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Losses mar some good performances

FINANCE City Site

THE MAJOR contractors seem to be falling back into some of their bad old habits. Despite buoyant markets and pledges by most companies in recent years to be more selective, some of the major groups are unveiling contract losses or provisions with their recent interim figures.

Last week Amec and Costain reported pre-tax losses. Although both firms had otherwise encouraging news, they will hardly have encouraged investors about the sector.

The City signalled its displeasure with the £20.7 million interim loss reported by Costain last week with a dip in its share price. Although it remains hopeful, the absence of any firm news on when dividend payments will be reinstated - a reminder of the group's unfortunate history - is unlikely to have helped sentiment. The company seems to be paying the price for some over-rapid expansion in recent years, particularly at its building division, which was responsible for £12 million of provisions.

Today there seems to be no shortage of initiatives and appointments under chief executive Andrew Wyllie to ensure the company can make a decent return on its £1.9 billion order book. The closure of the loss-making international division and more selective tendering should help.

Meanwhile, the group's improving cash position suggests its underlying heath remains robust.

Like Costain, Amec says the bulk of its operations are performing well. The shares leapt 9 per cent on the results, partly at City relief that there were no fresh exceptionals. The £23 million of losses at its UK building and civils arm was disappointing, although a recovery at the business is expected next year.

Amec's strategic review will now continue under the new chief executive Samir Brikho, who seems to have few historic links to construction, and the odds must remain on a disposal of the business, possibly through a trade sale. But the latest results won't be of much help if the group is planning to f loat it.