Balfour on cost saving drive after strong profits

Aaron Morby 13 years ago

Britain’s biggest contractor Balfour Beatty is on a major cost-saving drive despite delivering strong half-year profits ahead of City expectations.

The firm said it expects to make savings of over £30m a year. A third of this will come from improved competitiveness at project level, the rest from changes to group back office support.

Chief Executive Ian Tyler said pre-tax profits in the first half had soared a third to £141m, helped by a first full contribution from its consultancy arm Parsons Brinckerhoff.

He added that the rest of Balfour had performed well with underlying group profits 3% up.

Around half of Balfour’s £5.2bn turnover now comes from outside the UK.

While revenue was down 9% in the UK, Balfour Beatty’s building business put in a strong profit performance. But this effort was partly offset by a weaker performance on UK and international rail projects.

Balfour, which won BSF contracts with five local authorities and is preferred bidder with three others, said that the education cuts would not impact its order book or outlook as it represents only 2% of its business.

Tyler said: “While the timing of short-term movements in individual markets is difficult to predict, we now have significant capabilities across the infrastructure lifecycle and operate in diverse markets and geographies, which gives us strength and resilience.

“We have a high-quality order book of £14.6 billion at June and a number of opportunities in the second half of the year.

“This, along with the actions taken and proposed to drive efficiency, means we are well-positioned to manage any challenges in individual markets”

He said that the group was looking at further cost efficiencies through procurement savings and developing a support centre which would be responsible for managing all accounting services and payroll processes to its UK businesses.

Tyler added that half the targeted cost savings would be realised in 2011, with the full benefits from the end of 2012.

The one-off costs of implementation are approximately £25m in this year, plus around £10m in additional IT investment.

Divisions at a glance

  • Construction services: Profits rose 17% to £83m on revenue fall of £500m to £3.3bn. US turnover crashed by 22%. Overall order book up 4% to £8.5bn
  • Support Services: Growth in FM and outsourcing offset slow water spending due to AMP5 review. Profits fell £7m to £21m on sales steady at £735m. £4.5bn order book.
  • Professional services: Integration of Parsons Brinckerhoff ahead of plan. Profits ahead  £6m at £49m compared to 2009 on turnover £829m. Order book stands at £1.6bn, up 14%.
  • Infrastructure investment: Bid costs and overheads increased by £6m. Profits slide from £25m last time to £14m.

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