Profits down at Balfour Beatty’s engineering sector

Balfour Beatty’s share price tumbled this week as its engineering services division in the UK continued to feel the effect of the construction industry downturn.

A further drop in profits was announced for the first half of 2014 in a trading update issued on 3 July.

The contractor is on a 12- to 18-month programme to restore its UK construction business to a firm footing. As part of its efforts to improve its engineering services division, Balfour Beatty has appointed new management to the sector.

However, design changes, project delays, rework on projects, and contractual disputes have continued to have a downward effect, with the group reporting a profit shortfall of £35 million (€44 million) for the first half ended 27 June, 2014.

In view of this, Balfour Beatty is downsizing its footprint in this area. It said that in central London, engineering services will only be working with group companies where it can influence design and add value for customers.

Elsewhere in the construction services division, Balfour Beatty’s US construction business continues to perform well and in line with expectations.

In the Middle East, it said progressively improving conditions in the broader Dubai construction market were being offset in the short term by continuing challenging conditions in the M&E (mechanical and electical) market.

The market in Hong Kong continues to be strong, said Balfour Beatty, although the long-term nature of recent project wins and delays to a small number of existing projects mean it will take time for these to feed through into financial performance.

The level of the order book remains broadly unchanged from £12.9 billion (€16.2 billion) at the end of the first quarter.

For the year-end, group pre-tax profit expectations for 2014 remain unchanged in the range of £145 to £160 million (€182 to €200 million).

Balfour Beatty will announce its half-year results on 13 August, 2014.