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Balfour Beatty confirms £41M loss in construction

Contractor Balfour Beatty has confirmed it made a £41M loss in its construction services division during the first half of this year, mainly due to poor performance in the UK.

Results for the six months to 28 June, published this week, show the firm’s construction division slumped to a £41M loss on turnover of £3.2bn from a £59M operating profit in the same period last year.

The contractor issued a £50M profit warning in April after unearthing problem contracts at its UK regional construction business.

Group chief executive Andrew McNaughton immediately stepped in to sort out the business, with UK boss Mike Peasland kicked out.

The firm’s UK construction woes were a major contributor to group pre-tax profits falling 70% to £45M from £150M over the same period last year as revenue dipped 3% to £4.97bn.

But McNaughton said the ensuing prompt action had turned the business around and that he was confident the measures are now working.

“Our markets continue to be challenging, but our actions are delivering the intended results,” he said.

“The benefits from this focus combined with the impending recovery in some of our mature markets position us well for the future.”

The company is exiting from its mainland Europe rail business and cutting costs in the struggling Australian professional services market.

It also announced the sale last week of the UK facilities management business Workplace for £190M. That disposal comes a month after it sold its stake in Exeter airport.

Of the UK construction division, the firm said: “We commenced a comprehensive piece of work to evaluate the regional business in its entirety as a result of which we took the decision to close those regional delivery units with weak future prospects.

“In addition, we focused the management team on an action plan that would deliver a consistently high standard in disciplines such as planning, cost estimating and commercial governance going forward.

“With new leadership in place in the UK and barring unforeseen circumstances, the construction business is equipped and motivated to achieve a profit level in the second half similar to that achieved in the second half of 2012.”

The company also revealed that it had spent £17M restructuring its UK operations and £20M in redundancy payments for the group this year plus £8M on external consultants.

The firm also said that orders had picked up since its profit warning.

“With £5bn of orders for continuing operations won in the first half, our order book has risen to £13.9bn, up 3% since the start of the year, and up 7% on the first half of 2012,” it said.

In professional services, order book and revenue increased in the six month period. Revenues were £870M, up on £845M in the same period last year.

But profits were adversely impacted by the sharp downturn in the Australian market.

Profits fell to £26M from £42M for the same period last year. Margin was margin down to 3% from 5%.

“Trading in Australia continues to be very challenging due to a significant number of project cancellations in the resources sector as well as the consequential impact on federal and state revenues and spending plans,” it said.

As a result, profits fell by £21M compared to the first six months of 2012 with warnings of worse to come.

“We have taken swift action and expect the full-year impact on profitability to be £24M, unless a significant mining project that is ramping up gets delayed or cancelled,” it said.

The firm said that this shortfall would be “mostly” offset by growth in other regions, resolution of some long-standing contract settlements and “cost savings” in the division.

The group’s net debt at 28 June was £189M, before taking into account the consolidation of £380M net debt held in wholly-owned PPP project companies.

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