Firm issues profit warning after problems on ‘small number’ of construction contracts in London and South-east

Nottingham carbon neutral Lab

Morgan Sindall has issued a profit warning this morning after being hit by problems on a handful of problem construction contracts in London and the South-east.

In a trading update for the period from 1 July to today, Morgan Sindall said the firm’s performance had been hit 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,” the firm added.

Morgan Sindall said it now expected its full-year operating margin to fall from 1% in 2013 to around 0.3% - 0.5%.

The firm said the deterioration related 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”.

The firm added: “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.”

Morgan Sindall also said it had been hit by the fire that destroyed its £16m carbon neutral laboratory project for GlaxoSmithKline at the University of Nottingham (pictured)..

With work expected to be completed in early 2015, prior to the fire which destroyed the building, the firm said it therefore “the loss of expected contribution from the time of the fire up to completion has further impacted divisional performance”.

The firm added that the other parts of its business, were all performing well, with the fit out business now expected to perform above expectations over the full year.

It said the infrastructure and affordable housing businesses were trading in line with expectations.

John Morgan, Morgan Sindall 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.

“We firmly believe that the medium and long term opportunities and prospects for the group remain very attractive.”