Morgan Sindall breaks £1bn revenue barrier but public sector cuts bite

The group - which employs 7,000 staff, including 800 in Scotland - warned that its profit margin reduced to 1.5 per cent from 2 per cent as it battled to win contracts.

But the group, which also owns affordable housing firm Lovell, said it was gaining business in other areas - such as private sector construction and large infrastructure projects - to compensate for the squeeze in public sector spending.

As a result, the public sector now accounts for 50 per cent of group revenues, compared to 60 per cent this time last year.

Morgan Sindall's underlying profits fell 16 per cent to 19.5 million in the six months to 30 June, despite an 11 per cent rise in revenues to 1.1bn reflecting the pressure on margins amid the changing mix of work. The group held its interim dividend at 12p.

Bottom-line profits fell by 16 per cent to 19.5m, with the firm factoring in the 900,000 it spent on a new IT system.

Despite the squeeze in public sector spending, the group has won major contracts - including work on the 1.2bn Gatwick airport upgrade and 285m of Crossrail work in London and an upgrade to the M62 motorway.

Project work in Scotland has included the M74 extension in Glasgow, a school refurbishment programme in South Lanarkshire and council houses in West Lothian.

The group's biggest division - construction and infrastructure - increased its revenues by 1 per cent to 617m, although underlying profits declined by 22 per cent to 9.5m.

Affordable housing builder Lovell posted a 20 per cent rise in profits to 8.3m, on revenues up 32 per cent to 228m after being boosted by the acquisition of some assets at collapsed rival Connaught.

Lovell managing director Stewart Davenport said: "It's almost a year since we completed the high-profile acquisition of interests in a large number of social housing contracts from Connaught.

"This was a landmark deal for Lovell and we are delighted at the speed and success of the integration process during the first half of the year."

Muse Developments, the group's urban regeneration arm, recently secured planning permission for a 35m scheme to redevelop the former St Andrew's College campus in Bearsden and has also sold a 230,000sq ft site on the Eurocentral business park in Lanarkshire for 33m.

Steve Turner, Muse regional director for Scotland, said: "We've enjoyed a busy half of 2011, making excellent progress on existing projects and investigating new opportunities.

"The progress at Eurocentral, and recent announcement regarding our plans for Bearsden, demonstrates our ability to bring forward major regeneration projects in a difficult market."

The group's order book was 3.5bn, with a further pipeline of 1.8bn of regeneration work, where it is enjoying success as some of its competitors are inactive due to the banking crisis.

It has also won contracts to regenerate parts of Brentford, Plymouth and Warrington.