Balfour Beatty’s construction business suffers
By Helen Wright08 March 2012
Despite seeing an overall year-on-year rise in group profit and revenues for 2011, Balfour Beatty's construction services division was hit by tough market conditions last year.
The UK-based contractor said operating profit at its construction services business dropped 16% year-on-year to £169 million (€202 million) while the order book declined by 8% to £8.5 billion (€10.2 billion).
Performance was impacted by a reduction in public spending as well as low volumes in commercial property development in Balfour Beatty's major markets. Nevertheless, construction services revenue grew by 5% to £7.1 billion (€8.5 billion) for the year, reflecting good growth in Hong Kong, but partly offset by a 1% decline in revenues from the UK, particularly in civil infrastructure.
Balfour Beatty grew its construction presence in the US in 2011 with the acquisitions of contractors HSW and Fru-Con, and said it could now compete from a position of strength in the country as one of only a few players with national capability.
Nevertheless, the company said it expected the reduction in its US margin to continue in 2012. "Given the increasing proportion of our business from the US, this will reduce the overall margin for construction services," it said.
Public spending cuts
Balfour Beatty also forecast that public sector spending would be likely to continue shrinking in many developed countries this year, and said it would look for growth in the regulated and private sectors as well as economies where governments are spending on infrastructure to support their economic development.
In the UK, the contractor said it was pursuing growth particularly in the power, rail and commercial sectors. In Hong Kong, meanwhile, Balfour Beatty said it expected the public sector infrastructure market to remain strong, but the private building market would remain subdued.
Overall, Balfour Beatty reported a 10% rise in group profit from continuing operations to £243 million (€291 million) for 2011 after a strong performance at the infrastructure investments division, as well as growth in support services and professional services, offset the weak construction services results.
The infrastructure investments division - which deals with Balfour Beatty's public-private partnership (PPP) investments - reported a sharp rise in profit from continuing operations to £43 million (€51 million), compared to £12 million (€14 million) in 2010 after the company sold some mature assets.
Balfour Beatty said it would continue to accelerate its PPP disposal programme in 2012.