Gleeson takes £5m hit overcement works contract

MJ Gleeson Group, the construction company, yesterday told investors its profits would be hit by a third after a dispute over the bill for building a cement works.

Shares in the company fell more than 15 per cent to close at 732.5p, after Gleeson said it would have to make a provision of £5m for its cement works contract in Buxton, Derbyshire, for a subsidiary of Anglo American. The company yesterday said this would have a "significant impact" on this year's results, which are expected to be in the region of £15m.

The company is in dispute with its contractor, the Danish engineering firm Monberg & Thorsen, that designed the plant. Building the plant was originally worth £32m to the company, but after a number of changes to the plant's design and the need for additional building work, costs have spiralled. Gleeson yesterday said it is now in "fundamental disagreement" with Monberg & Thorsen over what it should be paid for the job.

Dermot Gleeson, the executive chairman of Gleeson, yesterday said: "There have been substantial changes to the scope of the work on the contract and its design. It is normally assumed that if the design changes, we would receive an additional payment. The client is interpreting things differently, but it seems quite clear to us that a lot of the extra work is outside the contract."

He said he was determined to persevere with claims to recover the company's costs, but Gleeson has had to take the £5m charge on this year's profits until the matter is settled.

David Taylor, an analyst at Teather & Greenwood, said: "This has been a troublesome contract for some time. Markets were probably prepared for some modest further loss. The scale of the provision does come as a surprise and is material to earnings."

Gleeson, which also builds houses and water works, has already faced a tough year, feeling the effects of a slowdown in construction spending.

The company yesterday said the rest of its divisions were "generally performing well" and that profits for its 2003-04 financial year would be in line with expectations, currently about £18m.