Infrastructure and construction group Balfour Beatty has warned of tough times for small building firms as it looks ahead to recovery in the housing market.
The firm said it expected more work for its regional business, particularly in civil engineering, thanks to the upturn in the economy but urged caution over the capital base of depressed local contractors.
“We need to remain vigilant about cost escalation and the risk of subcontractor failures as their balance sheets will come under increasing pressure due to increasing working capital requirements as and when their volumes pick up,” the company said.
It also said there was an absence of major infrastructure works in the UK, leading the business to change its focus in construction and engineering.
A loss is expected in its rail projects arm.
“The visible pipeline looks weak, and we see little prospect for change in the next couple of years,” it added. “We therefore anticipate a continuing shift in our business mix away from major infrastructure and into regional work.
“Furthermore, our Engineering Services business relies on major infrastructure and complex buildings for growth and, consequently, its outlook remains somewhat subdued.”
Overall, the group believes it will exceed expectations for the year thanks to a strong performance in its investments arm.
Profits at the division are expected to exceed half-year estimates by around £30 million.
Profitability in construction improved, while support services performed resiliently to meet targets.
Professional services performed well, but weakness in Australia is likely to reduce the division’s profits by around £10m.
The firm’s order book reduced in value from £13.9 billion to £13.8bn over the third quarter, to the start of this month.