Balfour Beatty hit by fall-off in big UK projects

Aaron Morby 10 years ago

Balfour Beatty’s mainstream construction arm was the only part of the business not to deliver growing profits last year.

The construction services division saw a fall off in major projects hit its cash flow as Balfour faced a very competitive market which eroded margins from 3% to 2.4%.

Construction turnover at the division was lifted 5%, but operating profits took a hit falling 16% to around £169m.

But a strong performance from professional and support services businesses helped to lift pre-tax profits at the group by 22% to £246m. Revenue across the business was also up 5% at £11bn.

Balfour Beatty said it planned to dispose of further PFI assets in the year ahead and was on course to deliver annual operational cost savings of £50m within three years.

Last year the new centralised shared services centre helped to deliver £15m savings in annual running costs.

Cash generated from operations fell from £169m in 2010 to £35m as large complex contracts were taken over by smaller jobs.

    Balfour Beatty division

    Construction: profit £169m (-16%); turnover £7.05bn (+5%); margin 2.4% (3%)

    Professional services: profit £87m (+2%); turnover £1.65bn (+2%); margin 5.3% (5.3%)

    Support services: profit £67m (+8%); turnover £1.58bn (+10%); margin 4.2% (4.3%)

Chief executive Ian Tyler said the outlook for 2012 was good with high hopes for a strong performance from overseas contracts.

He said: “We are excited by the opportunities in growth sectors such as rail and power and growth markets like Australia, Canada and India.

“Our ongoing programmes to achieve cost efficiency and to recycle capital in our investments business were successful in 2011, and we plan to accelerate them.

“We have confidence that these programmes will underpin performance. This should ensure that we make progress in 2012.”

Across the divisions, professional services shifted its focus to the delivery of complex and specialist solutions, and away from commodity services.

This approach helped to secure contracts across a number of market sectors including a significant power transmission contract in the second half.

In parallel, a rigorous cost saving programme ensured Balfour remained competitive in the challenging market conditions.

The construction services order book fell 8% to £8.5bn as public sector spending cuts and a fall off in office work hit home.

Support services’ order book grew to a record level in the year in all activities except in water where Balfour is working through the AMP5 water cycle. The order book rose 13% to £5.1bn and promises good growth for the future.

Revenue improved in transport, power and buildings, each of which represents around 30% of the division, while water revenue recovered from the low level last year with over 40% growth.

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