February 28, 2013 / 2:15 PM / in 5 years

WRAPUP 2-Europe builders step up cost cutting as activity slows

By Brenda Goh

LONDON, Feb 28 (Reuters) - Builders are struggling in the face of weak economic growth and sluggish construction activity across Europe, with several announcing writedowns, restructuring plans and job cuts on Thursday.

Government spending cuts and tightening private sector budgets in Europe have held back a recovery in construction markets in the region, in contrast to the United States, which is seeing signs of improvement.

Dutch builder Heijmans said on Thursday that it wrote down its property holdings on the way to a bigger-than-expected 2012 loss, while Germany’s biggest construction firm Hochtief AG said it may sell about half its European businesses after missing expectations with its full-year figures.

In Spain, ACS, which controls Hochtief, posted a net loss of 1.93 billion euros after writing down the value of its investment in power firm Iberdrola and taking a loss on the disposal of a 12 percent of the utility.

Other builders Sacyr Vallehermoso and FCC also posted important losses after writing down stakes in other utilities and construction firms amid a prolonged domestic recession which has hit its core construction and environmental businesses.

Weak economic conditions translated to a fall in first-half profit for British construction and property firm Kier Group , and to 1,400 job cuts in Belgium for U.S. giant Caterpillar, the world’s largest maker of construction equipment.

“We have had a culmination of three years of cyclical decline and the aggregation of that is now hitting even the best businesses. While it might not really impact much in the first year, now, however good you are, it’s unavoidable,” said Cenkos Securities analyst Kevin Cammack.

“I think we’re going to see more of that,” he said of the cost cutting measures that construction firms were now resorting to.

Poor construction output was a key driving factor behind Britain’s recession in late 2011 and the first half of 2012, and the country slipped back into contraction in the last three months of 2012, raising fears of renewed recession.

European’s construction market declined by 4.7 percent in 2012 due to deteriorating economic conditions in the euro zone and is expected to contract further by 1.5 percent in 2013, with growth only returning in 2014, said Hochtief, citing Euroconstruct data.

“The situation in the housing market remains dramatic, and this has led to writedowns on our property holdings and a reorganisation at residential building,” said Heijmans executive board chairman Bert van der Els in a statement.

Shares in Hochtief, which trade at a price to earnings ratio of 22 versus - sharply higher than at rivals Skanska AB and Bouygues SA, at 14 and 9 - were down 7.2 percent at 51.5 euros, underperforming a 0.2 percent firmer Europe Construction & Materials Index.

Heijmans shares were 0.2 percent higher at 7.08 euros, while shares in Kier were down 4.4 percent at 1293 pence.

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