Balfour Beatty shares fall after profit warning

Shares in Balfour Beatty have fallen sharply after it issued its second profit warning in six months, blaming weak conditions in the UK construction market.

The UK's largest building firm said it expected full-year profits at its UK arm to be £50m below expectations.

Balfour, whose projects include the M25 motorway widening, said the UK was a "challenging" place to do business.

Official data last week highlighted a big slowdown in the UK building sector.

The Office of National Statistics' GDP figures for the first three months of 2013 said UK construction activity fell 2.5%.

'Strong' balance sheet

Balfour said in a trading update: "The UK construction market has been a challenging environment in which to win and execute work. Market conditions which deteriorated significantly in the second half of 2012 continue to be difficult.

"Our subcontractors continue to operate under considerable financial strain. In these extremely tough conditions, our UK construction business has been concurrently implementing a substantial organisational restructuring in order to streamline the business for future success while reducing costs to remain competitive."

Balfour said chief executive Andrew McNaughton, who took over last month, would personally take charge of the UK construction unit to address the operational issues.

Shares in the FTSE 250-listed company, which reported a 7% fall in 2012 profit last month, closed down 9.5%.

Balfour Beatty said trading in its other businesses was broadly in line with expectations, with a £10m profit fall in its German rail operations and weakness in professional services in Australia offset by outperformance in the US, Asia and the Middle East.

"Our balance sheet remains strong taking full account of the cash impact of the £50m profit shortfall," the company's statement said.

On 8 November, Balfour warned of a £10m hit to profits because of weak construction and rail markets across Europe. Since then, Balfour's shares have fallen by about 30%.

Following last week's GDP data, construction activity in the UK remains more than 18% lower than it was before the start of the financial crisis in 2008.