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Tue September 21 2021

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Balfour plays to its strengths and pulls out of London residential market

18 Aug Balfour Beatty says that it will no longer bid for fixed-price residential property projects in central London.

Balfour Beatty chief executive Leon Quinn
Balfour Beatty chief executive Leon Quinn

Residential building projects in the capital softened Balfour Beatty’s 2021 first-half financial  results but strong performances elsewhere ensured that key numbers returned to pre-Covid 2019 levels.

It is still making a loss from its UK Construction activities though.

Balfour Beatty chief executive Leon Quinn said: “Performance issues at a small number of private sector property projects in central London have been exacerbated by Covid-19 disruptions, leading to a lengthening of project schedules. This situation has necessitated a reassessment of those contract end forecast positions, triggering write-downs. Balfour Beatty will no longer bid for fixed price residential property projects in central London.”

Balfour Beatty revenue in the six months to 30th June 2021 was up just 0.9% to £4,154m (2020 H1: £4,118m), but last year’s Covid-infected first-half loss of £18m before tax became a £52m pre-tax profit this time.

Underlying profit from operations reached £60m, compared to a £14m loss in the same period last year, but in line with 2019’s (pre-Covid) result of £63m.

Full year operating profit is expected to be in line with 2019 at around £172m.

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Leo Quinn said: “Last year, the pandemic had a material impact on Construction Services whilst Support Services was relatively unaffected. This trend has continued into 2021, with outperformance at Support Services offsetting underperformance in Construction Services. Whilst profitability at US Construction and Gammon [Hong Kong] returned to pre-pandemic 2019 levels, UK Construction was negatively impacted by a small number of private sector property projects in central London. Looking ahead, the group is increasing its margin target range for Support Services from 3-5% to 6-8% which represents an increase to group expectations for 2022.”

Support Services generated a £54m underlying operating profit in the first half, with £20m from US Construction and £9m from the Gammon joint venture in Hong Kong. This compensated for a £23m underlying operating loss from the UK Construction operation.

Support Services has improved since the company quit the gas and water sector to focus on power, road and rail maintenance. And there was a ‘significant completion bonus’ for finishing tests at the Eleclink project, providing a 1,000MW electricity interconnector between France and England through the Channel Tunnel.

Leo Quinn said that the order book stood at £16.1bn, which given exchange rate fluctuations represents little changed from the £16.4bn at the start of the year. “The outlook for the group’s core infrastructure markets remains strong, with Balfour Beatty well positioned to deliver its profitable managed growth strategy through selective bidding.” Mr Quinn said.

With Crossrail, HS2 and Hinkley Point C, more than 90% of Balfour Beatty’s UK Construction revenue is from public sector and regulated industry clients (up from 80% last year).

In summary, Mr Quinn said: “We continue to reshape Balfour Beatty to play to its strengths. These include leading capability in markets where governments are committed to long-term infrastructure programmes.  It means choosing to exclude regions and sectors which cannot provide profitable, low risk growth, in favour of those that can.  Our priority is on executing our already strong order book which will drive attractive cash generation and returns.”

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