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Shepherd's prof its beat record but margins fall

FINANCE - Competition in sector hammers contracting arm, but other divisions healthy

GROUP profits at Shepherd have hit their highest level since the privately-owned Yorkshire construction group was formed in 1890 but the contracting operation has been hit hard by increased competition.

In the year to June 2005, Shepherd made a pre-tax profit of £35 million ? up from £30.3 million in the previous year.

Group chairman Alan Fletcher said: 'The improving profit trend is encouraging.

'But there are uncertainties in short and medium-term activity levels in key markets, particularly for Shepherd Homes and manufacturing.

'In addition, increasing competition in the construction sector and the resultant lower margins restrict the opportunity for profit improvement and present a considerable challenge.' Pre-tax profits at Shepherd Construction & Engineering dropped £3.6 million to just £2.6 million. Portakabin and Shepherd Homes compensated for this with pre-tax profits of £20.7 million and £10.1 million respectively on the back of strong increases in workload.

Mr Fletcher cited the introduction of an open management style, strengthening risk management and offloading non-core businesses, such as the North American clean technology business, for the improvement.

Group turnover rose to £655.9 million from £603.4 million in 2004, when all three of Shepherd's divisions posted a profit for the first time in 16 years. With all three in profit, Shepherd still has a strong cash balance sheet of £57.5 million.

The construction and engineering division remains the largest part of the group and workload continued to rise as the business priced contracts on tighter margins.

Turnover at this division bounded up £51.4 million to £348 million but pushed margins down from 2.1 per cent in 2004 to 0.7 per cent in the last financial year.