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City Site - Healthy orders keep majors steady

FINANCE

RECENT interim results from the major construction groups might not have been spectacular.

But the City seems reassured that most companies are making solid progress, particularly in winning new orders, against a background of mixed markets.

Although Carillion's underlying group operating profit increased by just 6 per cent, the firm's healthy cash f low, averaging £67 million per week, and a 5 per cent rise in the dividend reinforced an upbeat trading statement. Prompted, perhaps, by some of its high-profile contract losses in the past, Carillion has adopted a prudent form of accounting whereby it takes no profit on the first 20 per cent of turnover, deferring this profit until contracts are completed.

The effect in the first half has been to shave £2.4 million from its construction profits ? pretty significant given that the division only produced a profit of £1.1 million.

But the group's success in growing its order book and framework contracts, which rose by 8 per cent to £5.4 billion in the first half, with a further £2.7 billion in probable orders, is probably the shining feature. Carillion is taking full advantage of the shift in the industry towards continuing, long-term contract arrangements favoured by larger clients and, like the other majors, it seems to be increasing its market share.

Despite the cloudy economic outlook, Taylor Woodrow last week said its construction arm increased its external order book by 9 per cent in the first half, although the shift away from high-rise developments meant less internal work.

Galliford Try also painted a positive picture of its work in hand, which has risen dramatically to £944 million, up from £621 million a year ago and with 90 per cent on a non-price basis and much of it in the public and regulated sectors. The firm is also making headway in its campaign to improve its construction margin, now 1.5 per cent, towards a target of 2 per cent.