Retail gloom leaves ISG facing £100m shortfall

Contractor ISG has blamed gloom in the Christmas retail market for a £100m shortfall in its projected revenues for the current year.

Issuing a profit warning to the City this week, ISG chief executive David Lawther said the failure of expected orders to come through in the last six months of 2011 will wipe £3m off the company’s 2011/12 profit.

Our ambition remains to service the sector but the scale of activity has changed

David Lawther, ISG

Lawther said a “reduction in investment plans”, primarily from food retailers and high street banks, had seen the “cancellation and deferment” of projects.

This week’s trading update said the group’s order book had fallen by £9m to £700m since its last update in November, and was now sitting £100m lower than in January 2011, a fall of 12%.

However, just two months ago ISG had been ahead of its 2010 performance. Lawther said: “Historically we’ve tended to have a better second half of the year, but it appears we won’t see the step up we previously have.”

ISG is particularly exposed to changes in the food retailing market, carrying out work for all of the major supermarkets. Last week Tesco, reporting “disappointing” pre-Christmas trading, said it would be reducing its capital expenditure plans, indicating it will limit development of its large format “Tesco Extra” stores.

Lawther declined to say which retailers had changed their plans. “Our ambition remains to service the sector, but the scale of activity and the phasing has changed.”

Food retail has previously been seen as one of the most reliable sectors of construction activity, at a time when other high street retailers such as Arcadia and Dixons have been scaling down their property portfolios.

David McCarthy, retail analyst for Investec, said supermarkets will have to “scale back expansion plans in order to preserve profit margins”.