UK construction loss slows Balfour Beatty profit recovery

Aaron Morby 4 months ago

Another year of losses at Balfour Beatty’s UK construction arm dampened the recovery in group profits last year.

Chief executive Leo Quinn says underlying performance is back on track for strong profits next year
Chief executive Leo Quinn says underlying performance is back on track for strong profits next year

UK construction recorded a £2m loss in 2021, improved from £26m previously, following £46m of write downs on three residential jobs in London.

One of these projects has been completed, with the remaining two projects expected to complete in the middle and at the end of 2022.

But this morning chief executive Leo Quinn said the construction was now back on track after returning to profit in the second of half of last year.

He added that Balfour was progressing with derisking its UK construction operation. It has now pulled out of bidding fixed-priced residential property projects in central London and in the face of a volatile materials and labour markets has many fewer fixed-price contracts in its pipeline.

At year-end, only 14% of the UK construction services order book contained fixed-price contracts, down from 20% in 2020 and 50% in 2018.  

Across the group, Balfour Beatty made headway towards its goal of restoring pre-tax profit to more normal levels of around £135m.

The firm reported pre-tax profit in 2021 at £87m, up from £30m in the previous Covid impacted year.

Its underlying performance of £197m was impacted by the residential property write downs and £42m from a Department of Justice fine relating to major fraud on its military housing maintenance contract.

Revenue slipped back to around 12% to £8.3bn, after higher volumes at UK construction were offset by falls at US Construction and Gammon.

The group order book remained stable at £16bn, while the group’s continued focus on cash generation saw average net cash soar to £671m(2020: £527m).

Balfour’s power, road and rail maintenance business had a better year, all performing well across the group. As a result, support services margin target was upgraded from 3-5% to 6-8%.

Support services more than doubled its underlying profit from operations to £102m (2020: £46m) as a result of improved performance across the portfolio, coupled with the exit from the gas and water sector and end of contract gains.

Quinn said: “In 2021, despite the challenges presented by Covid-19, we have delivered operating profits ahead of expectations.

“Balfour Beatty emerges from the last two years with capabilities intact and a higher quality order book.  Together these provide the visibility to deliver profitable managed growth and sustainable cash generation.

“With a transformed portfolio focused on favourable infrastructure markets across our chosen geographies and our sector leading balance sheet, we are confident of delivering significant future returns to shareholders.”

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