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Balfour treads the new path

Binyamin Ali

There’s one thing subcontractors and journalists have very much in common: we’re both on the lookout for tell-tale signs of trouble among main contractors.

Subbies of course need to know who’s in trouble when deciding who they work for, while journalists need to keep their finger on the pulse to bring readers fresh news and insight.

In the case of Bristol-based contractor Ikon Construction, which entered administration earlier this year, one of the tell-tale signs of its impending demise was unsustainable revenue growth.

As Jack Simpson wrote on Monday, rapid revenue growth fuelled by bigger and more risky jobs is a well-trodden path to administration.

But what does it mean if a heavyweight contractor moves in completely the opposite direction, shrinking its revenue and becoming more selective with jobs?

Is this the path less-trodden (or less publicised) that leads to a secure and sustainable business?

In the case of Balfour Beatty, it just might be.

The company’s half-year results published today show revenue down from £3.54bn to £3.22bn while pre-tax profit shot up from £12m to £50m, giving it a pre-tax margin of 1.6 per cent.

It’s not the only major firm to recently announce reduced revenues, with NG Bailey joining the trend in its latest accounts.

Having recorded its best annual results for five years in 2017, Balfour has used its increasingly healthy financial position to pay down more than £35m of US loans – and says it plans to repay a further £214m of borrowing by the end of the year.

The finances of the UK’s largest contractor are a far cry from where they were three years ago, with an overall operating loss of £106m posted for 2015 – dragged down by construction losses of £229m.

The only significant blot on the company’s latest books appears to be a £23m loss on the troubled Aberdeen Western Peripheral Route, which Balfour is completing with JV partner Galliford Try.

However, while half-year revenue may be down, Balfour’s global order book grew to £12.6bn as of 30 June – up from £11.4bn a year earlier.

On the face of it, this doesn’t sit very comfortably with the theory that taking on fewer jobs makes for sustainable contracting, though Balfour may argue that these fresh deals have more acceptable risk profiles.

For now, Balfour appears to be applying one of the biggest lessons to emerge from the collapse of Carillion: that simply increasing your revenue is no guarantee of success.

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