Birse cuts roads by 25% to stem losses

A mixed set of results from Birse showed a reduction in group losses from œ1.4 million to œ0.6 million in the six months to 31 October 1994.

Birse Construction suffered a tough year, with turnover 20% lower and profits collapsing from œ774,000 to just œ77,000. Volumes over the full year are expected to be more even, down 10% on 1994.

Housing also dipped into the red, with a œ322,000 loss after a first-ever profit of œ21,000 last year. The company blames the loss on aggressive discounting by the major players, desperate to secure volume before their year end. Chairman Peter Birse claims the phenomenon was evident as early as the third quarter of 1994, with price cuts of 10-15% being made on some sites on top of the usual incentives. 'That just cuts out your profit margin,' said Birse.

The company has cut back its roadbuilding activities by 25%, after foreseeing the difficulty of breaking even on large schemes. 'It's very difficult to make a profit, and the bigger jobs are cash negative,' said Birse.

The company says the quality of its current order book is improving and expects a return to reasonable contracting profits in 1996.

Gearing has risen to 70%, though higher rental income from properties is helping to pay interest costs on the company's œ23.7 million worth of loans. Peter Birse hopes to make significant reductions in the debt over the next twelve months. That depends on reducing capital employed in the construction division, which is consequently chasing smaller, more cash-positive road contracts, and on property sales. The latter are proceeding slowly with only œ3.3 million realised and œ25 million still on the books.

Star performer in the interim period was the plant division, which turned in trading profits of œ775,000 - more than double the œ318,000 earned a year earlier. Turnover was only 8% ahead at œ6.2 million.