2009 review
Sound financial performance
In 2009 the Fit Out division delivered a strong performance given the challenging market and generated revenue of £291m (2008: £474m) and operating profit of £13.8m (2008: £25.8m). Margin held up strongly for the year at 4.7% (2008: 5.4%).
Tough market conditions
Contract volumes in both the commercial office and hotel sectors reduced significantly during 2009. This, combined with downward pressure on tender prices, made it much more difficult to maintain margin. However, the division remained focused on securing profitable opportunities and tight cost control and it is our view that the division performed well in maintaining its market leading position and healthy operating profit margin.
Regional markets and smaller projects held up well
More resilient market conditions outside London led to a proportional increase in regional revenue to 32% (2008: 22%). Fit Out's longer-term strategic aim is to generate 50% of its revenue from regional clients. The mainstay of the business continues to be smaller projects of under £1m in value and revenue levels in this market have remained broadly consistent during 2009.
Key growth sectors remain active
In contrast with the commercial sector, healthy activity in the public sector office and educational market during 2009 helped to insulate Fit Out's overall performance. The division also increased its share of the retail banking market. These markets are showing some signs of improving demand in 2010, albeit they remain highly competitive, and Fit Out is well placed to take advantage of opportunities as they arise.
Fewer major projects have an impact on revenue
During 2009 the market for larger projects (those valued at greater than £5m) reduced by around 40%. This sector had accounted for around half of the division's revenue in 2008 so the fall in demand impacted heavily in 2009. Tendering activity in this segment is expected to increase in value by around a third in 2010 from 2009 levels. As Fit Out is recognised as a market leader for delivering these large projects, it is in a strong position to capitalise on this growth in opportunities.
Differentiation through quality remains a key aim
Delivering leading margin over the long-term will depend on the division's ability to provide its clients with a superior service. It therefore continues to invest in industry-leading approaches to safety, sustainability and staff development. This includes the continued commitment to Perfect Delivery and providing an excellent client experience.
Outlook
2010 will continue to be challenging
An improvement in tender volumes towards the end of 2009 supports the view that demand in the UK fit out and refurbishment market has improved in the short-term. However, a meaningful recovery in the market or in tender prices is likely to be slow to emerge.
The division continues to look for growth in more stable markets and will therefore be targeting the retail banking, education and public sector occupier sectors in 2010.
Secured work for 2010
The division started 2010 with an order book at £171m (2008: £124m). This supports its belief that demand in 2010 will improve on 2009 although the market remains highly competitive and price sensitive.
BelowOverbury and Morgan Ashurst
Client
Shire Pharmaceuticals
Location
Basingstoke, Hampshire
Meeting and office areas being used at the completed construction and fit out of a major extension building for Shire at their HQ in Basingstoke. This project was a joint venture between Overbury, who completed the fit out, and Morgan Ashurst who constructed the shell of the building. The design was undertaken by Morgan Professional Services.
BelowMorgan Lovell
Client
LV=
Location
Bournemouth, Dorset
Staff using breakout and flexible working spaces at Liverpool Victoria's offices in Bournemouth. This project completed by Morgan Lovell included the full design and fit out of the space whilst in occupation. It is one of several projects delivered to the client during the year.
