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Problems on UK biomass projects hit Bouygues profits

19 Oct 18 Problems on several projects – including two in the UK - have forced Bouygues to revise this year’s outlook for its construction business.

Bouygues Construction's current operating profit is set to decrease by about €140m in the first nine months of 2018 compared to the same period last year.

During its first-half 2018 results presentation, the group had highlighted some challenges in the completion of three energy and services projects at Bouygues Construction and in Colas’ specialised activities, particularly in the French rail business. This situation worsened during third-quarter 2018, said the company.

At Bouygues Energies & Services, two biomass power plants in the United Kingdom experienced difficulties during the recent testing and commissioning phases, related mainly to malfunctions on certain equipment. This has led to delays, additional costs and the need to pay compensation to clients. A data centre project in Ireland, which was terminated by the client, has entered a new phase of litigation following a request by the client for payment of the maximum amount of compensation.

Meanwhile Colas Rail’s French operations are facing a tough situation that worsened in the second and third quarters. Strikes at French rail operator SNCF had negative impacts on rail works and the freight business, resulting in a sharp decline in activity in a business with a high level of fixed costs. A pipe-laying project in south-west France was penalized by adverse weather conditions in the first quarter of 2018. The accrued delay has been caught up through the use of significant means generating additional costs.

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As a result, Colas’ current operating profit is expected to decline by around €25m in the first nine months of 2018 compared to 2017.

In contrast, the building and civil works activities of Bouygues Construction and Roads Mainland France at Colas will post good results in the first nine months of 2018, said the company.

“The Group is therefore confident in the strengths and the good positioning of its construction businesses in a market exhibiting strong worldwide demand over the long term,” it said.

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