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Fit-out and construction firm ISG has issued a 拢7m profit warning due to 鈥減roblems鈥� on four contracts in its UK construction division.

The firm also said it will discontinue high-end residential work in London, at a cost of 拢6m, and was making further provisions for 鈥渋ncreased鈥� losses of 拢11m related to the closure of its Tonbridge office.

In a trading statement issued to the London Stock Exchange, ISG said the decisions followed the completion of an internal contracts performance review, conducted ahead of publication next month of the firm鈥檚 half-year results to 31 December 2014.

ISG said the group鈥檚 UK fit-out and engineering services had performed well over the period, exceeding the board鈥檚 expectations, but that three contracts in its UK construction division, procured more than 18 months ago, had performed poorly and 鈥渙ffset these improvements鈥�.

It added it was in 鈥減rotracted negotiations鈥� on a fourth 鈥渓arge construction contract鈥� entered into in 2012 and had decided to make a 鈥渟ignificant provision鈥� against it.

ISG鈥檚 share price fell over a third (36%) to 拢2.24 by close of trading on Tuesday, the day after the announcement (Monday 3 February), down from the previous week鈥檚 close of 拢3.52.

The downward swing wiped off approximately 拢50m from the market value of the company, with ISG鈥檚 market capitalisation falling to 拢88m, down from the previous week鈥檚 close of 拢138m.

Commenting on the purpose of the contracts performance review, ISG said: 鈥淭his review has focussed on the appropriateness of internal judgements and forecasts of contract recoveries.

鈥淚n particular the review has focussed 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.鈥�

ISG said ongoing activities in UK construction over the half-year period were profitable 鈥渞eflecting the group鈥檚 inititiatives to improve procurement, bid and risk management鈥�.

ISG confirmed its order book remained at circa 拢1bn.