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Balfour Beatty's share price plummets after profit warning

The firm’s share value fell by more than 15 per cent this morning after it reported a lower profit forecast for 2012 amid “worsening market conditions”.

Balfour Beatty revealed to CN last week that it plans to slash its supplier chain by 5,000 to 10,000 preferred suppliers as part of a wide-ranging restructure that is expected to save £30 million this year across UK construction. The changes will result in the loss of 650 back office staff and office and depot numbers being reduced from 75 to 37.

Balfour Beatty expects 2013 to be a “difficult year” for construction services after reporting disappointing performance in its two major markets, the UK and US.

In the UK, the firm cited the lack of major projects and the movement towards smaller projects alongside a stressed supply chain, which “in turn, reduces our ability to negotiate terms that match the worsening market conditions”.

The firm’s order book dropped from £15bn to £14.4bn - reflecting a further slide in order books across the top companies.

It added: “Looking ahead, there is reduced visibility due to smaller projects and shorter lead times, but in the absence of an immediate improvement in these emerging market conditions, we expect further decline in activity levels and pressure on margins into 2013.

“We have been managing our business on the basis that market conditions would be tough, and this has been an effective strategy. We will take further action, both operationally and strategically where necessary, to mitigate any adverse impacts on our business.”

Balfour Beatty expects to suffer a £10m profit hit in 2012 due to lower rail construction activity in Italy and Spain in particular, combined with the increasing “commoditisation” of work in Germany and the UK. In light of these “structural factors” the firm will review operations across its European rail business.

Under its restructure, the UK’s biggest contractor will shrink its supply chain largely by cutting out “one-off suppliers” relating to transactions of less than £1,000 as part of its restructure of UK construction services.

From January 2013 the business will also cut its core brands from 15 to seven, with the majority of activity to be delivered by the Balfour Beatty brand.

 

 

 

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