Balfour benefits from big portfolio

The UK's biggest construction firm reported a year of growing profits and revenues and said despite ongoing economic uncertainty, the breadth of its workload gives it confidence.

Balfour is working on a range of projects across Yorkshire including the 311m revamp of hospitals in Wakefield and Pontefract for the Mid Yorkshire Hospitals NHS Trust. It is also upgrading motorways across the region, including the M62 between Halifax and Leeds.

Despite the threat of spending cuts following the general election, Balfour said UK public sector spending now accounts for just under a quarter of sales.

"I see a real opportunity, the government is going to have to look for private sector funding increasingly," said chief executive Ian Tyler.

"There is going to be a growth in infrastructure spend, the only question is where it's going to be funded from."

Balfour beat expectations by reporting a seven per cent increase in underlying pre-tax profit to 267m from 249m in 2008. This was ahead of analysts' forecast for 266m profit. Including joint ventures, revenues were up nine per cent to 10.3bn.

Balfour said its 14.1bn order book, which has grown 10 per cent year-on-year, gives it good visibility. The group's profits were boosted by growth in its construction, infrastructure investments and support services divisions.

Mr Tyler added support services will grow by 15 to 20 per cent over the next couple of years while transportation spend in the UK will continue to expand.

"The breadth of our portfolio means our business is resilient," said Mr Tyler. "In spite of economic uncertainty, we remain confident about the prospects of the group."

He added customers increasingly seek out infrastructure firms such as Balfour which work across the skills spectrum, to reduce risk.

Balfour has also positioned itself to benefit from the US stimulus spend in 2010 and global growth, shielding it from shrinking public spending in the UK. Almost a third of its revenues now come from the US.

It bought US project management firm Parsons Brinckerhoff for $626m last year to accelerate its aim of becoming a global infrastructure services business.

Balfour also bolstered its Yorkshire presence with a 10.3m takeover of Strata Construction last year. Doncaster-based Strata, a mostly family-owned firm founded 90 years ago, specialises in affordable housing work.

The group recommended a final dividend of 7.2p, up eight per cent on a year earlier.

Analysts said concerns about public spending cuts in the UK are fully reflected in its share price.

"The solid results... and bullish outlook for the coming year underscores the value in the shares," said Charlie Menegatos, senior trader at Accendo Markets.

"It seems the market is paying insufficient attention to the diversity, clarity, longevity and quality of the future earnings," said analysts at FinnCap.

A vital role in landmark projects

Balfour Beatty is working on a range of projects across Yorkshire.

It recently completed a 62m contract at Pontefract Hospital to provide a new diagnostic and treatment unit featuring 33 departments, 66 beds and 581 car parking spaces.

It is also involved in a 249m contract at Pinderfields Hospital in Wakefield to deliver a new acute inpatient hospital on the existing Pinderfields Hospital site. This project will house 46 departments, 708 beds, 1,839 car park spaces and a standalone new build pathology building. The first phase completes in May, and the second in December.

Balfour is also working on the Humber Flood Prevention Strategy contract for the Environmental Agency. The 22m contract includes seven flood defence schemes to provide improved protection for 40,000 people in the Humber area.

It is doing asset management work for the Highways Agency on the M62 between Halifax and Leeds under a 28m deal.

The group is also upgrading Bradford's parks in a 15m deal, and building an education centre at Pinderfields Hospital in a 10m contract.