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UK cuts prompt Balfour Beatty to focus overseas

17 Aug 11 With government spending cuts making the market tough at home, Balfour Beatty is targeting India, Australia and North America for growth.

Chief executive Ian Tyler
Chief executive Ian Tyler

Balfour Beatty today reported a 2% fall in group revenue to £4,512m for the six months to 1 July 2011 (2010: £4,605).

Including joint ventures and associates, total revenue was up 1% to £5,222m (2010: £5,160m).

Pre-tax profit was down 9% to £91m (2010: £100m) while underlying profit from continuing operations was down 5% to £136m (2010: £143m).

The fall in profits was attributed to 2010 first half results benefiting from one-off incentive income of £8m and unusually high profitability in US construction, neither of which was expected to be repeated this year. Foreign exchange reduced profits by £3m.

“Excluding these items, we have maintained good margin discipline in very competitive markets and have benefited from gains of £14m from infrastructure investment disposals, which are part of our regular programme announced in 2010 and hence reflected in the underlying results,” the board reported.

UK revenue was described as stable, thanks to a diverse portfolio of work, while profit performance was “strong”, due in part to cost reduction initiatives.

The company said that the impact of the reduction in government spending was evident in UK infrastructure markets and consequently in its UK order book. “We have been adapting our business by shifting our focus to where we see opportunities and by implementing our cost reduction initiatives efficiently and without delay,” it said. It added that while the commercial markets in London are showing signs of recovery, it was too early to call this a trend.

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In focusing on markets with greatest opportunities, Balfour Beatty has opened an office in India, expanded its presence in Australia and Canada, and made acquisitions in the USA.

The global order book at the half-year point was up 6% at £15.5bn from £14.6bn a year earlier. The acquisitions of Howard S. Wright and Fru-Con in the USA improved the order book by £500m while foreign exchange movements had a negative impact of £200m. At constant currency, the order book increased by 8%.

Hong Kong revenues also grew on the back of strong order intake by Gammon last year.

Chief executive Ian Tyler said:  "Although there are significant challenges in many of our markets, we have planned and structured our business to address these challenges, and we are confident of making progress this year.

“Looking ahead, we will continue to manage the business on the basis that market conditions will remain tough. The clear strategy we have put in place, the scale and capabilities we have built over the last several years, the actions we have taken in individual markets and the cost measures we started implementing in 2010 will stand us in good stead.

“We expect recovery in our markets in the medium term, and we have positioned ourselves to take advantage of the growing demand longer-term for infrastructure across the globe."

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