Balfour pulls out of gas mains market

Grant Prior 4 years ago

Balfour Beatty is pulling out of the gas infrastructure market as under-performing historic contracts forced an impairment charge of £58m in its latest results.

Chief executive Leo Quinn is commited to "relentless improvement"
Chief executive Leo Quinn is commited to "relentless improvement"

The move came as Balfour continued its strategy of focusing on lower-risk work to boost margins.

The contractor said: “Balfour Beatty has taken the decision to further de-risk the business by not re-bidding gas contracts under RIIO-GD2, since the terms and conditions do not meet the Group’s minimum expectations.

“This has resulted in a non-cash non-underlying goodwill impairment of £58 million.

“The gas market is no longer considered viable to the group because of the unfavourable working capital and onerous terms and conditions.”

RIIO-GD2 is the next spending round for network companies running the gas and electricity transmission and distribution networks.

Group chief executive Leo Quinn is continuing to see his Build to Last transformation programme bear fruit five years after the turnaround plan started.

Pre-tax profit was up to £138m for the year to December 31 2019 from £123m last time as turnover stayed flat at £7,802m.

UK Construction delivered a 68% increase in underlying profit to £47m from revenue of £2,213m as margins improved to 2.1% from 1.5%.

The business is also set for a £3bn boost to its order books from HS2 in the first half of this year.

Balfour said: “Balfour Beatty’s year end order book does not include the two HS2 civils packages and the Old Oak Common station contract which have been awarded but not yet contracted.

“These contracts are expected to add over £3 billion to the order book in the first half of 2020. 

“Their inclusion would more than double the UK Construction order book and represents a c.40% increase for the Group compared to the end of 2018.”

Payment to suppliers has speeded-up after Balfour was suspended from the Prompt Payment Code last April and re-instated in January.

In the last half of 2019 Balfour paid 90% of invoices within 60 days and its average invoice payment time was 38 days.

Quinn said: “Five years into our Build to Last transformation programme, we continue to drive a culture of transparency, risk management and relentless improvement.

“Having focused Balfour Beatty’s geographic and operational footprint, we have invested significantly in capability, innovation and standard systems and processes.

“In this way we have created a scalable business which – together with the increasing order book – gives us confidence that the Group will continue to deliver profitable managed growth and cash generation on a sustainable basis.

“We are committed to delivering value from this performance. The Group is continuing to pay down around £150 million of borrowings in 2020 and in addition, the Board will review Balfour Beatty’s capital structure once there is clearer understanding of the COVID-19 situation.”

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