May Gurney, which maintains road and waste services for local authorities, has issued a profit warning and said its chief executive will leave the company immediately, in a sign of continued pressure on infrastructure suppliers to the government.

The shares plummeted more than 40 per cent as the FTSE 250-listed company, which earns 60 per cent of revenues from government contracts, said it would “significantly” underperform its original expectations for the year.

The company blamed two lossmaking waste management contracts for local authorities in Bristol and Chester, which account for some 3 per cent of group revenues.

It also blamed a lost contract to renew and maintain gas mains for Scotia Gas Networks, a subsidiary of SSE. Scotia decided to take the work in-house after it cut infrastructure spending by half and scaled back a contract to replace cast-iron gas pipes with plastic ones in Scotland.

In a further blow, May Gurney will take a £10m hit from its decision to close down its facilities services division, which built schools under the Building Schools for the Future programme, ended by the government in 2010. Shares in the company have already lost a fifth of their value since it announced plans to close the division in March.

The move comes less than a fortnight after Mouchel, another big supplier to local authorities, went into administration in part as a result of over-optimistic accounting on government contracts.

Lady Ford, chairman of May Gurney, denied there was any connection between the government’s budget cuts and the group’s problems. “I wouldn’t say any of this was to do with the mood in local or central government or the economy. These are our issues,” she said.

But analysts have suggested that the new era of public sector frugality is exposing any weakness among private suppliers. While support services companies had expected an austerity-induced boom, tough competition has squeezed margins at the same time as local authorities have demanded more stringent conditions and adhered to the letter of contracts more tightly.

Philip Fellowes-Prynne, chief executive for the past two years, will leave immediately by mutual consent and after a unanimous vote from the board. Willie MacDiarmid, a non-executive director, formerly at Scottish Power and green energy company Eaga, has been appointed as his replacement in the short term.

John Lawson at Investec moved his recommendation from “hold” to “sell”. “The group is facing some serious difficulties and, whilst drastic actions are being taken, the group is now likely to miss its 2013 forecasts,” he said.

“We are likely to take at least 15 per cent off our pre-tax profit estimates for 2013 and, most likely, 2014 and beyond. This will also impact cash. There will also be a £5m cash impact of the £10m provision, relating to the closure of the facilities services business, and additional capital expenditure (around £5m estimated) to upgrade some of the environmental services fleet. That said, the group is not likely to be at risk with its banks, we believe.”

Shares in the company closed down 41 per cent at 130p.

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