Specialist projects becoming harder to find, warns Balfour

The company said lower levels of construction activity in the two countries will hit its short-term performance with revenues growth likely to be “constrained”.

The group, which recently built the Aquatics Centre for the Olympics and the Hindhead tunnel on the A3, added that specialist projects such as these are also becoming harder to find.

In Yorkshire, the company has three offices in Leeds, Tadcaster and Wakefield employing over 1,200 staff.

The group is working on a £249m contract at Pinderfields Hospital in Wakefield to deliver a new acute inpatient hospital on the existing Pinderfields Hospital site as well as a £9.2m contract for a new education and training centre for Mid Yorkshire Hospital NHS Trust staff.

It is also working an £87.5m contract for three academy schools in Hull for Hull City Council.

The group won a £10.3m contract for the first phase of the Doncaster Gateway project, which will see a new carriageway built between the Potteric Carr and Ladybank roundabouts south of Doncaster, with a new highway bridge over the East Coast Main Line.

Contractors across the UK are facing a sluggish recovery, dragged down by austerity measures and civil spending cuts at home and abroad.

Balfour repeated that it sees a recovery in the medium term, but there will be further pain in the short term.

Chief executive Ian Tyler said: “Looking ahead, we will continue to manage the business on the basis that market conditions will remain tough.”

He added: “We expect recovery in our markets in the medium term and we have positioned ourselves to take advantage of the growing demand longer-term for infrastructure across the globe.”

Balfour’s construction division posted flat revenues of £3.27bn in the half year to June, out of a group total up one per cent at £5.2bn.

Profits from construction also fell, by 15 per cent to £67m, but were offset by more than doubled profits from Balfour’s infrastructure investment arm following the sale of a stake in road building group Connect A50.

Underlying profits rose by four per cent to £138m, but pre-tax profits fell nine per cent to £91m after £47m of write-offs.

Balfour, which operates in 80 countries, said the impact of the UK’s comprehensive spending review was evident in its order book. Orders overall rose by six per cent to £15.5bn, but this included the workload of recent acquisition Howard S Wright for the first time, US construction business picked up last year and support services contracts won earlier in 2011.

Mr Tyler said: “In terms of how that order book is topped up over the next couple of years, we are quite simply in markets where we are going to have to pedal quite hard.”

Contractors are slashing costs to offset sluggish growth, and raising costs, driven by soaring commodity prices.

To offset the sluggish UK and US, the group is switching its focus to healthier markets such as Australia, while it has also opened its first office in India.

Cost cutting introduced in 2010 has also “proved timely”, the group said, and added it is on track to meet its £30m savings target by 2013. Howard Seymour, an analyst at broker Numis, said he would downgrade his estimates for 2012 because of the uncertainty in the US, even though the underlying profits were broadly in line with forecasts.

Richard Curr, head of dealing at Prime Markets, said: “The half-year statement today provides little comfort or visibility, citing the impact of the reduction in government spending on the UK order book and delays and the lack of bank financing in US commercial markets.”

Balfour Beatty was founded by George Balfour, a Scots mechanical engineer, and Andrew Beatty, an English chartered accountant, in 1909. In Edwardian times, the company described itself as “general and electrical engineers, contractors, operating managers for tramways, railways and lighting properties and for the promoting of new enterprises”.

Picking up the contracts

Balfour Beatty Engineering Services has won a number of contracts in Yorkshire, aside from the projects it is undertaking for Hull City Council, Pinderfields Hospital, and Doncaster Council.

Earlier this year, it was awarded a £4m commercial contact by Morgan Sindall for the new civic offices development in Wakefield city centre and a £4.6m mechanical and electrical contract for three campus blocks at Leeds University.

In Harrogate, the group is working on a £2.5m contract for a new police station in Cardale Park and it has also won a contract to refurbish the five-storey office block, George Stephenson House, in York.