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Warning on small company profits


CONSTRUCTION seems to be faring better than much of the rest of British industry, according to the latest analysis of profit warnings by UK quoted companies from Ernst & Young.

Seven per cent of quoted construction and materials companies warned on profits in the fourth quarter - a total of five firms, one of which was John Mowlem - compared with 15 per cent for household goods and textiles and 30 per cent for insurance.

Indeed, profit reassurances rather than warnings seem to be the order of the day for quoted contractors.

Over the past week, Costain confirmed a £1 billion-plus order book and said its results will be in line with expectations while Balfour Beatty pointed to an order book worth £6.5 billion and a healthy trading environment for 2005. Rok Property Solutions was upbeat about its property development and building and maintenance businesses and MJ Gleeson said that the demand for construction services remains high, particularly in the public and utility sectors.

Yet there are clouds on the horizon, particularly for smaller firms.

As Ernst & Young points out, four of the five firms that warned on profits in the fourth quarter had a turnover of under £200 million and were overexposed to a particular market or territory.

Last year total construction warnings rose to 18 from 12 previously and more could be looming this year.Smaller contractors in particular could struggle to pass on recent rapid increases in the cost of steel, oil, gas and cement, which could affect margins.

Larger groups could also be exposed.Ernst & Young said Government spending initiatives were starting to fall back from previous high levels and a general election could squeeze the contracts pipeline.Meanwhile, if the slide in the dollar continues, this may leave results looking thin for companies with large US operations - particularly materials groups - when they are converted into sterling or euros.