British construction company Montpellier Group plc, listed on the London Stock Exchange’s alternative investment market, has turned from a Â£2.95 million pretax profit (Â£3.4 million after tax) in the March 2003 half to a Â£20.7 million loss before & after tax in 2004, on the same Â£212 million turnover. Earnings/share went from 4.25p to a 33.7p loss.
Its shareholders’ funds have fallen from Â£37.4 million to Â£9.8 million.
In the year to September 2003, Montpellier’s turnover slipped from Â£445 million to Â£434 million, pretax profit from Â£4.9 million to Â£4.7 million. The construction division’s operating profit fell from Â£5.8 million to Â£3 million.
When chairman Cedric Scroggs made that announcement in January, he blamed the decline on a number of problem contracts in the YJL Construction, Allenbuild Midlands & Allenbuild North East businesses.
“The board has reviewed these contracts and consider that the problems stemmed from the initial acceptance of work & pricing process that led to ongoing difficulties in contract performance.
“To prevent such problems in the future, management changes have been introduced in certain companies as considered necessary,” he said.
Last October, the group sold its investment division for a net Â£4.1 million, and 4 lossmaking subsidiaries to its former construction division chief executive for a nominal Â£1 each plus a pre-disposal injection of a net Â£350,000.
Despite the chairman’s January assurance, Montpellier issued a profit warning in May, saying a review of its businesses had revealed material problems concerning construction contracts entered into in previous years.
It said the problems had not been previously apparent and would result in a significant operating loss in the current financial year.
It was expected to report a half-year loss of Â£10 million, but has instead reported a Â£20.7 million loss after admitting it underpriced on 6 contracts in the past 3 years.
Roy Harrison, a non-executive director who became executive chairman after a management shuffle arising from the review of the past 2 months, said the review had revealed “unpalatable facts” about the group. But he said despite the losses, Montpellier would return to profitability in the 2nd half and he believed it should post a profit for the September 2005 year.
“The majority of our businesses are performing strongly & in line with our expectations. This underlying strength of performance, and the management actions now in place to ensure proper contract controls at YJL Construction and Allenbuild, taken together with necessary cost reductions, give us confidence in a rapid improvement in performance,” Mr Harrison said.
He expects work in negotiated contracts & partnerships to rise from 30% to 60% of turnover by the end of next year, leading to more repeat work.
The group has increased its focus on publicly funded projects in education, health & infrastructure, but has written down the size of its infrastructure orders, reducing the forward order book from Â£531 million to Â£430 million.