Last checked at 1 Jul 2008 07:00
1 July 2008
Morgan Sindall plc
Pre-Close Trading Update
The Board of Morgan Sindall today announces its trading update for the six months to 30 June 2008. The Group's interim results will be announced on Monday 4 August 2008.
Trading
Morgan Sindall remains on track to meet its expectations for 2008 reflecting the visibility the Group has from its existing order book. However, the Group has experienced increasingly challenging market conditions over the last quarter in the commercial property and open market affordable housing sectors. This is expected to impact performance in 2009.
Fit Out has experienced robust market conditions over the first half of the year and remains on track for 2008 although revenue will be weighted to the second half of the year due to the timing of major contracts. The order book has been maintained since the start of the year although it is down against the same period last year. Whilst current enquiry levels are satisfactory we continue to anticipate some softening of the market going forward.
Construction has traded in line with expectations over the first half of the year. Market demand is somewhat mixed with strong public sector spending, particularly in education, balanced by weaker demand in the commercial property sector. The order book has strengthened since the start of the year.
Infrastructure Services has traded positively over the past six months experiencing a healthy market underpinned by major investment in transport and utilities infrastructure. The division has secured key new projects such as the A1073 in Lincolnshire and the Edinburgh Airport Runway Rehabilitation, which reflects the strength of the market. The order book has been maintained since the start of the year.
Affordable Housing has experienced contrasting market conditions. The refurbishment and new build social housing sectors remain healthy, albeit competitive, but the division's open market house sales are being heavily impacted by mortgage availability. Consequently the volume of open market house sales for 2008 is expected to be around half the level achieved last year when it accounted for 6% of Group revenue. The division is responding to market conditions by reducing production costs, focusing on new build social housing, and switching units designated for open market sale to social housing. We remain of the view that mixed tenure regeneration is central, in the medium and long term, to the regeneration of social housing in the UK. However the division will continue to be impacted in 2009 by the deteriorating condition of the housing market currently being experienced.
Despite the uncertain economic conditions Urban Regeneration is performing in line with expectations for 2008 as a result of existing commitments in its order pipeline. It has also made progress with its four projects currently at preferred bidder stage. The division focuses on long term strategic partnership arrangements with public and private landowners, which limits its exposure to the revaluation issues affecting the sector. However, with the softening of commercial property investment over the last twelve months the outlook for the division remains cautious.
Acquisition update
The acquisition of the Design & Project Services and Development businesses from Amec plc on 27 July 2007 was a key step in developing the Group's market leadership in the construction and regeneration markets. The Group is now better positioned to deliver more complex schemes across its chosen market sectors.
Following the acquisition the Group is required within twelve months from that date to determine the fair valuation of the acquired assets by, in particular, reviewing each of the contracts acquired in depth. This exercise, an update to the preliminary valuation at December 2007, is close to completion and we anticipate making further fair value adjustments, subject to audit, relating to the Design and Project Services business totalling £58m. The impact of these adjustments will be to increase goodwill on the balance sheet by £58m and to create provisions of a corresponding amount.
Within this amount the Group has made provision for contracts whose expected margin on completion is likely to be below that which Morgan Sindall would normally expect. The Group has also identified and is addressing a limited number of contractual issues and has taken provision against their likely future outcome.
Overall the acquisition has been a success and was completed on attractive financial terms, even taking account of the fair value adjustments noted above.
Outlook
The Group's order book has been maintained since the start of the year at £4.3bn with average cash balances year to date being £95m, ahead of the same period last year. In summary, we remain on track for 2008 although the prolonged slow down in the commercial property and open market housing sectors will impact our expectations for 2009.
Analyst Conference Call
A conference call will be held at 9am today, 1 July, for the analyst community. The conference call will include a brief question and answer session with senior management. The conference call information is as follows:
Dial in number: 020 30032666
Passcode: Morgan Sindall
A replay of the conference call will be available for one week. Replay details are:
Dial in number: 020 81961998
Passcode: 5331221
| Morgan Sindall plc | Tel: 020 7307 9200 |
| Paul Smith, Chief Executive | |
| David Mulligan, Finance Director | |
| Blythe Weigh Communications | Tel: 020 7138 3204 |
| Tim Blythe | |
| Paul Weigh |