Balfour Beatty shows improvement as UK losses continue to bite

Leo Quinn
Leo Quinn

Balfour Beatty has recorded an underlying profit of £7 million despite a £66m loss in its UK construction services.

Results for the six months to July 1 show the overall total pre-tax figure for the group is still a £21m loss, but the figure is an improvement on the £150m loss for the same period last year.

The £66m underlying loss in the UK construction business was also an improvement on last year’s loss of £145m for the same period. UK construction turnover fell to £862m from £1,117m as Balfour continued its approach of more selective bidding and reducing regional deals.

The firm is reducing the number of small regional contracts with the number of live regional deals falling from 400 to 250

Balfour said: “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 gross margin not being recognised on newer projects in the period, as the business is being more conservative and robust in not recognising margin until sufficiently through the life of the project.

“Stripping out the impact of the additional losses on historical projects, the business would have been close to break-even.

“The business continued to make good progress on closing out the 89 problem contracts identified in 2015 with 81 per cent of these projects at practical or financial completion as at June 2016, up from 60 per cent at December 2015.

“The number of these projects at practical or financial completion is still expected to be greater than 90 per cent by the end of 2016.”

Overall results for the group revealed underlying revenue drop 6 per cent from last year to £4.024 billion. The order book rose 7 per cent to £12.4bn and the company said that disciplined bidding practices had been maintained.

Leo Quinn, group chief executive, said the Balfour Beatty is “now starting to see tangible benefits” from the firm’s transformation.

He said: “Eighteen months into the first phase of Build to Last we have delivered our second successive half of underlying profitability and remain on track to achieve our initial targets of £200m cash in: £100m cost out. By concentrating on our selected markets, we are growing our order book within a control environment which ensures that our business decisions lead to sustainable profit and cash growth.

“We have maintained a strong balance sheet and expect Balfour Beatty to make further solid and measurable progress. As a result we are able to reinstate the dividend as planned.

“By the end of 2016 we will have successfully completed Phase One. Over the following 24 months, I am confident we can reach industry-standard margins and then build on the foundations Build to Last has put in place to deliver a Balfour Beatty with market-leading strengths and performance over the longer term.”

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