Troubled firm returns to slim profit - but construction slumps to fifth consecutive annual loss

Balfour Beatty has returned to a slim pre-tax profit of £8m for 2016 after two years of eye-watering losses.

The group had previously posted £199m and £304m pre-tax losses for 2015 and 2014 respectively.

But Balfour’s construction division - which covers the UK and US - slumped to a fifth consecutive annual operating loss of £57m, albeit pared back from the £280m operating loss the previous year.

Within this division, UK construction posted another operating loss of £64m on £1.9bn revenue, reduced from an £187m loss on £2bn revenue the previous year. However, Balfour said UK construction edged back to operating profit of £2m in the second half of 2016.

The firm - which has been dogged by problem jobs in recent years - also confirmed it had met its year-end target of practically completing 90% of its legacy jobs, with 70% reaching financial completion.

But the firm admitted it was not entirely out of the woods and that in the UK nine problem contracts remain uncompleted, which “could result in a materially positive or negative swing to profitability and cash flow” in future.

Four of these UK problem jobs are expected to practically complete this year, with the remainder in 2018.

US construction services returned to the black for 2016 with a £33m operating profit, compared to a £22m loss the previous year.

Balfour Beatty reiterated its target to hit “industry-standard margins” by the end of next year - which it said meant 2-3% in UK construction, 1-2% in US construction and 3-5% in support services.

In the UK, Balfour said it was gearing up to capitalise on a pipeline of major infrastructure work, including HS2, new nuclear power stations at Hinkley Point C and Wylfa and Heathrow expansion.

But the firm is continuing to pare back its regional business with a focus on jobs worth over £5m, and was on just 250 live jobs at the end of last year, down from 400 at the end of 2015.

The firm said it had beaten its ‘Build to Last’ turnaround targets for the end of 2016, with £439m of cash brought in to the business and £123m of cost stripped out over two years.

Overall revenue edged up to £8.7bn, up from £8.4bn. The firm’s order book was up 15% to £12.7bn.

Leo Quinn, chief executive at Balfour Beatty, said: “The transformation of Balfour Beatty is well underway. We have returned the group to profit and significantly exceeded our Build to Last Phase One targets…

“Having simplified the group, we are focused on our core markets in the UK and US, where governments are committed to large scale expenditure on infrastructure.

“All this positions us for future profitable growth. During the next two-year phase of Build to Last, we expect to achieve industry-standard margins and over the medium term, industry-leading performance.”

Construction operating profit/(loss)(£57m)(£280m)(£391m)(£34m)(£37m)£141m
Group pre-tax profit/(loss)£8m(£199m)(£304m)£32m£75m£246m
Group revenue£8.7bn£8.4bn£8.8bn£10.1bn£10.9bn£11bn