Gloom grips building groups

TOM STEVENSON

Deputy City Editor

The fragile state of the UK construction market was confirmed yesterday by gloomy comments from two of the industry's largest companies. Shares, already some of the stock market's worst performers this year, tumbled across the sector.

Rugby Group, the cement, joinery and steel group, had warned in July that trading conditions were deteriorating but the company's frank admission that last year's recovery had stalled knocked another 3p off its share price to 102p.

Announcing a rise of just 1 per cent in first-half pre-tax profits to pounds 36m (pounds 35.6m), the company commented: "Trading for the remainder of the year is likely to be difficult. The downturn in the UK construction and housing industry is well documented and little improvement in the short term is expected."

CRH, the Irish building materials group, announced strong growth in profits, up 42 per cent to Irpounds 56.8m, but confirmed the dreary picture at its British operation: "We thought there would be a 1 per cent increase in the UK building materials market. Officially there's a 2 per cent decline, but we feel it's a bit more than that." CRH's shares slipped 14p to 430p.

The bleak outlook painted by Rugby and CRH followed recent profits warnings from the housebuilders Wilson Bowden and Persimmon, and the appointment yesterday of receivers at Donelon Tyson, the small construction company. Their comments are viewed by analysts, however, as just the start of a depressing reporting season for all construction-related companies.

Investors are braced for further bad news this week when some of the industry's leading companies report half-year profits. Wimpey's results today will be followed later this week by Amec, one of the biggest contracting businesses, and Blue Circle on Thursday.

The industry's problems are across the board. The travails of the housing market have been widely reported, with stagnant selling prices squeezing margins. That in turn has started to affect the materials companies that supply the builders.

There are also widespread concerns over the road-building programme, where many contracts are due to be completed this year with few in the pipeline to replace the lost work. Many companies blame the Government's private finance initiative, which was supposed to provide additional work for construction companies but has so far failed to even replace projects shelved by Treasury cutbacks.