The contractor has warned there will be a wave of redundancies as the building and civil engineering business is slimmed down.

North Midland said its building and civil engineering has suffered an “exceptionally poor first quarter, generating a loss of £482,000 on a revenue of £9.82m.”

Chairman Robert Moyle said: “The division is operating in a very difficult market, beset by very tight margins and the reluctance of clients to settle outstanding accounts within an appropriate timescale.  Hence, cash flow is constrained.

“A thorough review of the business has been undertaken and large building projects with an unacceptable level of risk will not be pursued in the future.

“A further reorganization of the division to reduce both overhead and operational costs is underway.

“Further restructuring has already commenced and, sadly, this will involve redundancies in some areas of the Group.”

North Midland merged its highways and utilities arms earlier this year and that division suffered a loss of £158,000 on a revenue of £7.61m during the quarter.

The bright spot for North Midland was its specialist water arm NMC Nomenca which will report as a stand alone division from this financial year.

The division made a a profit of £0.43m on a revenue of £17.59m.

Moyle said: “The UK construction industry has now been in decline for more than two years and the sector is still contracting.

“This has lead to wafer thin margins and some evidence of “suicidal bidding”.

“Several of our competitors have already issued profit warnings this year.

“The Group’s strength is its varied client base and broad spread of capability across the whole construction sector, with a strong presence in the water industry, which still has prospects for growth.

“The squeeze on margins is having a material effect on our supply chain and in many cases it is really struggling.

“To ensure certain sub contractors’ survival, detrimental payment terms to the Group are having to be agreed.  This again has a detrimental effect on cash flow.”