UK’s largest building firm is about to go back into profit
The country’s largest construction company is reaping the benefits of its ‘turn around’ efforts, as Balfour Beatty reported an almost 70 percent rise in half-year profit.
Chief executive Leo Quinn, who is two and a half years into his Build to Last plan since rejoining the group in 2015, said the shakeup should see the company return to industry-standard profit margins in the second half of next year.
Revenues fell 5.7 per cent due to company’s efforts to be more selective with the contracts it takes on, but profitability increased across all of its businesses, and the company reported a pre-tax profit of £12m, from a £15m loss in the same period last year. Balfour has been rebuilding its business after a difficult period and is now focusing on improving profit margins.
Leo Quinn, Balfour Beatty chief executive, said: “These results demonstrate the transformation being driven by focusing Balfour Beatty relentlessly on its chosen markets and capabilities. Profitability is rising, backed by positive cash flow from operations, and the Group had average net cash during the period; all achieved without any material investment disposals. The balance sheet remains strong, underpinned by the £1.2 billion Investments portfolio.
“Under stronger leadership and much improved bidding disciplines, the businesses are booking new orders at improved margins and reduced risk. Our infrastructure pipeline in the US and UK remains buoyant and the Group continues to win landmark contracts such as the Dallas Southern Gateway and HS2.
“All of this gives us confidence that the Group remains on track to achieve industry-standard margins in the second half of 2018, and in line with this, we are declaring an interim dividend of 1.2 pence per share.”
Balfour Beatty exited the Middle East in the period following the sale of its entire share of Dutco Balfour Beatty and BK Gulf.
Both businesses were sold, with no future liabilities, to its joint venture partner in early 2017, allowing management to focus on its chosen markets and capabilities.
Expert workforce focus
The Group are now committed to focussing on its chosen markets, including investing in its ‘expert workforce’. Skills shortages within the construction industry have been a constant challenge in the industry, blamed by the decision to leave the European Union, the weakness of sterling and uncertainty around free movement which are likely to reduce migrant labour at a time when a growing pipeline of major projects is likely to increase demand for skilled workers.
Balfour Beatty has focused developing competency frameworks for key operational job families including Project Management, Engineering and Commercial, as well as providing a clear career path for employees.
That approach is now 85 per cent complete across the core Project Management job family and 50 per cent complete for Engineering and it continues its sponsorship of The 5% Club, which encourages employers to provide ‘earn and learn’ training opportunities to equip the UK’s workforce with the necessary skills for the UK’s economy to succeed.
• Underlying profit from operations (PFO) £39m (2016: £11m); on track for full-year expectations
• Half-year net cash £161m, average net cash £45m – without material investment disposals
• Underlying revenue £4.2bn, up 8 per cent (one per cent at CER)
• Directors’ valuation of Investments portfolio up 1 per cent at £1.235bn
• Interim dividend payment up 33 per cent to 1.2 pence per share
• Build to Last Phase Two targets: on track for industry standard margins in the second half of 2018
• Continued to simplify and focus the Group; exited Middle East
• Order book £11.4bn, down 8 per cent (6 per cent at CER); selective bidding delivering higher margins and reduced risk
• Balfour Beatty VINCI joint venture awarded two HS2 contracts in July, valued at c.£2.5bn
• Strong pipeline for US and UK businesses