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Contractors struggle overseas

FINANCE - City Site

THE CITY received unwelcome reminders from Amec and Mowlem last week that the major contractors remain at the mercy of changeable conditions in their international markets.

Despite tumbling 16 per cent after it announced that losses at its Australian building division would knock £12 million off this year's profits, Mowlem's shares were continuing to slide this week.

The exceptional charge seems to have offended the City on various counts; it was a nasty surprise and it showed Mowlem coming unstuck on the sort of problem - rising labour costs in an overheated local building market - which the larger quoted contractors with a support services bias were supposed to have put behind them.

Only in May, Mowlem chairman Charles Fisher pointed to the firm's £2.5 billion order book and said progress would be satisfactory, in line with expectations.

Meanwhile, Amec's shares dipped last week after it pointed to further weakness in its North American industrial markets.This may have been a bit harsh, given that the firm's UK and Continental markets remain satisfactory and its overall first-half performance and full-year profit outlook remain unchanged.

But Amec has a large business with significant costs in North America and the City is sensing that an upturn should now be under way at this stage of the cycle.

For now, the City seems to be more comfortable with contractors'UK earnings, particularly the potential from their PPP equity stakes.

Carillion, whose share price has risen by 14 per cent in the past month, won further approval last week when it announced an exceptional profit of £7 million from selling its 50 per cent stake in the M40 road project to John Laing and half of its holding in the A249 road project.

Chief executive John McDonough said there was a growing market for PPP equity and the firm is planning further sales, as well as investing £25 million in new projects.