House builders fear higher interest rates could stifle recovery in sales

HOUSE BUILDERS and construction companies yesterday reported much- improved profits but warned that higher interest rates could damage the recovery in sales.

Bovis, the British housebuilder, saw its profits rise by 60 per cent in its first year as a separately listed company. But Malcolm Harris, the group's chief executive, warned interest rates must not rise if the market was to continue to expand.

"The reduction in retail sales last month and the very high pound, means that in our view there is no need whatsoever that interest rates should rise," he said. "In fact we would hope over the next two years they should moderate as we see an alignment of European rates."

Mr Harris said the group nevertheless planned significant expansion in the north of England. It has doubled the size of its land holdings in big northern provincial towns. "The prime areas of the Midlands and the North are showing an element of catching up in terms of price increases," he said.

Bovis now holds a total of 2,200 acres of land, giving it the potential to build over 13,000 homes. Its average home sold for pounds 92,600 in 1997, up slightly from pounds 90,100 in the previous year.

Bovis, which last December was spun off from its former parent, P&O, reported profits of pounds 37.3m, up from pounds 23.2m last year. Shares rose yesterday by 15p to 261.5p.

Amec, the construction and engineering group, reported a rise in profits of 26 per cent to pounds 47.5m, including a doubling of earnings at its house building subsidiary, Fairclough Homes.

Amec said Fairclough had benefited from a buoyant marketplace for property in the South-east where prices for its homes had risen by 24 per cent over 1997. The average price was now pounds 107,000.

Amec's engineering operations saw a return to profitability at its manufacturing operations in Newcastle. It now has pounds 3bn of orders, up by 9 per cent from a year earlier.

Sydney Gilibrand, the chairman of Amec, said prospects for future profit growth for the company were "very good indeed". Market conditions were more favourable than they had been for 10 years.

After being stung by the 1990s property slump, the group has fought hard to reduce its exposure to cyclical swings in the property market. Whereas large-scale building projects made up 85 per cent of its business in 1987, this has now been reduced to 60 per cent.

Travis Perkins, the timber and builders' merchant, said it expected housing sales to be subdued under current market conditions. A strong pound was also keeping down prices for exports.

Reporting pre-tax profits up 25 per cent to pounds 49.6m in the first quarter, Tony Travis, the group's chairman, said: "Although the continuing strength of sterling is putting downward pressure on the average cost price of our products, our like for like sales in the first two months of the current year are 10 per cent ahead of the figure for the same period of 1997."