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Morgan Sindall hit by inflation, overruns and fire

Morgan Sindall has warned that its 2014 results will be hit by problems in its construction and infrastructure division.

The contractor told the City this morning that it expected full-year operating profit margins to be down from 1% last year to between 0.3% and 0.5% this year.

The firm has suffered from project overruns, cost inflation and even a fire on its site at the University of Nottingham.

Morgan Sindall said in a trading update: “While 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 [from 1 July to date] 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.”

Chief executive John Morgan (pictured) 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.”

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