Fitch: Mowlem on watch

Fitch ratings said it revised the outlook on Mowlem plc to negative from stable and affirmed its ratings at senior unsecured BB and short-term B following the profit warning by Mowlem that results for the financial year ending December would be significantly below current market expectations due to an ongoing review of its accounting practices of profit recognition and contract valuation.

The change in outlook reflects Fitch's concerns that the £20 million profit reduction outlined by management may involve lower cash flow generation over the remaining term of Mowlem's affected contracts, the agency said.

Nevertheless, Fitch said it takes comfort from the new management's more prudent approach to profit recognition and greater focus on cash flow generation.

Furthermore, the agency notes that Mowlem's business activity and order intake for the first half of 2005 have been slightly ahead of last year's figures and that restructuring measures in the construction division appear to be proceeding to plan.

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