Balfour Beatty positive despite 70% profit slump

Balfour Beatty has a slice of Europe's largest construction project, the Crosswell in London. Picture: Getty

Balfour Beatty today insisted that it could turn around its flagging UK construction business as it posted a 70 per cent slump in half-year profits.

The combination of a weak building sector, a lack of major infrastructure projects and a challenging Australian market – where the British firm has a large presence – led the group to issue its second profit warning in six months back in April.

An overhaul of the UK construction arm has seen the appointment of Nick Pollard as divisional chief executive. The firm has also closed some regional delivery units and “aligned the organisation more closely with customers”.

Unveiling an interim underlying profit of £45 million, down from £150m, group chief executive Andrew McNaughton said the regional order book was now stable with improving margins. He told investors: “We are pleased to report that, while it is early days, our action plans are delivering the intended results.

“With sustained focus on operational delivery, we expect to achieve a performance in our continuing operations that is in line with the current expectations for 2013.”

The group’s UK regional construction unit, which has been under new management since April, made an operational loss of £41m in the first six months of 2013, down from a £59m profit a year earlier.

The firm said that a “difficult external environment” as well as internal reorganisation were to blame for the poor performance in the division and, to a lesser extent, its major projects arm.

Balfour’s contracts include a £130m slice of London’s massive Crossrail scheme as well as a major revamp of London’s Blackfriars station and the M25 motorway widening.

At the group’s infrastructure investments operation, financial close was achieved on two projects – a £63m postgraduate student accommodation and outreach centre for Edinburgh University and a £45m residential scheme for Aberystwyth University in Wales.

Cancellations of natural resources projects and public sector spending cuts in Australia helped push profit at Balfour’s professional services division down 38 per cent.

Elsewhere, the firm said that it was in advanced discussions in Sweden and had made good progress in Germany as part of already announced plans to sell its rail businesses in mainland Europe.

The group, which recently sold its UK facilities management business to French company GDF Suez for £190m, said that it expects to perform in line with City expectations for the full year.

An unchanged interim dividend of 5.6p was declared.

Andrew Gibb, an analyst at brokerage Investec Securities, which has a “sell” rating on the shares, said: “We have been cautious on this stock for some time, and whilst some in the market may try and pull positives out of today’s statement and look to a recovery, we think it’s too early to end our bear case.

“The big risk is still to come, as the group starts to see costs rise against its thin margin construction contracts.”