period, 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 Board now expects the full year result will be below its previous expectations set at the time of the half year results announced on 5 August 2014.

Looking further ahead, the Board 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."

 ¹ 'Committed order book' comprises the secured order book and framework order book.  The secured order book represents the Group's share of future revenue that will be derived from signed contracts or letters of intent.  The framework order book represents the Group's expected share of revenue from the frameworks on which the Group has been appointed.  This excludes prospects where confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.

² 'Regeneration & development pipeline' represents the Group's share of the gross development value of secured schemes including the estimated development value of open market housing schemes.

ENDS

Morgan Sindall Group

Morgan Sindall Group plc is a leading UK construction and regeneration group with revenue of c£2 billion, employing around 5,700 employees and operating in the public and commercial sectors.  It operates through five divisions of construction and infrastructure, fit out, affordable housing, urban regeneration and investments.

ENQUIRIES:

Morgan Sindall Group Tel:                           020 7307 9200                       

John Morgan, Chief Executive

Steve Crummett, Finance Director

Brunswick Tel:                                                020 7404 5959

Jonathan Glass

Alison Kay