Balfour Beatty profits slide as spending cuts bite

Aaron Morby 11 years ago

Balfour Beatty’s long run of strong profit and margin growth has been halted by the downturn in the UK and US.

Britain’s biggest contractor said that nearly a year on from the government’s Comprehensive Spending Review, the impact of the reduction in public investment was evident in infrastructure markets and its order book.

Overall group revenues were flat at £5.2bn in the first half of 2011, as acquisitions and growth in Australia compensated for the downturn in UK orders, but pre-tax profits fell 9% to £91m.

Operating profits at the group were down by a fifth to £89m, compared to last year.

Margins and profits were eroded at both the construction and professional services division, with only support services holding its ground in tougher market conditions.

    Divisions trading in first six months

    Construction services: turnover £3,270m, 0%; profit £67m, down 15%; margin 2% (2.4%)

    Professional services: turnover £840m, up 1%; profit £38m, down 22%; margin 4.5% (5.9%)

    Support Services: turnover £757m, up 2%; profit £25m, 0%; margin 3.3% (3.45%)

Ian Tyler, chief executive, said: “Looking ahead, we will continue to manage the business on the basis that market conditions will remain tough.

“The clear strategy we have put in place, the scale and capabilities we have built over the last several years, the actions we have taken in individual markets and the cost measures we started implementing in 2010 will stand us in good stead.”

He added: “We expect recovery in our markets in the medium term, and we have positioned ourselves to take advantage of the growing demand longer-term for infrastructure across the globe.”

Margins are expected to be held at current levels as the firm’s back office streamlining programme remains on target to deliver £30m savings by 2013.

Around £10m of this saving will be utilised to improve competitiveness at project level, while £20m will impact the structural cost base underpinning margins.

Balfour said there was now evidence that commercial markets in London were showing signs of recovery, although it is too early to call this a trend.

Tyler said that the firm’s acquisition strategy, global spread and cost-saving programme would offset downturns in its traditional key markets.

Over the first six months Balfour bought US west coast contractor Howard S Wright, opened an office in India and ramped up operations in Australia and Canada.

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