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Contractors in the black

FINANCE - Only three quoted contracting firms make a loss - Profit warnings at their lowest since 2002

PROFITABILITY and construction do not always go together but only three of the 34 quoted companies with contracting operations lost money in this area in the latest results.

The prof itability of contracting is emphasised in the latest survey of prof it warnings by consultant Ernst & Young.

The single profit warning from the 43 companies in the FTSE Construction sector is the lowest figure since 2002.

Among the mainstream players four contractors stood out as star performers.

Rok and Morgan Sindall both posted record profits, up by as much as a third.

Morgan Sindall's performance was underpinned by strong profits at its affordable housing business and at the group's fitout firms, which continue to perform well in a competitive market.

Rok announced the 'end of the beginning' of its acquisition-led growth phase after a fifth successive year of profit growth. It will now focus on steady organic growth.

Costain's steady recovery continued, with profits up 20 per cent to £11.6 million.

The firm also launched a 'being number one' strategy under the aegis of new chief executive Andrew Wyllie, which aims to see Costain's leading position in water sector asset management repeated in the road, education and nuclear sectors.

But it was Balfour Beatty which cemented its position as the country's leading contractor, with profits topping £100 million. Balfour Beatty chief executive Ian Tyler has said that there is plenty more in the pipeline.

At the other end of the scale, Amec limps onto a break-up with more losses and is accompanied into the red by two smaller outfits.

Of this pair, Pochin is already back on track, while Greenfield is the tiniest contractor on the stock market and posted a £5,000 loss for 2005.

Greenfield was the most recent construction float and has barely managed to grow past the cash-shell that boss Haresh Kanabar has made a habit of f loating on the stock exchange.

Since Greenfield f loated, Willmott Dixon successfully got maintenance arm Inspace away 11 months ago on the Alternative Investment Market.

The price was lower than expected but the business proved its worth with positive 2005 results and a 5 per cent margin.

Only eight of the 33 quoted construction companies in the Construction News round-up are at that level presently.

The average margin for the quoted contingent is 3.5 per cent, which appears a healthy figure. That total is boosted by development work in the case of a number of firms, such as John Smart.

Excluding the Edinburghbased contractor and developer, the best margins by a long way are at specialist contractor Severfield-Rowen, with 8 per cent ? an unthinkable figure for most main contractors.

Strip out contractor/developers and subcontractors and the average margin comes down to 2.4 per cent.

This figure is boosted by totals from companies working exclusively in partnering or long-term deals, mostly in social housing, such as Inspace and Mears.

No wonder that the next company set to float, retail fit-out contractor Styles & Wood, is trying to market itself to potential shareholders as working to a similar model to the likes of Inspace.

How Amec would market possible proposals to f loat its own contracting operations remains less clear.