Balfour Beatty reviewing business after profit warning

LONDON Thu Nov 8, 2012 12:54pm GMT

A Balfour Beatty worker walks onto a site in London August 10, 2009. REUTERS/Luke MacGregor

A Balfour Beatty worker walks onto a site in London August 10, 2009.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - British infrastructure group Balfour Beatty Plc (BALF.L) is studying whether to close parts of its operations after issuing a profit warning, prompting its share price to dive 16 percent.

"We are definitely in a world ... where we are having to look at desisting from certain areas of the market," Chief Executive Ian Tyler told analysts in a call.

The construction sector accounts for around 30 percent of Balfour's business. Weakness there caused by public sector cuts and falling business confidence has squeezed margins across the industry since the 2008 property bust in the United States and Britain.

The company said on Thursday that it would miss its profit guidance for 2012.

Shares in Balfour Beatty fell 16.4 percent by 1000 GMT, wiping out the 15.6 percent rise so far in 2012.

"Unfortunately for Balfour there aren't the big contracts which historically they have used to differentiate themselves to get a bit of margin," said Andrew Gibb at Investec, who has a "sell" recommendation on the stock.

"They're having to go further down the food chain in terms of looking for work," he added.

The tough environment also afflicted rival firm Morgan Sindall, which on Wednesday issued a profit warning and announced the departure of Chief Executive Paul Smith.

RAIL UNDER REVIEW

Balfour Beatty said it was specifically reviewing its rail construction operations in light of critically low activity levels in Italy and Spain as well as low margins in the UK and Germany.

It said that these factors, which it sees as structural changes, would cost the group 10 million pounds in profit in 2012.

When asked about the possibility of pulling out of Italy and Spain altogether, Deputy Chief Executive Andrew McNaughton told Reuters this was a consideration.

"What we're trying to figure through is what parts we can be viable in and which parts are not viable for our shareholders," he added.

McNaughton said the group aims to publish results of the review in the early part of next year.

Tyler said he believes there will be a new public-private partnership (PPP) initiative put in place in the UK to help the industry, but added that more clarity was needed in areas like energy market reform.

"The government themselves recognise that there is a gap between their aspirations in infrastructure and what they have delivered," he said.

Tyler added that new major public sector contracts in Britain won't materialise until 2014/2015.

"2013 is going to be tough if not tougher than 2012. People are forecasting some sort modicum of improvement in 2014 but that is dependent on political will," said Gibb at Investec.

(Editing by Stephen Nisbet)

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