Balfour Beatty retains faith in turnround drive as losses narrow

Balfour Beatty, the construction and infrastructure group that built the Channel tunnel and the Docklands Light Railway, has narrowed its losses and said it remained confident that a turnround programme was on track.

Britain’s largest building company by sales reported revenue of £8.44bn in the year to December, compared with £8.79bn in 2014. Pre-tax losses slid from £304m a year earlier to £199m.

Leo Quinn, who joined last March to rescue the business following a calamitous two years, is halfway through a two-year turnround programme called “Build To Last”. The dividend, scrapped last year, is expected to be restored this summer.

Balfour, which employs 34,000 staff worldwide, has been reviewing its lossmaking contracts in Britain, the US and the Middle East and expects 90 per cent of these to be completed by the end of the year.

”If you look under the bonnet, you’ll see we’ve made strong progress in stabilising the business,” said Mr Quinn. “We’re confident we’re winning contracts at better terms.”

The builder had mismanaged contracts won at rock-bottom prices in the wake of the recession and was forced to issue seven profit warnings in two years, as well as fend off two takeover approaches, including from rival Carillion.

It has shed more than 850 administrative jobs as part of a cost-cutting drive that helped to deliver annualised savings of £60m. The company has also cancelled a share buyback and reorganised its pension fund payments to strengthen its balance sheet, ending the year with £163m net cash.

Balfour’s order book fell by £400m to £11bn but the company said it had infrastructure opportunities in the UK, Hong Kong and the US, including the £300bn new highways budget in North America.

In the UK, orders slid by 17 per cent as it became more selective about new work. But deals won included a £25m contract to build an onshore wind farm substation. The farm, which is to be constructed by Dong Energy off the Yorkshire coast, will eventually power 1m homes.

Balfour has also secured a £416m contract to build the western section of the new £4.2bn London supersewer under the Thames river from Ealing to Hammersmith in a consortium with Morgan Sindall.

Stephen Rawlinson, analyst at Applied Value, said the fact that the company was on track to achieve industry level margins this year demonstrated the “medicine is working”.

Analysts at Numis said: “UK losses were always going to be the key feature of results, but we believe the tangible management progress on costs and cash performance set the scene for movement back to profit in 2016. We contend that the majority of legacy issues will be eliminated this year.”

The shares closed down 3.8 per cent to 249.5p.