Profit warnings surge as contractors hit perfect storm

The deepening crisis among main contractors has been highlighted by new figures from Ernst & Young showing profit warnings are on the rise.

drive-down pofitsAccountant EY tracks profit warnings from publicly listed firms and has warned that contractors are being punished on low margin legacy contracts as labour, material and subcontractor costs soar.

Alan Hudson, EY’s head of restructuring for UK & Ireland, said: “Parts of the sector are under severe margin pressure in spite of – and in some instances because of – the strong recovery.”

FTSE construction and materials companies issued five profit warnings in the third quarter of 2014, the highest quarterly total since Q2 2012.

So far this year there have been nine profit warnings from six companies, already ahead of the total of seven warnings from five businesses in 2013.

Hudson said: “Contractors have found themselves in a ‘perfect storm’ of low-margin legacy contracts and rising costs.

“During the recession, many contractors priced aggressively in response to competitive pressures and the need to at least to cover their overheads and retain critical mass for better times.

“These contracts are now coming under severe pressure as labour, materials and subcontractor costs rise, leaving some specialist contractors vulnerable to further shocks and margin pressures.”

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