BB 'not out of the woods yet'

Challenging conditions in UK construction and a downturn in Australia have led Balfour Beatty to report a 29% fall in underlying pre-tax profits to £203m last year.

The company had warned of a £50m shortfall in its UK construction business in April last year. But in its full year results released today, it reveals that even after this warning, a further deterioration at the end of the year resulted in an actual profit shortfall of £60m.

It says it is seeing signs of recovery in its UK construction and US business – now twice as large as the UK business.

But Balfour Beatty shares still fell by 6% in early trading, and analysts are suggesting that the company is not out of the woods yet.

Revenue, including joint ventures, increased by 2% to £10.2bn. Group revenue, excluding joint ventures, was only up 1% to £8.7bn.

The construction order book moved slightly ahead by 5% to £7.7bn, but construction margins have shrunk from 1.8% to 0.3%.

In the UK, the company has restructured its activities around major projects, regional projects and M&E. But it says that growth in the regional business has not been enough to stave off a relative scarcity of major projects –even with significant wins such as the £154m contract to transform the Olympics stadium - and a downturn in M&E.

It’s US business, in contrast, has benefited from being streamlined into three regions, and from joint working between investment and building to deliver projects such as the six-year Air Force Northern Group project.

This involves building 4,500 homes valued at $442m as well as a family and student housing project at the University of Nevada in Reno.

Gammon Construction, its joint venture in Hong Kong, has also won a string of contracts including a £720m viaduct building project that is the biggest solo civil engineering project it has ever won.

Chief executive Andrew McNaughton said: “We are seeing increasing evidence of improving conditions in some parts of our core US and UK markets, although the long cycle nature of our business means that these will take time to feed through fully in our financial performance.”

However analysts at Investec pointed out that, without an additional £7m in gains from PPP disposals, the results would have missed market expectations. They said 2014 will remain a challenging year for the company, whose stock remains a “sell” for them.

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