But bosses predict speedy return to financial health for group's regional contracting division.
Construction group Morgan Sindall's annual results this week confirmed a £5m loss and job cuts at regional contracting arm Bluestone – but came with a claim that the division's problems were in the past.

The division endured a painful 2002. Turnover fell £63m to £337m and 75 staff – 5% of the workforce – lost their jobs.

John Bishop, Morgan Sindall's finance director, said the division would be in the black in 2003. He said: "I understand there is some doubt in the market, that people think when you make one profit warning there are three more to follow it. But we are standing by the statement we made that [Bluestone] will be profitable in 2003."

However, Bishop refused to make any predictions about what its profit margin would be. He said: "We have over-promised on margins before. I am scared to put a figure to it."

Bishop said the regional arm was focusing on repeat clients in the health and local authority sectors. He said: "We are controlling the business better. We have gone into less competitive marketplaces and are focusing on key clients. There has been gradual improvement."

Group chairman John Morgan backed Bishop's prognosis. In his statement he said: "Bluestone is increasingly establishing itself with its customers and suppliers and has a more rigorous and cost-effective management structure."

The Bluestone loss led to a drop in Morgan Sindall's pre-tax profit to £15.5m in the 12 months to 31 December 2002, compared with £20.7m in 2001. In the same period, turnover rose £129m to £1038m.

The firm claimed that the fit-out market was starting to pick up after a dip in the second half of 2002. Sales in this sector last year dipped from £115m in the first half to £77m in the second half.

But Bishop said: "The level of activity now is similar to the start of last year. Fit-out is more resilient than people give it credit for."

Bishop was bullish about the prospects for the group's two other divisions, affordable housing and infrastructure. Speaking of Lovell, the affordable housebuilding arm, he said: "We have absolute market leadership. We are in the right place at the right time with the right company."

He said the infrastructure division was looking to expand into the rail market on the back of its work on the Channel Tunnel Rail Link.

The group's results were broadly welcomed by the City. The firm's share price jumped 1% to 204p on Tuesday. Broker Teather & Greenwood issued a buy note that said: "We think the negative attitude to Morgan Sindall is overdone."