June 10, 2013 5:13 pm

Construction sector woes hit Balfour Beatty

The Aquatics Centre at the London Olympic Park©Reuters

The Aquatics Centre at the London Olympic Park

Balfour Beatty, the builder behind London’s Olympic Aquatics Centre and the widening of the M25, is to axe about 200 jobs and close three regional construction businesss as it grapples with the protracted downturn in the building industry.

The FTSE 250-listed company, which has issued two profit warnings in six months, has appointed Nick Pollard, the former Network Rail executive and government adviser, as chief executive of its UK construction business.

The restructuring follows a turbulent year for Balfour, which employs 50,000 people globally including 30,000 in the UK.

In April, it warned that operating profits in the UK construction business would fall 20 per cent this year as a result of internal management failures and “increasingly stringent” contract terms. It means that the division, which accounts for a quarter of the group, will only break even for the year.

Andrew McNaughton, the new group chief executive, took control of the UK construction arm a month ago, removing the head of the division after admitting that poor management had exacerbated the company’s problems. He will now hand over UK responsibility to Mr Pollard. The company has also been offloading its European businesses and seeking a buyer for its WorkPlace facilities management division.

Stephen Rawlinson, analyst at Whitman Howard, said: “The interesting aspect of the appointment and these closures is that Balfour is getting to grips now with rationalising the regional structure it built in the UK between 2001 and 2010.

“It bought a number of regional contractors with local branding – Birse, Dean & Dyball, Cowlin, Mansell to name the main ones – and has decided that, while it may have been a good idea at the time, it may not be now.”

Balfour said it would close offices in Dartford, Rochdale and Doncaster, affecting between 150 and 270 jobs. Collectively they account for about 8 per cent of the UK regional business, which generated £1.5bn in revenue in 2012. The group total was £9.5bn.

Despite the gloom, Balfour said it had been awarded a £110m contract to construct the 43-storey Providence Tower residential scheme, near Blackwall Tunnel, for the Ballymore Group. It has also landed a £130m Crossrail contract.

But prospects of a fast recovery in the UK construction market remain dim. According to figures from the Office for National Statistics on Friday, overall orders were down 10 per cent on the previous quarter and 0.2 per cent on a year earlier. Infrastructure was 50 per cent lower than in the previous quarter and 39 per cent lower than a year earlier.

Founded in 1909 by George Balfour, a Scottish mechanical engineer, and Andrew Beatty, an English accountant, Balfour Beatty originally focused on UK infrastructure projects, winning its first contract for a tramway in Dunfermline, Fife. It went on to play a major part in equipping the UK with new electricity networks.

More recently, alongside a push into the growth markets of Asia and Latin America, the company has stepped up its operations in the US, making the $626m acquisition of Parsons Brinckerhoff, a professional services group, in 2009.

The company – Britain’s biggest builder by sales – has sought to expand its international operations during the past five years and now generates half of its revenue from overseas business.

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