UK construction and regeneration group Morgan Sindall’s board has said it now expects its full-year result will be below previous expectations set at the time of the half-year results announced on 5 August, 2014.
It said that while the group’s affordable housing, urban regeneration, fit out and infrastructure activities had performed well during the period, the group had been adversely impacted by some construction contracts in London and the south of England which had experienced timetable slippages and increased estimated costs to complete.
It said that in its construction and infrastructure division, its infrastructure business was continuing to perform in line with expectations.
However, it said the deterioration in performance over the period related mainly to a small number of fixed price construction contracts which were due to complete within the next six months and were procured over a year ago.
Additional resources which were required to complete these contracts, added to inflationary pressures since contract win, were said to have increased forecast completion costs. Also, where programme overruns are now expected, forecast contractual penalties have further increased the potential contract costs.
Also during the period, the construction site for the £15.8 million (€20.07 million) construction of the GlaxoSmithKline Carbon Neutral Laboratory of Sustainable Chemistry for The University of Nottingham was destroyed by fire. Work 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.
Morgan Sindall said that as a result, the division was 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% to 0.5%.
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 group’s construction and infrastructure committed order book was reported to be £1.55 billion (€1.97 billion) as at 30 September, 2014 – down 5% from the half year end, but up 3% from the start of the year.