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City Site - Industry takes action on margins

FINANCE

THE TRADING outlook for contractors may contrast fairly dramatically with the one facing house builders, but quoted firms in both sectors are putting more emphasis on protecting and improving their margins.

A Royal Institution of Chartered Surveyors survey this week said that construction firms are expected to use strong demand to raise profit margins over the coming year, although they may be affected in the short term by rising costs - particularly of steel and oil.

In trading statements over the past week, Carillion, Interserve, Galliford Try and T Clarke all made encouraging noises about their order books and current prospects with, if anything, a positive take on margins.

Galliford Try said its construction division had made good progress in the first half and was on track to increase margins, which it is aiming to lift to 2 per cent by mid-2006.

At its housing arm Galliford Try pointed to an easing in external cost pressures, which, together with cost cutting, were having a positive effect.

Meanwhile, analysts expect margins to improve this year at T Clarke, the quoted electrical contracting group.

The firm's shares leapt 27p to 621p this week after it said core markets in London and the south-east showed significant signs of recovery.

Tough conditions in the housing market will inevitably threaten the spectacular margins that house builders have reported in recent years. But Taylor Woodrow, which this week reported a 29 per cent fall in its forward UK order book, said it had acted to protect margins through cost control.

The firm has seen some stabilisation in the land market and it has used its purchasing clout and cut the number of its suppliers to keep materials costs below inflation.Labour rates may still be above general inflation but the firm is working with subcontractors to keep costs down.

In the same vein, Redrow said last week that the land market and build costs were adjusting to the expectations of what it describes as a 'more normal' housing market.