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Contractors bank on utilities upturn

FINANCE City Site

WITH evidence mounting of a cooling economy, little prospect of an early cut in interest rates and recent DTI figures showing construction output fell by 3 per cent in the first quarter, these are anxious times for contractors.

But reassuring noises on infrastructure markets last week from Alfred McAlpine and Severfield-Rowen will have helped persuade the City that the major quoted contracting groups can ride out any turbulence.

McAlpine's point that market conditions in the utilities sector are slowly returning to normal following the completion of the recent regulatory reviews is encouraging for firms across the sector.

The delays these have caused, particularly in the letting of water-related work, were one factor behind the 12 per cent fall in infrastructure output last year and the 9 per cent drop in 2003.With the reviews over and framework contracts in place with major electricity and water clients, McAlpine said its infrastructure services business - the scene of a restructuring last year after a 36 per cent fall in profits - can continue to improve as workflows build in the latter part of this year.

Others will also benefit, notably Costain, which last week said it had been chosen by Bristol Water as preferred partner on its AMP4 programme under a £50 million fiveyear framework agreement.

Restraints on rail spending mean infrastructure output will probably still fall this year - albeit by less than in 2004 - although it should start to recover in 2006.

With the roads programme set to grow and scope for higher spending by the air, gas and telecoms groups, infrastructure should provide some resilient markets for the industry as other sectors come under pressure.

Yet so far there does not seem much sign of that among the quoted groups.McAlpine's capital projects arm has recently bagged £250 million in new orders and at its annual general meeting last week steel fabricator Severfield-Rowen said its order book was robust and enquiry levels strong.