UK construction boss says there will be “no more nasty shocks” after business posts £35m operating loss in first half of the year

Nick Pollard

Balfour Beatty’s UK construction boss has said the business is on track to break even this year, after posting a £35m loss in the first half of the year.

Speaking to Building after Balfour Beatty posted its results for the six months to 28 June 2013, Balfour Beatty Construction Services UK chief executive Nick Pollard said the business was on track to post a strong performance in the second half of the year, after a difficult first half that saw the firm issue a £50m profit warning in April due to problems across a number of contracts in its regional and major projects divisions.

Balfour Beatty’s UK construction business posted an operating loss of £35m in the first half of the year, largely due to a £45m write down as a result of the problem contracts identified in April.

This contributed to a £41m operating loss in Balfour Beatty’s £3.2bn turnover global construction business.

However, the UK construction business expects a much stronger performance in the second half of the year, with the business targeting an operating profit of £32m, which will help it to broadly break even at year end.

The performance over the second half will be impacted by a £5m write down on the problem contracts, which is has been carried over from the £50m hit identified in April, which will be offset by a £7m in savings from overheads, which come as part of the firm’s ongoing cost reductions.

Pollard said the firm had taken a “hit” in the first half of the year, but said it was now in “good shape”.

He said: “The business held up its hand - it said we’ve not done this well, we’re taking the hit and we’re busy getting back on board and paddling hard through the second half.

“It’s a tough paddle but it’s a tough market.

“The second half improvement comes essentially from not having anymore unexpected losses - it is as crude and simple as that to tell you the truth.

“The overheads are gently falling and that was always planned … and long may it continue as we get slicker and more efficient.

“The critical part is there are no more big nasty shocks that come through to damage the business.

“Bar anything that’s really unforeseen, we’re confident about our projects. There are some difficult projects that we must deliver on between now and the year end and we just need to get on and deliver and execute those properly.

The UK consturction business incurred £9m of restructuring costs over the first half of the year, a result of the firm’s ongoing restructure and the closure of a number of regional offices.

But Pollard said the business was now focused on improving operational delivery, rather than internal restructuring or office closures.

“The plans are in train, and I can see the business visibly strengthening and that journey will continue,” he said.

Balfour Beatty half-year results - at a glance

  • Balfour Beatty Group reported a pre-tax loss of £6m, down from a profit of £92m for the same period last year
  • Group revenue, including shares of joint ventures, fell 3% to £4.97bn, of which £2.29bn (46%) was from the UK; £1.94bn from the US (39%); and £745m from Australia (15%)
  • The global construction division reported revenue of £3.2bn, including share of joint ventures, down 6% on the same period last year, with an operating loss of £41m, largely due to a £35m operating loss in the UK construction business
  • Revenue in the UK construction business was down 16% to £1.39bn. UK construction revenue is now broadly similar to US construction revenue, which rose 5% to £1.37bn
  • The global construction services order book rose 9% to £8bn from the end of 2012. However the UK order book fell by 6% over the first half of the year to £2.7bn, considerably less than the US construction services order book, which rose 15% to £3.5bn
  • The group incurred £32m in restructuring costs over the first half of the year, of which £17m was focused on the UK, including £9m on the restructure of the UK construction business. The £32m included £20m of redundancy costs. This followed £59m of restructuring costs over 2012, of which £34m was focused on the UK construction business.