Improved margins and profit hampered by further financial hits on problem-plagued Scottish road job


Balfour Beatty’s pre-tax profit and margins have risen despite the firm taking another financial hit on its problem road job in Aberdeen.

In its 2018 half-year results, which were published today, the country’s biggest contractor recorded a total pre-tax profit figure of £50m for the six months to June, well up on the same time last year when it delivered £12m.

It also hit margin targets in two out of three areas with the UK construction business the only one to miss.

Its growth was once again hampered by the contractor’s Aberdeen Western Peripheral Route (AWPR) joint venture with Galliford Try, with Balfour forced to write off another £23m on the job.

Leo Quinn (pictured), group chief executive, said excluding the continuing issues on the Scottish road job, the UK construction business had recorded an improved performance.

He said: “All our businesses are now either achieving industry standard margins or on track to do so in the second half.

“It is encouraging to note that excluding AWPR, UK Construction reported a PFO [profit from operations] of £20m representing a margin of 2.1%.”

Quinn has previously told bosses at the firm’s UK construction business that margins should be 2%-3%, while its US construction business has been given a lower target of 1%-2%. Its support services business, which includes its utilities and transportation arms, has been given a target of 3%-5%.

Factoring in the financial hit from the AWPR job the firm’s UK construction business delivered a profit from operations margin of 0.5% but both the US construction business (1.1%) and support services (3.1%) met the margin targets.

The group, which was at one stage handling around 80 problem contracts, said it was is continuing to manage a small number of problem contracts through to completion, the largest of which was the AWPR project.

Quinn said: “UK Construction reported an underlying profit from operations of £5m (2017: £2m) after an underlying charge of £15m for the Aberdeen Western Peripheral Route (AWPR), which experienced schedule slippage and cost increases.

“Part of AWPR is already open to the public, with the majority of the route scheduled to open by the end of August. Completion of the one remaining bridge is expected in the autumn.”

The report said the remaining £8m of the additional £23m it has written off on the Aberdeen road job had been “recognised in non-underlying items as this reflects the additional loss that the group has incurred in fulfilling Carillion’s obligations on the contract”.

It said: “Based on completion in the autumn, the expected Balfour Beatty cash outflow on this project in 2018 is now forecast at £135m, versus the previous range of £105m to £120m”.

The job has been plagued with problems including the collapse of Carillion and poor weather.

Overall the group’s profit from operations increased from £29m in the first six months of 2017 to £60m for the same period this year, while revenue fell from £4.2bn to £3.8bn.

The UK construction business saw revenue fall to £947m from £975m in the same period last year, while the US construction arm’s revenue also contracted from £1.952bn to £1.577bn. Its profit from operations remained steady at £17m.