With the UK economy now in the grip of double digit inflation – and with the two candidates for prime minister having diametrically opposed views on how or whether to tackle it – the impact on construction workloads is starting to show.
Morgan Sindall said that inflationary pressures were impacting margins and leading to projects being put on ice.
“Where projects are active and underway, the additional costs arising have generally been offset by a combination of contractual protection, operational efficiencies, flexible sourcing and (in the case of Partnership Housing) by house sales price inflation,” the company said. “On projects where it has not been possible to mitigate all such additional costs in full, the resulting impact on margins has been unavoidable.
“Where projects are being priced for future delivery, the inflationary environment has continued to place some project budgets under pressure particularly in Construction & Infrastructure, which in turn has led to some delays in decision-making and project commencement.
“In Urban Regeneration, construction cost inflation has also provided additional challenges to the returns on some of its active developments and on the viability of some of its schemes being evaluated prior to commencement.”
Despite these significant headwinds, Morgan Sindall’s results for the six months to 30th June 2022 showed a record half-year performance for the group. Revenue was up 9% to £1,698m (2021 H1: £1,559m) and pre-tax profit was up 2% to £53.7m (2021 H1: £52.4m).
Net cash on 30th June 2022 stood at £274m, compared to £337m a year before.
Revenue from the fit-out division was up 20% to £457m; revenue from the construction & infrastructure division was down 1% to £764m; partnership housing (Lovell) revenue was up 5% to £284m; property services was up 10% to £76m; and Muse, the urban regeneration business, turned over £126m.
All divisions were profitable, with operating margins of 3.2% for construction & infrastructure, 4.6% for fit-out and 4.9% for partnership housing.
Chief executive John Morgan said: “We’ve had a record first half of the year and these results reinforce the significant strategic and operational progress we have made over the past few years. Whilst early days, this is a good start towards our medium-term targets outlined in February.
“With the more challenging economic backdrop, our strong balance sheet including a substantial net cash position is critical to operating efficiently and effectively. It allows us to continue making the right decisions and to best position us in our markets, giving us competitive advantage for continued sustainable long-term growth.
“Our market positions and disciplined approach to contract selection continues to drive positive momentum across the group. Our order book is substantial and of high quality. Following our strong first half performance and with the current visibility we have of the rest of the year, we now expect to deliver a result for the full year which is slightly ahead of our previous expectations.”