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More than 20% of FTSE construction firms on profit warnings

Construction issued more profit warnings than any other industry in the second quarter of this year.

According to finance firm Ernst & Young, seven out of 34 firms listed in the FTSE construction and materials sector gave warnings, more even than the struggling retail industry.

This happened despite a fall in warnings issued by all industries that quarter, from 73 to 60.

E&Y blamed the construction sector’s woes on reduced availability of credit, falling confidence, fiscal tightening and the gap in awards of PFI work.

Its head of restructuring for Europe, Middle East and Africa Keith McGregor said, “The FTSE construction and materials sector is experiencing its toughest period since the financial crisis.

“Improving order levels and infrastructure opportunities offer hope. However, the benefit of rising new order levels won’t be felt until 2013 and there is still uncertainty surrounding the timing of public spending, while financing uncertainties limit private sector expansion.”

E&Y found signs of a better outlook, but expected no sustained improvement until 2013 or even 2014.

This was because there was no guarantee that the current pipeline of new orders would continue, as private sector confidence was “still incredibly fragile” and susceptible to further dips in the UK economy and to eurozone problems.

Public sector orders continued to fall and hopes of additional infrastructure spending had been hit by the gap in PFI projects coming forward.

There were also “serious doubts” as to whether pension funds would be willing to provide their hoped-for contribution to investment in construction.

E&Y said some construction companies had tried to sustain volume and cash flow by bidding aggressively, only to face problems resulting from underbidding.

This tactic could put smaller firms at risk as larger ones decided to “fish lower down the pond” to sustain workload, it said.

E&Y said opportunities for industry firms included offering ‘whole-life’ services to clients, working in refurbishment rather than rebuilding and looking to longer term growth in energy and rail.

Those with experience of the London 2012 Olympic Games could export this expertise and for larger companies there were minerals, energy and infrastructure opportunities in South America, Australia, and parts of the Middle East and Africa.

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