Contractor Alfred McAlpine took a £27m hit in 2004 because of losses on two construction contracts, problems in its utilities business and general restructuring costs

McAlpine refused to identify the two loss-making construction projects, which total a £14.5m loss. One was a road project and the other was a building project.

The loss, on a turnover of £931m, was revealed last Thursday, when McAlpine announced its annual results for the year to 31 December.

McAlpine is not expecting to make further losses on these contracts, although finance director Dominic Lavelle warned that the industry was not risk-free.

The rest of the charge was explained by £6.5m of costs incurred through the acquisition of Ryan Utility Services, and a further £6m associated with a restructuring of the business.

Lavelle denied that the heavy losses were because the company had not undertaken sufficient due diligence when it was in talks to buy Ryan, but conceded: “We weren’t as rigorous as we might have been, post-due diligence.”

Despite the £27m hit, shares in the contractor rose 5%, or 14.75p, to 313p on Thursday, largely because chief executive Ian Grice (pictured) was upbeat about prospects.

“Our order book is stronger than it has ever been, with significant levels of business booked for the remainder of the decade. We expect to return to double-digit growth in 2005 and are confident about the longer-term outlook,” he said.

We weren’t as rigorous as we might have been

Dominic Lavelle, finance director, Alfred McAlpine

The surge in share price can also be explained by the fact that fears in the City of a third profit warning were allayed.

The board recommended a total dividend of 12.1p, up 10%.

McAlpine’s business services division was the biggest contributor to profits. Pre-tax profit within the division, which is mainly involved in facilities management work, rose 38% to £17.6m.

Grice said operating conditions within its infrastructure services business, which comprises about one-third of McAlpine’s work, had been “challenging”. It was the worst performing part of the business, with pre-tax profit down 36% to £8.8m on a 12% higher turnover of £339.5m.

The poor performance from the infrastructure services division meant that overall, group pre-tax profit before exceptionals and good will was up 6% to £38.2m, compared with a 20% hike in 2003.

Lavelle said the company did not feel vulnerable as a takeover target.