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Thursday31 July 2014

Tough decisions

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John Morgan’s decision to take direct control of Morgan Sindall signifies the challenges that lie ahead for construction

Sarah Richardson, editor of Building

It may have been someone else’s return to office making international headlines this week, but John Morgan’s decision to return to the day to day running of Morgan Sindall has nonetheless sent tongues racing in construction.

The change - which will see Morgan move from his role as executive chairman to chief executive and was announced alongside the resignation of current incumbent Paul Smith - comes a week after Building revealed the contractor is to close a series of regional offices. That the turbulence has its roots in tough ongoing market conditions is clear - although Morgan has been at pains to stress that some of the company’s sectors are performing well, the latest announcement was accompanied by an acknowledgement that underlying trading would be “slightly below” previous expectations. Morgan also said plainly that the changes were a matter of reshaping the company to suit the markets in which it is performing strongest - which include infrastructure and regeneration.

The move gives Morgan a tighter rein on the business when the ability to respond swiftly to market changes has never been more important

Whichever way you look at it, the decision for Morgan himself to step back into the business’ front line sends a signal about the challenging position he believes his company is in. This is of course about more than just the saving of £1m in Smith’s annual remuneration, helpful though that will be. It gives Morgan a tighter rein on the business that he has such longstanding investment in - not least financial - at a time when the ability to respond swiftly to market changes has never been more important.

But more than that, the decision sends a message to the wider industry about the outlook facing contractors. Morgan said this week that he believed that the sector would not start to pick up before 2014, and by taking direct control, he is indicating that the tough decisions facing firms like Morgan Sindall are not going to let up in the foreseeable future. Cenkos analyst Kevin Cammack made the point eloquently in a note this week: “Here is a real doyen of the construction industry telling us beware - there are more dangers ahead than there are behind us in this cycle”.

That the market remains hugely competitive is news to no one: the latest Construction State of Trade survey this week showed 26% of contractors reported that, on balance, orders fell in the third quarter, while 50% of large and medium sized firms reported that tender prices had decreased.

Despite this, the reality of another year at the bottom of the cycle, and the need to adapt businesses to address that, seems to still only just be sinking in for some firms. And the longer it takes them to reshape, the more they face the danger of falling behind to competitors in the markets where they currently have strength - and which are crucial both to keeping themselves on an even keel in the next year, and positioning themselves for better times ahead.

Sarah Richardson, editor

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