Deputy City Editor
The beleaguered construction industry was dealt another blow yesterday as Britain's biggest housebuilder, George Wimpey, warned on full-year profits, said it was pulling out of traditional cost-based contract tenders and announced the loss of up to 750 jobs.
Wimpey's shares, which have fallen from a high of 232p at the beginning of last year, slipped 2p to 102p as the market focused on poor cash flow and declining housing margins in addition to the gloomy construction news.
Joe Dwyer, Wimpey's chief executive, admitted that he had been over-optimistic at the start of the year and that recovery had been delayed again. Interim figures showed profits all but wiped out by continuing poor trading conditions.
On turnover of pounds 737.7m, down from pounds 824.4m, Wimpey reported a pre-tax profit of pounds 1.0m (pounds 7.5m). After last year's earnings per share of 1.36p, there was a loss of 0.08p, leaving a maintained dividend of 2p uncovered again.
Mr Dwyer said: "I believe we have produced a very creditable return under the circumstances."
He said profits for the current year would be no higher than in 1994, when Wimpey made profits of pounds 45.1m. Analysts took the red pen to forecasts yesterday and now expect profits for the year of about pounds 36m excluding any write-back of a provision made against the Channel tunnel project.
Unable to make a decent return in the over-supplied construction industry, Wimpey plans to reduce the size of its largest division, which made a profit of only pounds 600,000 during the half-year from sales of pounds 330m. Up to 15 per cent of a world-wide workforce of 5,000 is expected to be laid off over the next two years, with up to 300 jobs to be lost in the UK.
The division is to focus on design and build work, private finance initiative projects and other partnerships from which Wimpey hopes to make a margin of between 1 and 3 per cent. The company will no longer compete for work solely on price criteria, and blames the long-established practice for the decimation of the industry's profits since the recession.
Housing, Wimpey's other main division, also suffered during the first six months, with gross margins falling from 20 per cent to 17 per cent, and profits down from pounds 10.5m to pounds 8.1m.
The minerals division was the only bright spot, with a 30 per cent increase in dry stone volumes and higher prices, leading to a jump in profits from pounds 100,000 to pounds 6m.
Investment Column, page 20