Firm blames disappointing Christmas retail market for shortfall in projected revenue

Contractor ISG has blamed gloom in the Christmas retail market for a 拢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 拢3m off the company鈥檚 2011/12 profit.

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

David Lawther, ISG

Lawther said a 鈥渞eduction in investment plans鈥�, primarily from food retailers and high street banks, had seen the 鈥渃ancellation and deferment鈥� of projects.

This week鈥檚 trading update said the group鈥檚 order book had fallen by 拢9m to 拢700m since its last update in November, and was now sitting 拢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: 鈥淗istorically we鈥檝e tended to have a better second half of the year, but it appears we won鈥檛 see the step up we previously have.鈥�

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

Lawther declined to say which retailers had changed their plans. 鈥淥ur ambition remains to service the sector, but the scale of activity and the phasing has changed.鈥�

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 鈥渟cale back expansion plans in order to preserve profit margins鈥�.

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