Balfour sets 3% margin target as contractor returns to profit

Grant Prior 7 years ago
Share

Balfour Beatty has set its sights on hitting UK construction margins of 3% over the next two years as the company returned to profit.

Leo Quinn's Build to Last strategy is paying dividends
Leo Quinn's Build to Last strategy is paying dividends

Chief executive Leo Quinn said his “Build to Last” turnaround programme is well ahead of schedule and phase two will see a return to “industry-standard” margins.

Phase one of the programme has exceeded targets of cutting costs and bringing in more cash as the firm sold a number of assets including Parsons Brinckerhoff and stakes in a number of PFI schemes.

And the success of “Build to Last” was highlighted today in results for the year to December 31 2016 which show Balfour back in the black.

The group made an underlying pre tax profit of £60m compared to a £123m loss last time on revenue up to £8.5bn from £8.2bn.

Quinn has totally revamped Balfour’s structure from top to bottom cutting out £123m in costs and changing the firm’s approach to bidding which led to a series of profit warnings caused by legacy contract problems.

A shift towards more two-stage tenders and a working-out of legacy deals saw the UK Construction Services business improve.

But the division still posted a loss of £64m – down from a loss of £187m last time.

Balfour said UK construction operations delivered a £2m profit in the second half of the year.

Balfour said: “Across the construction portfolio there remain a small number of long-term and complex projects where the Group has incorporated significant judgements over contractual entitlements.

“The range of potential outcomes could result in a materially positive or negative swing to profitability and cash flow.

“In the UK, the majority of these contracts are within the Major Projects business unit.”

It addded: “The underlying loss from the UK construction business was £64 million (2015: £187 million), representing an improvement from the prior year.

“The loss in the period was caused by three main factors: additional losses incurred on historical contracts; lower overhead absorption due to the lower revenue base; and newer projects not being progressed to a stage where it is appropriate to begin to recognise gross margin.

“There is a positive trajectory, with the £64 million underlying loss from operations in 2016 split between a £66 million loss in the first half and a £2 million profit in the second half of the year.”

Around 90% of UK problem legacy contracts have now been completed.

Balfour revealed that of the 89 legacy schemes 64 have been totally settled.

Nine are still continuing on site while 16 are yet to reach “financial completion”.

Quinn said: “The transformation of Balfour Beatty is well underway. We have returned the Group to profit and significantly exceeded our Build to Last Phase One targets.

“We have upgraded leadership, processes and controls while continuing to invest in the Group’s unique strengths. As a result, we have improved not just the quality of our order book but our customer satisfaction scores.

“Having simplified the Group, we are focused on our core markets in the UK and US, where governments are committed to large scale expenditure on infrastructure.

“All this positions us for future profitable growth. During the next two-year phase of Build to Last, we expect to achieve industry-standard margins and over the medium term, industry-leading performance.”

Latest news

BAM plans wave of job cuts at UK Construction arm

Co-op Live arena plunges Bam Construction to £19.5m first-half loss
11 hours ago

Robot tunnel builder goes into administration

Hypertunnel was hoping to revolutionise how underground structures are built
12 hours ago

“Scrap CITB” say three quarters of construction firms

Payroll giant Hudson Contract calls for CITB to be absorbed into new Skills England training body
11 hours ago

Wates to build £86m Guildford Council housing scheme

40% of the 248 homes will become council homes under partnership deal
12 hours ago

£100m Prestwich Village revival approved

Vinci and Willmott Dixon in chase for Muse-led regeneration scheme
21 hours ago

Carbon negative asphalt trialled on M11

Skanska and Tarmac test CO2 absorbing aggregate material on stretch of Essex motorway
12 hours ago

Father and son sentenced over covid construction loan fraud

Bristol builders given suspended jail sentences over bogus Bounce Back Loans
12 hours ago

Beck Interiors files administration notice

Supply chain has suffered delayed payments from £139m-turnover luxury fit out specialist
1 day ago

Green light for York Central civil service office hub

£60m office project accelerates York Central goods yard redevelopment
1 day ago

Blenheim House Construction enters administration

Administrators looking at options on present projects
2 days ago

Profits rise at Esh Group with more to come

Contractor confident about year ahead as market conditions move in right direction
1 day ago

Piling specialist Van Elle sees housing orders rise 30%

Mark Cutler says firm on course to deliver 10% annual sales growth
1 day ago

HS2 to spend £100m shutting sites where work never started

Remediation of sites no longer needed for cancelled Phase 2 will take three years
2 days ago

Willmott Dixon wins £61m deal for new Army dog unit

Contractor to revamp Kendrew Barracks in Rutland
1 day ago

Stockport advances 4,000-home Town Centre East plan

Council seeks consultants to steer plan for 280-acre area in the city
1 day ago

ISG sale imminent as buyers set-up UK holding company

South African nutrition entrepreneur and Australian partner primed to take over
2 days ago

CR Construction wins £210m Manchester towers

Construction to start next year on four blocks ranging from nine to 34-storeys
2 days ago

Southern Housing to rationalise supply chain following merger

Firms put on alert for £1.7bn construction framework renewal
2 days ago

Decision delayed on 52-storey Isle of Dogs tower

Hong Kong developer plans 460 flats block next to Millwall Inner Dock
2 days ago

Go-ahead for £850m North London estate rebuild

Flagship Edmonton housing estate redevelopment will deliver 2,000 new homes
2 days ago

Mace lands £184m Oxford Science Park contract

Contractor to build trio of laboratory and office buildings
3 days ago

Worker paralysed in 30ft fall during electricity pylon demolition

Specialist firm fined £240,000 after court hears linesman attached lanyard to a loosened steel section
2 days ago

Sir Robert McAlpine clinches £4bn Somerset gigafactory

2.6m sq ft car battery plant will require over 2,000 workers at peak construction
3 days ago

House builder Hill Group tops £1bn turnover

Group's controlled development pipeline stands at £10bn
3 days ago

Higgins wins 360 new homes job in south London

Firm will now work up planning for phase 2 of Brixton housing project
4 days ago

Kier starts £48m Ealing high school job

Northolt High School to be rebuilt for 1,130 pupils
4 days ago

Plans in for £64m Suffolk A12 upgrade

Work to start next summer on dualling and junction upgrades
4 days ago

Man suffers multiple fractures in HS2 accident

Engineering firm fined after fall leaves worker in hospital for two months
3 days ago

Go-ahead for Milton Keynes’ largest private rental project

Platform_ to build 20-storey scheme of 335 flat next to train station
6 days ago

A2Dominion reins in new-build and cuts development team

Housing association to stop private new build sales in big strategy switch
6 days ago

Contractor services