November 6, 2012 10:02 pm

Spending cuts claim Morgan Sindall chief

The decline in government spending has hit Morgan Sindall, the construction company, which has issued a profit warning and replaced its chief executive.

John Morgan, who founded the company 35 years ago and owns 10.4 per cent of the shares, will take over from Paul Smith, chief executive since 2003, who fell on his sword after the company said on Tuesday that this year’s profits would be below previous expectations of £40m.

The company blamed spending cuts, delayed investment decisions and cut-throat competition for contracts, which have worsened since June.

With a reorganisation under way, Morgan Sindall said it was facing a £10m restructuring charge this year, which will cover the closure of some regional offices and redundancies among its 7,000 staff as part of plans to save £55m.

The group’s affordable housing division was particularly hard hit, with proposed new-build projects stalled because of funding shortages.

The move echoes the broader decline in the construction industry, which has forced companies to cut workers at the fastest rate since August 2011, according to the Cips/Markit index published last week. Costs rose at the fastest rate in nearly a year due to higher fuel and energy prices, putting pressure on margins.

The downturn comes despite successive government attempts to boost construction spending. The government has launched two national infrastructure plans and a range of initiatives since coming to power in 2010. But none of the announcements has yet translated into projects on the ground.

Noble Francis, economics director at the Construction Products Association, said: “Conditions throughout [the] construction [sector] continued to worsen in the third quarter as, for the first time, we experienced a decline in all construction sectors. While the public sector construction activity has been falling for some time as a result of the government’s cuts, private sector activity is also now falling sharply.”

Mr Morgan was chief executive from 1994 to 2000 before becoming executive chairman in 2000 and handing over to Mr Smith. The company operates through five divisions of construction and infrastructure, affordable housing, fit-out, urban regeneration and investments. Its construction business is being re­organised to focus delivery through regional hub offices, with a number of smaller regional offices being closed.

Forward orders stand at £3bn, with another £700m in projects at the preferred bidder stage. Among its recent contract wins in the past month, Morgan Sindall was named as preferred partner for Slough Borough Council’s £1bn, 15-year regeneration.

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