Britain’s biggest construction company Balfour Beatty (LON:BBY) saw profits nearly triple in 2017, reversing several years of hefty losses. Despite taking a £44m hit from outsourcer Carillion’s high-profile liquidation, Balfour saw underlying profit from operations more than double in 2017 to £196m from £69m in 2016. Meanwhile, dividends per share rose to 3.6p in 2017 from 2.7p in 2016 and the firm’s cash balance increased to £335m from £173m in 2016. Despite these improvements, revenues dropped by around £7m to £6.2bn in 2016 and the value of its order book decreased by 8pc year-on-year to £11.4bn.
The company behind Crossrail said it is on track to make industry-standard margins in the second half of 2018 and will continue to sell assets in its infrastructure investments business. Chief executive Leo Quinn put the improvements down to Balfour’s ongoing turnaround programme, dubbed ‘Build to Last’. This has seen the firm reposition itself to drive efficiencies and reduce costs whilst maintaining or improving effectiveness. It has also begun selecting contracts more carefully after being criticised for having too broad a focus. It claims to have reduced costs by a further £30m through the programme in 2017, on top of £123m worth of annualised cost savings already delivered by phase one of Build to Last.
Quinn said, ‘These results clearly demonstrate that our Build to Last programme is transforming Balfour Beatty. The Group has been repositioned to drive sustainable growth in profits, underpinned by a strong balance sheet. It has the right culture and capabilities to capitalise on the rising tide of infrastructure spend in our chosen markets.’
Balfour’s shares were up 3.1pc, or 8.6p, to 285.5p at the time of writing, giving it a market cap of £1.9bn. Today’s results are a considerable leap forward for the company, which in 2014 delivered eight profit warnings and £600m worth of cash outflows in nine months.
As well as Build to Last, the last three years have seen Balfour simplify its structure by selling off its Middle Eastern, Indonesian, and Australian operations to focus solely on Britain, Ireland, the US, and the Far East. The results also revealed that Balfour has taken on 150 of Carillion’s employees who had worked with the firm on joint venture projects.
This follows Carillion’s liquidation in January as it failed to get funding to ease the pressure of a £1.5bn debt pile. Balfour had been a joint venture partner with Carillion on the Aberdeen Western Peripheral Route project and suffered a £44m loss on the contract as it was forced to step up activity to help cover Carillion’s 33pc share.
Author: Daniel Flynn
Disclosure: The author of this piece does not own shares in the company mentioned