Morgan Sindall: £2.1bn turnover and record profit

Morgan Sindall saw turnover surge to more than £2bn in 2007, with pre-tax profit climbing to a record high of £58m.

“We’ve never been in better shape,” said John Morgan, executive chairman. “We’ve become a well-balanced company.”

Two of MS’s five operational businesses proved to be its towers of strength:

• fit-out generated an operating profit of £26m
• affordable housing matched that, also returning an operating profit of £26m.

The construction group’s latest figures cover the 12 months to 31 December 2007.

Last summer MS dived in quickly and snapped up several parts of Amec that had been posted as being “for sale”, signing up to a deal before rival bidders had started to get their act together.

Morgan is seen as having achieved as big a bargain as the one Ray O’Rourke struck when he famously bought Laing Construction for just £1.

“You could say that it [i.e. Amec] cost us £12m in cash, but we’ve worked it so that by the end of the year it had cost us no cash at all,” said Morgan.

Pressed to describe the deal as a bargain, Morgan would do no more than chuckle politely.

“I’d rather call it a strategic deal,” he said. “It’s not about what price you paid at the time but rather what shape that business is in in five years’ time – that’s what’s important.”

The deal was struck halfway through 2007, so the full annualised effect has yet to show through on MS’s turnover figure.

However, next year it is expected that MS will have a turnover running to £2.5bn.

There has never been a squeak of protest from former Amec staff about how they have been treated by their new owner.

“Well we are only too aware that in making a bid, what we are buying is the company’s people,” explains Morgan. “We’re looking for good people and Amec brought us just that, good people with some real skills.”

Net cash flow from operating activities was £160m (figure in the previous year: £50m).

Asked how come this figure was so much higher than profit, Morgan said that in addition to the contribution for profits, MS had improved its working capital management.

MS had an end-of-year cash balance of £220m which would provide a seriously useful war-chest should it embark on further acquisitions.

“Let me give you a more telling statistic, perhaps,” said Morgan, “and that is that our average cash has risen to a figure of £75m. That figure compares with £22m in the previous year.”

The two less-than-glowing parts of the group’s results were the performances in the construction division (turnover of £620m) and the infrastructure services division (turnover £400m).

The construction operating profit of £4.9m generated a margin of just 0.8% even without accounting for its share of group overhead costs. The profit figure was pulled down, however, by £2.8m of Amec integration costs and without that toll the margin would have been 1.2% - still not massive but at least an improvement over the 1.0% margin in the previous year. 

The infrastructure services division made an operating profit of £11m, giving it an operating margin of 1.8%, up from 1.6% in 2006. Again there was an Amec-related integration cost, in this case running to £1.4m. Without that, the operating margin would have inched forward to 2.1%.