Balfour’s £50m profits warning as UK construction arm toils

Shares in the international infrastructure group plunged after the firm blamed “extremely tough” conditions.

However, a spokesman confirmed that Balfour Beatty was continuing to perform well in Yorkshire, where it is involved in a number of high profile projects, including a £34m waste treatment partnership for the Barnsley, Doncaster and Rotherham Partnership, and the £25m Doncaster Southern Gateway/White Rose Way project, which aims to reduce traffic congestion, protect pedestrians and improve access to Robin Hood Airport and the Lakeside development

It is also carrying out enabling works worth £8.6m at Ferrybridge power station. Balfour Beatty Utility Solutions’ head office is in Chapeltown, Sheffield.

In a sign of the difficulties it is facing, the company said group chief executive Andrew McNaughton would take charge of the UK construction busi- ness.

Figures last week showed that, while Britain escaped a triple-dip recession, construction had fallen back and remained well below its pre-crisis peak.

Balfour Beatty said it was a “challenging environment in which to win and execute work” with market conditions deteriorating sharply in the second half of last year.

It said the UK construction business was expected to deliver “significantly lower profits” from operations this year than expected at the time of its full-year results last month – representing a second profits warning in six months, with the last coming in November.

The firm recently landed a £130m Crossrail contract and it has also been working on the major revamp of London’s Blackfriars station and the M25 road widening scheme.

However, in a trading update, it said customers have been imposing “increasingly stringent conditions” on contractors.

The company also said there had been “poor performance” in its UK regional construction business and to a lesser extent in its “major projects” arm.

Meanwhile, a major restructuring, which was designed to streamline the business and cut costs, had also taken its toll, the firm said.

It said trading in its other businesses around the world remained “broadly in line with expectations” and that it retained a strong balance sheet.

In November last year, Balfour Beatty warned that a lack of major projects in the UK was having a harmful impact on its performance.

The company’s high-profile projects have included the Olympic Aquatics Centre in London.

However, in recent months, these sort of contracts have dried up as the business moves towards smaller projects.

In November 2012, the company revealed that its regional division was taking up half of its order book, compared with a third the year before.

Balfour attempted to offset the decline in major projects last year, with a restructuring that included 650 job cuts, as it combined six companies into one unit.

Over the last year, 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 has suffered from weak federal demand and the lack of larger complex projects.

Altogether, Balfour Beatty employs 50,000 people around the world.

A global reach

Balfour Beatty is an international infrastructure group.

The company’s main areas of operation are the UK, the US, South east Asia and the Middle East.

It is developing its business in growth markets in South Africa, Australia, Canada, Brazil and India.

Its key market sectors include transportation, power and energy, mining, water and social infrastructure, such as hospitals and schools.