Integrated services firm May Gurney has said an external review into 13 of its key contracts has found no major problems as it announced a dramatic fall in profits.
The review followed a surprise profit warning in September which the company blamed on two underperforming waste contracts.
Reporting its interim first half financial results the company said it was taking “stringent actions to drive operational efficiencies and profitability” in the problem contracts and working with the local authority clients in Bristol and Chester to “bring these contracts back into line”.
The firm, which also operates highway maintenance, utilities, rail and waterways services operations, reported underlying profits before tax down to £1.1m from £14.5m last year. Revenues were up 4% to £338.9m.
Underlying EBITA was £12.6m (H1 2011: £14.7m) with an overall operating margin of 3.7% (H1 2011: 4.5%), previously announced reflecting previously announced problems including the Bristol and Chester waste contracts.
The public sector services underlying EBITA margin was 4.3% (H1 2011: 5.1%).
The board said the company remained a “highly cash generative business with cash generated from continuing operations of £15.4 million (H1 2011: £17.7 million), representing more than 100% of underlying EBITA”.
Underlying earnings per share (EPS) was 11.82 pence (H1 2011: 14.81 pence).
Margaret Ford, chairman of May Gurney, said: “May Gurney’s first-half performance was in line with our revised expectations. We have taken steps to reinforce commercial disciplines and the plans we put in place to address the operational issues we announced in September are on track. As expected, the process to resolve the two MaGOS environmental services contracts is complex, and will continue well into next year”.
She added: “Our strong commercial market positions are reflected by the fact that we have secured more than £314 million of business in the first-half. Our forward order book has been maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and our bidding pipeline stands at around £4billion”.
Analyst Peel Hunt rated May Gurney’s shares “buy” and said the interim results were 6% ahead of the revised expectations and showed the firm “continues on the recovery path”.
N+1 Singer, another market analyst, said: “management is proactively tackling the challenges; this has been well received by the market”.