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1 Jul 2008 07:00
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1 July 2008
Morgan Sindall plc
Pre-CloseΒ Trading Update
The Board of Morgan Sindall today announces its trading update for the six months to 30 JuneΒ 2008. The Group's interim results will be announced on Monday 4 August 2008.
Trading
Morgan SindallΒ remains on track to meet its expectations for 2008Β reflecting the visibility the Group has from its existing order book.Β However, the Group has experiencedΒ increasinglyΒ challenging market conditions over the last quarter in theΒ commercial property andΒ open marketΒ affordable housingΒ sectors.Β Β This isΒ expectedΒ to impact performance in 2009.
Fit OutΒ has experiencedΒ robustΒ market conditions overΒ the first half of the yearΒ 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 maintainedΒ sinceΒ the start of the yearΒ although it is down against the same period last year. Whilst current enquiry levels are satisfactory weΒ continue toΒ anticipateΒ some softening of the marketΒ going forward.
Construction hasΒ traded in line with expectations over the first half of the year. Market demandΒ is somewhat mixed with strong public sector spending,Β particularly in education,Β balanced by weakerΒ demand in theΒ commercialΒ propertyΒ sector.Β Β The order book has strengthened since the start of the year.
InfrastructureΒ Services hasΒ 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 projectsΒ such as the A1073 inΒ LincolnshireΒ and the Edinburgh Airport Runway Rehabilitation,Β which reflectsΒ the strength of the market. TheΒ order bookΒ has been maintained sinceΒ the start of the year.
Affordable Housing has experiencedΒ contrastingΒ market conditions. The refurbishment and new build social housingΒ sectorsΒ remain healthy,Β albeit competitive,Β butΒ the division's open market house salesΒ areΒ beingΒ heavilyΒ impacted byΒ mortgageΒ availability.Β ConsequentlyΒ the volume ofΒ open market house salesΒ for 2008Β isΒ expectedΒ to be around half the levelΒ achievedΒ last yearΒ whenΒ itΒ accounted forΒ 6% of Group revenue. The division is responding to market conditions byΒ reducing production costs,Β focusing on new build social housing,Β and switching units designated for open market sale to social housing. WeΒ remain of the view thatΒ mixedΒ tenureΒ regenerationΒ isΒ central,Β in the mediumΒ and longΒ term,Β to the regenerationΒ ofΒ social housing in theΒ UK. HoweverΒ the division willΒ continue toΒ beΒ impacted in 2009 by the deterioratingΒ condition of theΒ housing market currently being experienced.
Despite the uncertain economicΒ conditionsΒ Urban RegenerationΒ is performing in line with expectationsΒ for 2008Β as a result of existing commitmentsΒ in its order pipeline. ItΒ has also made progress withΒ its four projectsΒ currentlyΒ 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 propertyΒ investmentΒ over the last twelve months the outlook for the divisionΒ remainsΒ cautious.
Acquisition update
The acquisitionΒ of the Design & Project Services and Development businesses from Amec plc on 27 July 2007Β 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 GroupΒ is required withinΒ twelve monthsΒ from that date toΒ determine the fair valuation of the acquired assetsΒ by,Β in particular,Β reviewing each of the contracts acquired in depth. This exercise, an update to the preliminary valuation at December 2007,Β is close to completion and we anticipate makingΒ furtherΒ fair value adjustments,Β subject to audit,Β relating to the Design and Project Services businessΒ totallingΒ Β£58m. The impact of these adjustmentsΒ willΒ be toΒ increase goodwillΒ on the balance sheetΒ by Β£58m and to create provisions ofΒ a corresponding amount.
Within this amountΒ the Group hasΒ made provisionΒ for contracts whose expected margin on completion is likely to be below that which Morgan Sindall would normally expect. The Group hasΒ alsoΒ identified and is addressing aΒ limitedΒ number ofΒ contractualΒ issues and has taken provision against theirΒ likelyΒ future outcome.
Overall the acquisition has been a success andΒ was completed on attractive financial terms, even taking account of the fair value adjustments noted above.
Outlook
The Group'sΒ order book hasΒ been maintainedΒ since the start of the yearΒ at Β£4.3bnΒ withΒ average cash balancesΒ yearΒ to dateΒ being Β£95m, ahead of the same period last year. In summary, weΒ remain on track for 2008 althoughΒ theΒ prolongedΒ slow downΒ inΒ theΒ commercial property andΒ open marketΒ housingΒ sectorsΒ willΒ impactΒ our expectations forΒ 2009.Β
Analyst Conference Call
A conference call will be held at 9am today, 1 July, for the analyst community. The conference call will include aΒ briefΒ 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: 5331221Β
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Morgan Sindall plc |
Tel: 020 7307 9200 |
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Paul Smith,Β Chief Executive |
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David Mulligan,Β Finance Director |
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Blythe Weigh Communications |
Tel: 020 7138 3204Β |
|
Tim Blythe |
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Paul Weigh |
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