Operations boss deems significant market upturn ‘highly unlikely’ for 2012

Contractor Balfour Beatty expects the UK construction market to remain sluggish over the next year and has not ruled out further restructuring as part of a drive to find £50m in annual savings.

Andrew McNaughton, Balfour Beatty’s chief operating officer, said there were “no signs” that difficult conditions in the UK were easing or the economy was growing and it was “highly unlikely that we are going to see significant upturn in 2012”.

Speaking to Building after the firm posted its latest financial results, McNaughton said the firm expected its construction profit margins, which fell from 3% to 2.4% from 2010 to 2011, would fall further this year, bottoming out at about 2% in a “competitive environment”.

He said: “I don’t see there’s going to be an upturn in 2012. Is it going to be in 2013? Possibly. But there is no one thing you can hang on and say there’s a real sign that things are growing.”

Balfour Beatty’s construction arm was the only part of the business not to see a rise in profits last year, with the firm pointing to lower public spending and a highly competitive market eroding margins.

The results for the year ended 31 December 2011 showed operating profit for its construction arm fell 16% compared with the previous year to £169m, with a fall in the firm’s order book for construction from £9.2bn in 2010 to £8.5bn last year.

However, revenue across the firm’s construction arm was up 5% to £7.05bn.

Overall, Balfour Beatty’s pre-tax profit rose 22% to £246m on the back of a strong performance from the professional and support service businesses. Revenue across the group was also up 5% to £11bn.

The firm said it would seek to find £50m in annual efficiency savings across the group by 2015 and McNaughton said the firm was looking at further restructuring within the UK, following the creation of a centralised back office in Newcastle. He did not rule out merging divisions or reducing reporting lines across the firm’s UK operations.

“We’re inevitably looking at how we can drive more efficiencies. It’s hugely understandable that people are saying there’s a restructure going on. Well yeah, you know, it’s something we are always looking at,” he said.

McNaughton said the firm would focus on continuing to grow its infrastructure business, with a focus on energy, waste and rail.

Asked if the firm would follow rival contractor Morgan Sindall’s move and merge its construction and civils arms, McNaughton said: “We’re not going to follow anyone. We’ll do what’s right for our business. Do we reduce reporting lines? Well, businesses change, businesses move. But we’re not going to follow Morgan Sindall.”