Andrew McNaughton says 鈥楶hase 3鈥 of restructuring could see UK鈥檚 largest contractor withdraw from some markets, including social housing
Balfour Beatty has signalled it will initiate a third phase of restructuring of its construction business that could see it withdraw from some markets, including social housing, as the industry behemoth continues to adapt to deteriorating market conditions.
This week (8 November) the 拢11bn turnover Balfour Beatty Group and the performance of the UK construction business was 鈥渨eaker than anticipated鈥 as it continued to 鈥渕igrate towards smaller contracts in a market with very few major projects鈥.
The firm also pointed to a decline in its European rail business, with activity in Spain and Italy 鈥渃ritically low鈥, and warned that profits across its construction business would be around 拢10m lower than anticipated in 2012.
The contractor鈥檚 share price tumbled 16% on the news - and was trading at 248p at close of trading on Friday (9 November), down nearly 20%, wiping nearly 拢400m of the value of the company.
Alongside the announcement, Balfour Beatty chief executive Ian Tyler said the firm would build upon its ongoing restructure of its UK construction services business through what he said would comprise a 鈥淧hase 3 cost reduction programme鈥.
This followed the contractor鈥檚 鈥淧hase 1鈥 programme that involved 拢30m of savings by the end of 2012 through centralising procurement and other back office functions in a shared services centre in Newcastle; and 鈥淧hase 2鈥, the detail of which was , which will see the industry behemoth cull six operating companies and reshape its business around four regional hubs. This will contribute around 拢30m in cost savings to the 拢50m in annual savings the Group plans to deliver by 2015 through Phase 2.
Tyler said 鈥楶hase 3鈥 would be 鈥渞esponsive to somewhat different market conditions than those that we had anticipated鈥 and would involve the firm 鈥渄esisting form certain areas of the market鈥.
Speaking to 好色先生TV, Balfour Beatty deputy chief executive Andrew McNaughton said the Group was looking at areas 鈥渨here it might be right to move out of at this point in time鈥, particularly the European rail business, but also areas within the 拢3.4bn turnover UK construction business, including social housing.
He said: 鈥淲e鈥檝e flagged that specifically we are going to need to look at our operations in rail in Europe for the right and sensible reason that we鈥檝e been watching it for long enough and hard enough to know that Italy and Spain now are not going to recover anytime soon.
鈥淲e鈥檝e already said fit-out is something we want to rationalise and we鈥檝e been doing that. But there are some questions - and I say they鈥檙e questions because we haven鈥檛 made any decisions about it - in terms of social housing, because the volume in that market and the amount of progress that is being made in putting that out to the market at the moment is quite low. And therefore 鈥e have to question what we do with that.鈥
The move would impact on 拢175m turnover Mansell Partnership Housing - part of the Mansell regional construction brand - which offers new build, refurbishment and regeneration. 鈥淣o decision has been made - we are taking the time to look. But it wouldn鈥檛 be a surprise that we are looking at that given the lack in starts in that particular sector in the last two years,鈥 he added.
He said the company would also look at other areas beyond social housing, but that these were at 鈥渁 much too early stage鈥 to give detail. He said a decision on what market areas to pull out of would be made within the next year, along with other cost reduction measures.
He said there had been no cost reduction target had yet been set for the next phase of the restructure and added that it was 鈥渢oo early鈥 to talk about the impact on jobs.
He said the firm was already taking actions in the US to consolidate its divisions from five to three, as well as consolidating the back office of its professional services division.
McNaughton said there was 鈥渟urprise鈥 from some of the firm鈥檚 investors at the market reaction to the firm鈥檚 statement, given that the 鈥渧ast majority of our business is in an absolutely robust position鈥. 鈥淥ne piece of our business is marginally below the expectation of what we saw for the year,鈥 he said.
鈥淭he facts are that we four operating divisions in our business. Our support services professional services and investments business account for 70% of our business.
鈥淎nd what we are absolutely clear with our investors is all three of those divisions are absolutely on the nail as to where we expect them to be; hit the expectation we have for the year; and are in a particularly robust position.鈥
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