Balfour sticking with building despite London losses and focus on infrastructure work

Balfour Beatty has said it has no plans to get out of UK building work despite losses on problem jobs in London keeping the firm’s UK construction business in the red for the second year running.

Its UK building business accounts for around £800m of its turnover but has been hobbled in recent years by snags at several residential schemes in the capital.

It has already been forced to book a £34m hit to carry out repair work on a scheme it completed in 2016.

It declined to name the job only to say it won the deal in 2013. In June of that year, it landed a £110m scheme to build a 43-storey block called Providence Tower for Ballymore.

Chief executive Leo Quinn said it was looking to claw back some of the cost of repairs from subcontractors and added that three other fixed-price schemes in the middle of capital, one which finished last November with the remaining two due to wrap up this year, had been plagued with rising materials and labour costs.

Problems at these jobs helped send the UK construction division to a £2m loss, down from a £26m loss last time, on revenue up 18% to £2.6bn.

Quinn appeared to put a question mark over building’s future at the country’s biggest contractor when he said: “We are very focused on infrastructure. Our core capability and competency is in that area, very large infrastructure projects.”

Asked if this meant the firm was planning to pull the plug on building, Quinn said: “Not at all. It is a good business when managed and led correctly.”

Quinn said the firm had found itself carrying out work in London as a result of legacy deals such as its move for Mansell nearly 20 years ago. “At Balfour Beatty, there’s always been this desire to get into London that stems from Mansell.”

It’s current infrastructure jobs include the HS2 railway, Hinkley Point C and several road schemes.

“There is a decade of infrastructure growth coming up and we are superbly positioned for the 2030s,” Quinn added.

The firm has no work in Russia or Ukraine but Quinn said the war in Ukraine would inevitably see energy prices head north. “It is beyond belief that something like that [the war] is happening in this day and age.

“Anything oil-based will go up. Inflation is one of the big worries at the moment. It is moving so rapidly. There are not too many people in the industry who remember the inflation of the 70s but we have to take a responsible approach to hyperinflation. Companies can absorb 1 or 2% but when it’s 10, 20, 30% that is beyond reasonable.”

Balfour Beatty, which confirmed it paid back last year the £19m of furlough money it claimed from the government during the pandemic, said the final cost of its deal with the US Department for Justice after pleading guilty to fraud on a housing maintenance contract for the US military would be £34m.

Group revenue slipped 4% last year to £8.3bn but pre-tax profit nearly doubled from £48m to £87m.