News Column

Balfour Beatty To Offset Engineering Services Weakness With Project Sales

July 3, 2014

Steve McGrath

LONDON (Alliance News) - Construction and infrastructure company Balfour Beatty PLC Thursday said it still expects its pretax profit to be between GBP145 million and GBP160 million in 2014, even though trading has worsened in the mechanical and electrical engineering part of its UK construction business.

In a trading statement, Balfour said the deterioration amounts to a GBP35 million profit shortfall, but it expects to offset this from gains on disposals from its public-private partnerships portfolio in the second half of the year.

The full-year pretax profit guidance remains the same as it gave when it put out a first quarter trading statement in early May.

"As previously highlighted we are on a 12-18 month programme to restore our UK construction business to a firm footing. Whilst the regional and major projects businesses, which comprise 90% of the UK construction business, are on track and continue to perform in line with our expectations, there has been further deterioration in the engineering services business," it said in Thursday's statement.

It said it identified the new profit shortfall in engineering services business as it was reviewing the projects in the business with a view to strengthening management control. It said that GBP30 million relates to a small number of existing contracts, mainly in London, including GBP20 million from a further deterioration in projects it had already highlighted and GBP10 million due to issues on other contracts.

"A number of factors have contributed to this further deterioration. These include design changes, project delays, rework on projects and contractual disputes on a number of projects," it said.

The remaining GBP5 million shortfall results from a low order intake and lower revenue expectations, it said.

"Given these issues, we are reviewing the size and geographic footprint of the business with the aim of ensuring a smaller, more focussed business. In central London, engineering services will only be working with group companies where it can influence design and add value for customers," it said.

Balfour said that its US Construction business is continuing to perform well and in line with its expectations, while in the Middle East, progressively improving conditions in the Dubai construction market are being offset by continuing challenging conditions in the M&E market.

The market in Hong Kong continues to be strong, although the long term nature of recent project wins and delays to a small number of existing projects mean it will take time for these to feed through into financial performance, it said.

Its support services unit is trading in line with expectations, driven by highways services contracts and rail renewals activities. It is also doing well in the current framework competitions in the utilities sector, Balfour said.

Its infrastructure investments business is continuing with its PPP concession disposal programme, and has achieved gains of GBP51 million in the year to date.

"Given this very strong performance and the continuing favourable secondary market for infrastructure assets we are targeting further PPP disposals in the second half of 2014. Full year PPP disposal profits will be broadly in line with those achieved in the full-year 2013. Recognising the strength of the secondary market we are also intending to increase the directors' valuation at the half year," it said.

The company added that its professional services has also performed well and in line with its expectations. In May, it had announced it would evaluate options for the possible sale of Parsons Brinckerhoff. Thursday, it said a competitive sales process is now fully underway and "proceeding in accordance with the board's expectations".

Balfour said its overall order book remains broadly unchanged from GBP12.9 billion at the end of the first quarter. Its average net debt for the first half of 2014 was slightly higher than expectations at GBP420 million.

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Source: Alliance News

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