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Construction profit warnings double in first half of 2018

Twice as many profit warnings were issued by FTSE construction and material companies in the first half of 2018 as in the same period of 2017, according to EY’s Profit Warnings Stress Index.

Four companies issued a total of six profit warnings in the first six months of the year.

By the same point in 2017 there had been three profit warnings, which went on to hit seven for the whole year.

The hardest-hit sector this year has been retail, which saw a third of FTSE-listed firms issue warnings in H1 2018.

Applied Value analyst Stephen Rawlinson said that, given the bad weather in Q1 and the difficulties faced by other sectors, the construction industry’s performance looked “okay”.

Output figures from the Office for National Statistics showed big falls in the value of construction work during the first half of 2018, which many attributed to snow disruption in the first quarter.

However, EY’s analysis found that only one out of the six of profit warnings from FTSE construction firms attributed the under-performance to poor weather.

In contrast, delays to work and general economic uncertainty were cited in four of the industry warnings.

Roof and screening supplier Alumasc said delayed projects and Carillion’s collapse hit its performance in the two profit warnings it issued in March and May.

EY construction leader Ian Marson said: “With the outlook in question, it feels like a good time to take stock and think about how construction companies can improve resilience and meet the challenges that lie ahead.”

The accountant said the £420m construction sector deal presented an opportunity to improve industry productivity, and that greater collaboration on large infrastructure projects was helping reduce contract disputes.

“None of this is easy,” Mr Marson said. “But main contractor finances in particular are under much-increased scrutiny from funders and clients.

“The price of a profit warning could be very high.”

A lack of public spending and infrastructure project starts was also putting pressure on construction companies, EY said.

It cited the Infrastructure Projects Authority’s report for the year to April 2018 that showed 18 new projects had been added to the government’s Major Projects Portfolio, which was down 50 per cent on the previous year.

“Concerns over the efficacy of PFI along with increased scrutiny have served to extend the bid process for public projects,” Mr Marson said.

“Two years of political uncertainty has also diverted attention away from infrastructure planning and spending.”

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