BALFOUR Beatty warned on its profits yesterday as a lack of major projects in the UK weighed on the 103-year-old construction giant.
The company, which employs 50,000 people worldwide, has worked on high-profile projects including the Olympics Aquatics Centre and Crossrail in London. But these sort of contracts have dried up as the business increasingly moves towards smaller projects, with its regional division now taking up half the order book, compared to a third last year.
Balfour, which has suffered similar problems in its US arm, warned annual profits will be lower than expected at the time of the half-year results, prompting a 16 per cent slide in its share price.
The weak-performing construction sector has dragged on the wider economy this year, acting as part of the driving force behind the double-dip recession. And even in the third quarter, when the UK left recession with 1 per cent GDP growth, the construction output still declined, shrinking 2.5 per cent.
Balfour has seen a “significant” decline in its group order book in the third quarter, closing at £14.4bn at the end of September, down from £15bn at the end of June. Balfour has attempted to offset the decline in major projects with a restructuring that included 650 job cuts as it combined six companies into one unit. The UK construction arm has also been hit by a tightening supply chain, which reduces its ability to negotiate terms that match worsening market conditions.
In the US construction market, its institutional building business suffered from weak federal demand and the lack of larger complex projects. Balfour warned that the conditions that have led to the recent decline in its order book suggest problems will continue into 2013. Its professional services, support services and infrastructure investments continue to perform well.
Balfour Beatty has a number of contracts across Yorkshire, while Balfour Beatty Utility Solutions’ head office is in Chapeltown, Sheffield.