Austerity drive hits Balfour's UK business

Balfour Beatty yesterday warned that market conditions were set to remain tough as it revealed that the coalition Government's austerity measures were beginning to hit its UK business.

The infrastructure group said that "nearly a year on from the UK Government's Comprehensive Spending Review, the impact of the reduction in government spending is evident in UK infrastructure markets, and consequently in our UK order book".

The company also flagged up challenges in parts of the US market. "Looking ahead, we will continue to manage the business on the basis that market conditions will remain tough," Balfour's chief executive, Ian Tyler, said.

The difficult operating environment led to a narrowing of the margin in the company's construction business, which was hit by a "lack of federal and private financing" in the US. Despite the pockets of weakness, Balfour managed to increase the size of its order book by 6 per cent to £15.5bn.

Underlying pre-tax profits were also higher, up 4 per cent to £136m in the first half of the year.

The company said that as part of its efforts to offset the impact of the tough conditions it was cutting costs. It had also increased its focus on "markets with the greatest opportunities," opening an office in India and building on its activities in Australia and Canada.

"For the long-term, infrastructure is a good place to be," Balfour said. "The need for better transportation, clean water, waste management and cleaner energy is increasing globally."

The City seemed to agree, with analysts remaining positive despite the current challenges.

Numis analyst Howard Seymour said Balfour's ability to invest to grow its international activities and the relative weakness in the its share price continued to support the case for investment.