ISG has now completed an internal contracts performance review within its UK Construction division, which it has also been restructuring over the past 18 months.
The result of the review is that three contracts are causing problems, and one of them significantly so.
ISG is also closing its West End office and discontinuing its London Exclusive Residential construction activities, at a cost of £6m, and is making further provisions for increased losses of £11m relating to the closure of its Tonbridge office announced last year.
In a trading statement today the board said: “The group's UK Fit Out and Engineering Services, UK Retail and International divisions have performed well during the period and in aggregate for the half year have exceeded the board's expectations. However, trading in UK Construction has been further adversely impacted by the performance of three contracts procured more than eighteen months ago that has offset these improvements.
“Furthermore the group is in protracted negotiations on one large construction contract entered into in 2012, and has decided to make a significant provision against this contract. As a consequence of this additional provision, the board now expects the full year results from continuing operations to be c.£7m below its expectations set at the time of the AGM statement announced on 5 December 2014.
“This review has focussed on the appropriateness of internal judgements and forecasts of contract recoveries. In particular the review has focused on projects that were procured more than eighteen months ago when market conditions were less favourable, where there has been project deterioration and on the close out of outstanding contracts within previously discontinued operations.
“Performance from ongoing activities in UK Construction in the first half of the current year, excluding the older contracts mentioned, has been profitable reflecting the group's initiatives to improve procurement, bid and risk management.”
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