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Balfour Beatty warns of more restructuring in pre-close trading update

Balfour Beatty has not ruled out further restructuring and indicated that 2013 will see further margin pressure, with the benefit of its order book coming in 2014.

The UK’s biggest contractor said in a pre-close trading update that a shift in the order book to professional and support services means a “back-end loaded margin profile” for projects, with profits set to come through next year.

It also said: “We will take further action, both operationally and strategically where necessary, to mitigate any adverse impacts on our business.”

The pre-close trading update comes alongside the news that chief executive Ian Tyler will hand over to deputy CEO and chief operating officer Andrew McNaughton as, effective from 31 March, 2013.

The update comes two months after a profit warning that saw the share price fall 18 per cent. The company has also undergone a significant restructure.

The trading update said: “In keeping with our strategy and given the difficulties in a number of our markets, particularly in UK construction and European rail, the order book mix is shifting from construction to professional services and support services, and overall, from buildings to infrastructure projects.

“Due to the longer-term nature and back-end loaded margin profile of these contracts, most of the benefit to revenue and profit arises in 2014 and thereafter.”

The firm said, as stated in the Q3 IMS on 8 November 2012, that it has been “managing our business on the basis that market conditions would be tough, and this has been an effective strategy”.

“In the medium and long term, we are confident that our position in infrastructure markets, our focus and competitive advantage in the transportation, rail, power, water and mining verticals, and our initiatives to access growing markets such as Australia, Canada, Brazil and India will stand us in good stead as well as making the business more robust.”

It said overall 2012 performance remains in line with expectations.

The order book was at £14.2 billion on 30 November 2012.

But the firm said contracts awarded in December, notably the £1.2bn eight-year National Grid deal and the tunnel contract won by Gammon in Hong Kong, will take the order book back to around £15 billion.

Average net debt for 2012 was approximately £50 million, “reflecting the significant cyclical unwind of working capital during the year”. The contractor expects a “broadly cash-neutral position” by year-end.

The contractor said it has already this year acquired Subsurface Group, Inc. to expand Parson Brinckerhoff’s Energy Storage Services business in the USA.

It has won the Wiltshire County Council contract for highways maintenance and street lighting as well as dealing with winter weather, drainage and bridges worth £150 million over five years.

It has won a contract for the engineering, procurement and construction (EPC) of the Garrison Energy Center, a 309MW combined cycle gas-fired power plant in Dover, Delaware in joint venture with Kvaerner.

It has won a £321 million design and construction contract to upgrade sections of the M25 London orbital motorway in a 50/50 joint venture with Skanska.

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