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Balfour Beatty reports weak rail sector and lack of big projects

Contractor has £15bn order book but highlights UK government uncertainty over investment and weak performance in European rail. Plans to cut 650 jobs in UK construction are ‘on track’.

Balfour Beatty has reported a ‘weak performance’ in its rail division for the first six months of 2012, while also highlighting a lack of large projects and UK governemnt ‘uncertainty’ over investment decisions.

The contractor said this morning that construction services remained “robust overall in the face of challenging markets”, but said there had been a weak performance in the rail division, predominantly in Europe. It said this has been offset by a strong performance in its joint venture businesses.

It also said overall results will be affected by cost increases in a small number of overseas utilities contracts.  The firm said profitability in support services will be “further skewed to the second half of the year” as a result.

Providing a trading update ahead of its results for the half-year ended 29 June 2012 - to be announced on 15 August 2012 - Balfour Beatty said: “Our order book remains strong despite the continuing uncertainty around governments’ investment decisions and the absence of larger, more complex projects.

“We continue to take action to mitigate the impact these market conditions have on our business while positioning the group to take advantage of the positive medium and long-term prospects for infrastructure markets.

“We remain confident that 2012 full-year performance will be in line with expectations.”

A spokesperson added that Balfour Beatty has identified ‘a lot of projects’ in the National Infrastructure Plan which are waiting to be contracted.

She said the drop in rail was mainly a result of the eurozone crisis. The costs on some overseas utilities contracts have been impacted by ground condition, weather delay and right of passage issues. Balfour Beatty puts the money up front on pilon installation works - essentially construction but accounted for in the smaller support services division - and recoups it from the client, but is not expecting to be paid until 2013.

The firm said there have not been any material change in trading conditions since its interim management statement in May. The order book remains at £15bn and overall group trading performance “continues to be consistent with our expectations”.

Its sales of private public partnership assets is set to bring in £10 million more than originally expected. The firm also has seen a drop in cash, as previously announced, due to the “business cycle and continuing change in the mix of business”.

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