Balfour Beatty to sell European rail arm as profits fall

Aaron Morby 10 years ago

Balfour Beatty is to sell its mainland European rail business after reporting a 70% fall in pre-tax profits to £75m.

The firm said the UK construction market remained tough and construction revenue was now expected to fall by 20% this year.

Group-wide Balfour said that underlying profits remained resilient, down 7% at £310m on turnover flat at £10.9bn, before restructuring costs of £61m and £100m in goodwill write-downs on its European rail business.

Britain’s biggest contractor said there had been a significant shift from major works to smaller contracts in the UK.

As a result the regional building and civils order book was up 15% since the end of 2011, but major projects declined by 24%.

This has impacted on working capital which fell from £1bn to £777m.

Overall UK construction revenue fell 6% in the year, with most of the decline occurring in the second half. Margins fell from 2.4% to 1.8%, causing profits to drop by a quarter to £122m.

Outgoing chief executive Ian Tyler said: “We are focused on shifting our business from construction in our home markets to our target geographies and chosen market sectors, which have better growth dynamics and return characteristics.”

The firm now plans to spread it wings to find major transport and energy projects in global growth markets.

He added: “The cost efficiency programme we started in 2010 has achieved £36m of savings in 2012, and we are confident of reaching our £80m target for annual savings by 2015.”

UK Construction has been reorganised into three business streams and is in the process of reducing the number of offices from 75 down to 37.

Balfour Beatty said maintaining rail operations in mainland Europe across different countries no longer fitted its strategy.

“In Mainland Europe, we essentially operate only in rail. Therefore, we will be divesting of all of our rail businesses through a process that ensures that the businesses and their customers continue to receive full support.

“As a first step in this direction, we have sold the Spanish business to its management.”

Divisional trading

  • Construction: turnover £6.99bn (-1%); profit £122m (-28%); order book £8bn; margin 1.8%
  • Professional services: turnover £1.67bn (+1%); profit £98m (+13%); order book £1.6bn; margin 5.9%
  • Support services: turnover £1.63bn (+3%); profit £52m (-22%); order book £5.7bn; margin 3.2%

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