Balfour Beatty H1 profits rise, revenue slips

FTSE 250 infrastructure group Balfour Beatty reported a rise in first-half profit on Wednesday as its turnaround programme bears fruit and the company said it was confident of meeting its full-year expectations.

In the half year to 29 June, pre-tax profit increased to £56m from £50m, while underlying profit from operations was up by 69% to £66m. However, revenue fell 8% to £3.84bn following the managed reduction in the order book during 2017.

The company’s higher quality order book increased 11% to £12.6bn and the interim dividend was hiked 33% to 1.6p per share.

The UK construction business saw underlying profit from operations rise to £5m from £2m in the first half of 2017, following an underlying charge of £15m for the Aberdeen Western Peripheral Route, which experienced schedule slippage and cost increases.

In US construction, profit from operations was steady at £17m, while in US support services, profit from operations edged up to £17m from £16m in the same period a year ago.

Balfour said that for infrastructure investments, during phase two of its Build to Last turnaround plan, it will continue to sell assets, as appropriate, to maximise value to shareholders and invest in new opportunities.

Chief executive Leo Quinn said: "All our businesses are now either achieving industry standard margins or on track to do so in the second half. The disciplines installed under Build to Last are also enabling us to increase the order book with key infrastructure projects to translate Balfour Beatty's expert capabilities into future profitable growth.

"Given the strength of our balance sheet and the board's confidence that the group's full year earnings will meet expectations, we are raising the interim dividend by 33% and plan to repay the outstanding convertible bonds this year."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Balfour is a lesson in operational leverage. Revenues are down significantly, but good cost control means profits are soaring nonetheless.

"That’s down to CEO Leo Quinn’s demand that the group only bids for business where it thinks it can make a healthy margin. True, in an industry where the average is 2-3%, a healthy margin isn’t exactly knock out, but the difference between 0.9% last year and 1.7% this year is still a 69% increase in underlying profit and Balfour has ambitions to deliver even stronger numbers next year.

"However, the real test will be from 2019 onwards. The Build to Last strategy, which has seen the group return from the brink, calls for above average margins beyond 2019 and at the moment many divisions are still lingering at the bottom end of their target ranges. In an industry where pricing is notoriously competitive, convincing buyers that Balfour is worth a premium is a tough ask."

At 0855 BST, the shares were up 2.9% to 298.83p.