Chief executive tells City analysts the reasons behind group’s widescale reorganisation.
John Mowlem has made 170 construction staff redundant as a result of a strategic review involving management consultant McKinsey.

Chief executive John Gains revealed the figures at a briefing given to more than a dozen City analysts on Tuesday.

Sources said that most of the redundancies, which are still taking place, have been made in the estimating, procurement and finance departments of the group’s three regional building arms, which were recently combined under northern division chief Brian May. They have been achieved through a mix of voluntary redundancy, natural wastage and compulsory redundancy.

A small percentage of the job cuts were made in the company’s infrastructure arm, which is also part of the construction business.

It is understood that there will be further redundancies this year, although Mowlem would neither confirm nor deny this. Gains was unavailable for comment.

At the analysts presentation, Gains said that he had decided to embark on the review because he was “not satisfied with the performance of the group as a whole”. McKinsey carried out a performance study of the business between April and June 1999. This was part of a larger review by Mowlem completed in September last year, since when the job cuts have been made.

A main finding of the review was that Mowlem should improve margins through more negotiated work and aim to reduce overheads by 15%.

Gains, who has been chief executive since 1995, set out growth targets for each of the company’s businesses for the next five years.

I was not satisfied with the performance of the group as a whole

Gains telling analysts why he carried out the review

One analyst calculated that if Mowlem met its targets it would make an extra £35m operating profit over the next five years. “Given Mowlem’s track record, that’s fairly ambitious,” he said.

The City expects the company to make about £44m for the year ended 31 December 1999.

In construction, Gains reiterated his desire to achieve 3% margins, and added that work in hand this year was 20% up on 1999. The building business, which was reorganised after the review, now includes a major projects division headed by Steve Smith, former managing director of Mowlem Southern Civil Engineering. This will cover large jobs – in particular the stadium market – and work in London.

Gains revealed that Skillbase, the company’s insurance-based repair and maintenance business, has appointed Joanna Martin, formerly of waste management company Shanks & McEwan, as managing director. Gains estimated that the facilities management market, which the company’s Aqumen business operates in, is worth £65bn. He said he was aiming for an annual turnover growth of 15% and margins of 5%. Analysts calculate that this would lead to a doubling of profit over five years.

Another growth area for Mowlem will be in environmental services, which Gains believes offers good margins.

Mowlem has a war chest for acquisitions. Gains said he was particularly interested in buying a firm specialising in asbestos testing and monitoring this year.

In private finance initiative work, Gains wants to see annual turnover of £130m. He said he wanted to have £30m of funds invested in projects by 2004. However, Mowlem would not hold on to its stakes for the lifetime of PFI contracts.

Mowlem’s shake-up

John Mowlem is the UK’s sixth-largest contractor and the second major player to announce large job cuts in the past three months – Laing decided in November to axe more than 800 staff. Mowlem’s strategy is to increase construction margins to 3% by 2004 and to reduce group overheads by 15%. It hopes to achieve both of these by cutting staff and concentrating on negotiated work, partnering and private finance initiative schemes. Most job losses will take place in its building division, in the estimating, procurement and finance sections.