Pain for Balfour’s construction arm as its order book shrinks

BALFOUR Beatty underlined some of the pressure faced by the construction sector yesterday after its biggest division unveiled a smaller order book and lower profits.

The construction services division, which has worked on high-profile projects including the Olympics Aquatics Centre and Crossrail in London, saw a nine per cent decline in its order book to £8.3m in the first half of the year as the wider marketplace continued to shrink.

The 103-year-old group said yesterday it is awaiting the result of £300m worth of schemes in the energy and waste sectors in the UK, while it hopes for continued success in student accommodation contracts. The construction sector, according to official figures, had a dismal first half, dragging the economy into the longest double-dip recession since the 1950s.

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The wider group revealed a 12 per cent rise in underlying pre-tax profits to £154m in six months to June 29. The group’s overall order book was broadly flat at £15bn in the first half, while revenues increased by six per cent to £5.5bn, including recent acquisitions.

Its professional services division, which covers project management, construction management and project design, saw broadly flat orders and revenues worth £1.6bn and £845m respectively, while its profits were up 11 per cent to £42m. The group said that while pricing in the division remains competitive, the weaker UK performance should stabilise.

The support services arm, which provides facilities management, saw strong order book growth of five per cent to £5.1bn, while revenues increased nine per cent to £828m. A number of one-off costs related to smaller contracts were behind a 60 per cent slide in profits to £10m, although this is not expected to be repeated in the second half.

In facilities management, new contracts for customers such as UK Power Networks, EDF Energy and the Olympic Park legacy company are underway. Balfour Beatty WorkPlace was selected by the London Legacy Development Corporation to manage the Olympic Park and the Orbit on a 10-year contract from 2013.

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The company moved to reassure investors as it hiked its interim dividend by six per cent to 5.6p and offered a positive outlook.

Balfour Beatty has a number of contracts across Yorkshire, including a recent £34m deal to build a waste treatment plant for Rotherham, Barnsley and Doncaster councils. The facility will treat up to 265,000 tonnes of household and business waste each year. The company is also working on gas mains in West, East and North Yorkshire on behalf of Northern Gas Networks.

Meanwhile, the business has worked with Yorkshire Water since 1994 and Balfour Beatty Utility Solutions’ head office is in Chapeltown, Sheffield, working with energy, water and telecommunications providers to help maintain utility infrastructure and assets.

Ian Tyler, chief executive, said: “We have delivered another set of solid results in challenging markets and remain on track to meet our expectations for the full year. We are making good progress on the early stages of our growth strategy in key industry verticals where our deep asset knowledge differentiates us from the competition. The increase in our interim dividend, consistent with our progressive policy, reflects our confidence that we are well-placed to take full advantage of the global growth in infrastructure markets.”

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Analysts at Panmure said that the immediate trading backdrop will stay challenging but longer term global infrastructure trends are positive, while analysts at Deutsche Bank said they were “a good set of results” and above expectations.