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Balfour Beatty UK construction revenue shrinks 9%

11 Aug 10 Balfour Beatty's UK construction revenue has dropped 9% in the half year to 26 June 2010, compared to the same period a year ago, due to the completion of several large projects and volume reductions in its regional businesses.

Balfour Beatty's UK construction revenue has dropped 9% in the half year to 26 June 2010, compared to the same period a year ago, due to the completion of several large projects and volume reductions in its regional businesses.

But the global construction group still posted impressive results overall, with pre-tax profit up around a quarter at £81m (H1 2009: £65m), and revenue climbing marginally to £5.2bn (H1 2009: £5.1bn).

Balfour Beatty's order book has increased 4% to £14.6bn (£14.1bn) at December 2009).

Its cash position looks strong at £500m, compared to £394m a year ago.

The half-year results include an exceptional loss of £18m (2009: £22m loss), including £11m relating to the integration of Parsons Brinckerhoff.

The pension deficit has increased to £629m before tax.

Balfour Beatty said it has been evaluating additional levels of cost efficiency through procurement savings and a support centre which would be responsible for managing accounting services and payroll processes to the Group's UK construction services and support services businesses.

This is expected to deliver benefits of at least £30m a year, though the one-off costs of implementation are approximately £25 million in 2010/11, plus around £10 million in additional IT investment.

Operations

Balfour Beatty's Construction Services business delivered a 17% increase in operating profit, before exceptional items and amortisation, to £83m (2009: £71m), despite a decline in revenue to £3.3bn (2009: £3.8bn).

The biggest reduction in revenue was in the US, where revenue declined 22%. In the UK, turnover dropped 9%, with the completion of large hospital projects affecting the building and mechanical and electrical businesses, along with reductions in the regional building business, which were only partially offset by continued growth in the civil engineering businesses.

In the Middle East, there was a significant reduction in total revenue, due to significant reductions in the Dubai building and civil construction markets, though the M&E business delivered strong profit.

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The order book for construction services stands at £8.5bn, an increase of 4%.

In Professional Services, Balfour Beatty was able to include a full six months' contribution from Parsons Brinckerhoff, which it acquired last year, for the first time. Following the integration of Balfour Beatty Management and Heery with PB, the group's professional services business comprises 14,000 people working on infrastructure projects in over 80 countries.

Revenue in the six-month period was £829m, including £710m from PB.
Profit from operations, before exceptional items and amortisation, increased by £43m to £49m (2009: £6m), including a six-month contribution from PB of £35m.

Support Services experienced a sharp fall in operating profit, before exceptional items and amortisation, to £21m (2009: £28m). This was due to the investment in a national operations centre set up to support external facilities management customers and a slow start-up to AMP5.

Revenue increased by 1% in the period to £735m (2009: £726m), with growth in facilities management and business services outsourcing offset by a reduction in rail renewals and the slow start to AMP5 contracts in the water sector.

The order book for support services was flat at £4.5 billion (December 2009: £4.5bn).

Outlook

Looking ahead, Balfour Beatty's trading statement said: “Balfour Beatty is uniquely well-placed in major markets to benefit from the long-term, global growth in investment in infrastructure. While the timing of short-term movements in individual markets is difficult to predict, the Group now has significant capabilities across the infrastructure lifecycle and operates in diverse markets and geographies, which gives the business strength and resilience.

“The Group has a high-quality order book of £14.6bn at June 2010 and a number of opportunities in the second half of the year. This, along with the actions taken and proposed to drive efficiency, means the Group is well-positioned to manage any challenges in individual markets. Our continuing progressive dividend policy reflects our confidence in the Group's ability to deliver growth over the medium term.

“Overall, we remain confident about the outlook for the Group.”

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