Morse – still a long row to hoe

(By Anthony Miller – Friday, 24th April 2009 8:15am). Management’s valiant attempts to stabilise the various remaining parts of Morse’s business (see Morse – And then there were four), have yielded some positive results but the path ahead is far from straight and narrow. In today’s IMS (see here) CEO Mike Phillips warned that South Tyneside and Gateshead is now in dispute with Morse over its Building Schools for the Future project and so the company has had to reverse £500k profit booked last FY. They now risk losing the entire contract, signed in September 2007 and originally worth £23m over 5 years with a similar option to extend. This was the last remaining contract in Morse’s now defunct Education business.

The brighter news was that margins at Morse’s UK infrastructure business jumped 200bps to 5.2% (pre-restructuring costs) for the nine months to 31st March, albeit on 13% lower revenues (£84m). However, Europe (Spain and Ireland) struck £600k losses on broadly flat £42m revenues, with particular pain in Spain. It sounds like this isn’t going to get much better while the economy remains depressed i.e. any time soon. Also a mixed result in Business Application Services (essentially Diagonal) with margins up 40bps to 3.8% against a 12% revenue decline to £31m. Morse is still wrestling with troublesome fixed price contracts.

Net net, margins on continuing operations almost halved to 1.8% on a 10% revenue fall to £157m. This must be a real disappointment to Phillips and the team. Unfortunately, Chairman Kevin Loosemore’s 7.2% ‘medium term’ margin target, set last September, must surely look no more than a distant dream.