Strong public sector demand will help to offset a weak commercial sector.

Construction delivered strong growth in profitability and revenue in 2008. Revenue increased by 31% to £813m (2007: £621m) during 2008, driven primarily by the full year impact of the July 2007 acquisition, with a strengthened operating profit of £9.5m (2007: £4.9m) and a margin up to 1.2% (2007: 0.8%). The operating profit is stated after one-off costs of £1.0m (2007: £2.8m) relating to the acquisition, which will not recur in 2009. Adjusting the operating profit for these costs gives an operating margin for the period of 1.3% (2007: 1.2%).

The division is currently well placed, with over half of its work in the education sector and in total around three quarters of its work in the public sector. Strong public sector demand will help to offset a weak commercial sector. Spending on education projects is forecast to grow by 28% over the next two years. This includes the Government’s multi-billion pound Building Schools for the Future (‘BSF’) programme under which the Wright Robinson College in Manchester was delivered by the division, and work has started on the £44m construction of Bideford College in Devon.

During 2008, in the healthcare sector, Morgan Ashurst was involved in the delivery of the £250m University College Hospital in London. This recent experience and continued Government investment places the business in a strong position to develop significant new NHS frameworks and key projects.

New opportunities for long-term growth and development were created in 2008 from the improved ability to deliver large scale complex projects and the growing recognition of Morgan Ashurst as a major national contractor. Significant wins during the year included a seven year, £200m construction framework with Cambridgeshire County Council and a four year, £100m school building programme for North Lanarkshire Council. MPS, the division’s design, engineering and project management business, has also secured important new contracts in the year, most recently for improvements at Stratford International Station.

The division has also been able to secure long-term construction frameworks and partnerships by differentiating the business through project performance and exceptional customer service. As a result new agreements with BAA, North Lanarkshire Council, Health Properties, Airbus and a number of local authority special works frameworks, which focus on small scale projects, have been secured. Framework and negotiated work now account for around 70% of the division’s revenue.

The forward order book for the division stands at £805m (2007: £810m), providing a solid platform for expected performance in 2009. We anticipate that the market may become more challenging over the next two years. However, with its focus on public sector work, a strong framework business and an emphasis on customer service excellence, the business is well placed to meet the challenges ahead.