More to come from Morgan Sindall

Adjusted pre-tax profit at the June half year were up by 47 per cent to £23.7m. Particular encouragement came from the cyclical fit-out business, which accounts for nearly a quarter of sales and 43 per cent of operating profit. The division's profit rose by more than a quarter in the first half and operating margins rose from 3.9 per cent to 4.3 per cent. There should be more to come because the forward order book rose by 22 per cent to a record £568m. Just over half of this will be worked on in the second half, but the remainder secures work through to 2019, giving plenty of earnings visibility. However, the real focus for growth is the company's partnership housing and regeneration businesses, both of which accounted for 21 per cent of profit last year and a 17 per cent and 6 per cent of turnover, respectively.

Partnership housing is being supported by a push for more social housing. Key projects include a £46m regeneration scheme at Ponders End in partnership with the London Borough of Enfield to build around 160 affordable and open market homes. Capital employed averaged £96.4m over the 12 months to the end of June and management plans to increase this to £250m over five years. All the better then that return on capital employed (ROCE) in the first half rose from 8 per cent to 15 per cent. And following a relatively slow first half for the division, a pick-up is expected in the final six months of the year.

A strong second half is also expected for urban regeneration where the timing on project completions saw operating profit down from £4.6m to £2m, although this is expected to recover in the second half. Here ROCE was 12 per cent in the first half and average capital employed of £79.4m is earmarked to almost double over five years to about £150m.

The construction and infrastructure division (half of turnover and 14 per cent of profit last year) has had its problems, with overcapacity driving margins down to wafer thin levels. However, legacy issues have now been resolved, and adjusted operating profit in the first half more than doubled to £7.6m. Operating margins remained low, but showed an impressive improvement from 0.5 per cent to 1.1 per cent. The construction order book was down 10 per cent at £529m, but this was the result of being more selective on contracts, with greater attention paid to risk management. 

On the infrastructure side, work secured includes a £100m joint venture to repair the M5 motorway Oldbury viaduct, while work has also started on a seven-year joint venture valued at around £500m to deliver the western section of the Thames Tideway tunnel.

Both the fit out, and construction and infrastructure business operate with negative capital employed due to high material costs and favourable payment terms to suppliers. That means the groups net cash needs to be seen in the context of £89m of negative working capital. Nevertheless, the balance sheet is in good shape with average daily net cash in the first half of £132m compared with average net debt of £24m in the same period last year. And there is also a new £180m five-year revolving credit facility which the company has yet to draw on.