Arathy S Nair
British construction firms are taking a more sensible approach to big projects, pursuing profitability rather than growth at any price, after paper-thin margins helped derail rival Carillion, the boss of contractor Balfour Beatty has said.
Balfour posted a 69% rise in first-half profit, benefiting from lower costs and higher margin projects, choosing contracts more carefully in Britain and Ireland, the US, and the Far East as part of its long turnaround plan.
Balfour said all of its businesses are either achieving industry standard margins or are on track to do so in the second half. It expects to meet its full-year earnings expectations. Shares in Balfour rose nearly 4% before paring back.
“I think the industry has become much more measured and less fascinated with growth... The industry is far more sensible than it has ever been,” said chief executive Leo Quinn.
Mr Quinn said pricing and terms on contracts had become more sensible with one less competitor in the market place, Carillion.
Carillion collapsed in January when its banks pulled the plug, triggering Britain’s biggest corporate failure in a decade.
Balfour Beatty said it was taking measures to maintain its margins long term, as it faces growing uncertainty over Brexit and global trade tensions.
The company sees higher costs from trade wars flowing through to the supply chain and said that it would look to price some inflation into the contracts.
Underlying profit from operations at its UK construction business rose to £5m (€5.6m) from £2m, after a charge of £15m for a Scottish road project it shared with Carillion. Overall underlying operating profit rose 69% to £66m for the first six months. Revenue fell 8.5% to £3.84bn.
The company forecasts second-half revenue in line with the first.
Balfour’s order book rose 10.5% to £12.6bn at the end of the first half, largely helped by US construction wins, including a 30% share of a $2bn project at Los Angeles Airport.
While first-half margins at Balfour’s US construction and support services units were in line with the company’s margin forecast, margins at its British construction unit came in at 0.5%, well below the 2%-3% it was targeting.