Balfour Beatty boss bearish after 'awful' year

Balfour Beatty’s UK construction boss has said he expects the firm to return to “gentle” growth this year after an “awful” 2013 that saw the business take a £60m hit to its profit.

Speaking to Building after Balfour Beatty published its results for the year to 31 December 2013, Balfour Beatty Construction Services UK chief executive Nick Pollard, described 2013 as a “disappointing” year, but insisted the business was on track to return to “gentle” growth in 2014 and improved profitability.

In its results, Balfour Beatty’s global construction business posted revenue of £6.6bn, marginally up on £6.5bn last year - with revenue in the US (£2.9bn) overtaking revenue in the UK (£2.8bn) for the first time.

However, after taking into account £55m in restructuring and finance costs, the construction business posted an operating loss of £34m, down from an operating profit of £58m in 2012.

After striping out those costs, the firm posted an underlying operating profit of £21m, down 82% on £119m the previous year.

Balfour Beatty said the decline was “mostly due to the performance of the UK business”, which saw a 12% fall in revenue to £2.8bn, and profit falling £60m short of expectations - £10m more than the firm indicated in a profit warning last April.

Pollard said “all of” the additional £10m shortfall was due to underperformance in the firm’s M&E business Balfour Beatty Engineering Services, where “workloads are slower to pick up and the market is remaining incredibly tight”.

He said he expected to see a pick up in work in the M&E business this year.

He said the firm’s regional construction business - where the vast majority of the £50m profit shortfall announced last year was located - had begun to “turn around” on the back of the recovery in the housing market, with the firm picking up housing-related work , such as roads, utilities, sewers and small-scale retail schemes.

However, Pollard said the firm’s major projects business was taking longer to recover: “The market is still slow, there’s not a huge pipeline of major schemes in the UK, therefore that takes longer to work its way through … It takes a long time for major jobs to come to book. There’s not that many to hand.”

Last year Balfour Beatty predicted that revenue in the UK construction business would fall 20% to around £2.6bn in 2013 - down from £3.2bn in 2012 - with revenue then beginning to grow again by around 5% from 2014.

Pollard said the fact that revenue declined by 12% to £2.8bn, rather than the forecast 20%, showed the business had bid for too many jobs during the downturn.

He said: “Maybe it should have gone down [20%] and maybe the business shouldn’t have bid as hard or as tight or as low on some of the work that it did in the past.

“Last year we worked through the tail end of a number of jobs that were clearly bid too cheaply - at the wrong price.

“That has probably helped keep revenue up. Maybe the 20% forecast a year ago was where the business should have been.”

Pollard said he did expect revenue growth to return this year, but said it would be “very gentle” and that he expected a “slight” improvement in margins.

He said: “I think we will see gentle return of the market in the regional business and M&E and I think we will see opportunities coming through to bid in 2014 in major projects and an increasing number towards the end of the year and I think that business will pick up in 2015.”

“I’m quietly confident that we will see gentle growth.”

“We’re righted and are on a good path. The first half was when we saw an awful performance. The performance in the second half of the year was significantly better than the first half.”

“We’ve had a tough year, everybody knew it was a tough year, we’ve diagnosed what the problems were and we’ve been busy curing them.”