Balfour: Market retreating to smaller regional jobs

Construction giant Balfour Beatty became the latest contractor to warn of a further slowdown in activity, new Morgan Sindall profit warning earlier this week.

In a third quarter trading update issued on Thursday, Balfour Beatty, which has a regional construction base in Manchester, said: "In the UK, we are seeing further market deterioration.

On the one hand, the business is continuing to migrate towards smaller contracts in a market with very few major projects. Approximately half of our order book is now in our regional business, up from a third a year ago. At the same time, the supply chain is suffering which in turn, reduces our ability to negotiate terms that match the worsening market conditions. The adverse impact of these recent developments is expected to reduce profitability slightly this year. 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."

The business is cutting costs in the UK and US to offset the impact on falling order books and squeezed margins.

The first stage of savings will be gained from "indirect procurement" and combining accounting and payroll into a single centre in Newcastle. These will generate savings of £30m by the end of 2012.

The second phase has a target of £50m annual savings by 2015. This involves 650 job losses and combining six operating companies into one by January 2013.

Shares in Balfour Beatty opened up 3p at 309p.

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So basically a big contractor that has milked PFI etc over the last few years can no longer live off the big contracts. Some good people work at Balfour Beatty but a number of more innovative and competitive smaller contractors are far better suited to deliver in today’s market.