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Balfour Beatty deputy says no project too small in the UK

Deputy chief executive Andrew McNaughton says the firm is looking at smaller schemes post-Olympics but declined to provide further detail on UK office closures.

Balfour Beatty will continue to look at smaller projects in the UK while increasing its share of overseas revenue, Mr McNaughton said today.

Andrew McNaughton spoke to CN after Balfour Beatty revealed a 6 per cent rise in group revenue to £5.5 billion for the six months to 29 June 2012 (2011: £5.2bn).

Underlying pre-tax profit rose 12 per cent to £154 million (2011: £138m) and the firm had a £15bn order book (2011: £15.2bn).

Construction profit from operations in the first half dropped 21 per cent, from £67m to £53m, as revenue rose 7 per cent to £3.5bn.

The firm also revealed it is set to close 35 UK offices as part of the realignment of its UK construction business, which employs 12,000 people.

It will see 650 non-operational staff lose their jobs and six businesses restructured into three, with a one-off cost of between £50 and £75 million to enable annual savings of £50m.

Mr McNaughton declined to say where the UK office closures will be, describing it as a “granular” topic in terms of the company’s overall half-year performance.

The firm, which employs 50,000 people worldwide, is also targeting a “tactical cost reduction” in its support services division, which saw margins drop from 3.3 per cent to 1.2 per cent in the half-year to 29 June 2012.

Asked if the reduction could lead to a similar consultation that the UK construction division is experiencing, Mr McNaughton said “we review the businesses all the time” through a “whole suite of activities”. Commenting on whether it could mean job reductions in support services, he added: “I don’t foresee it.”

Mr McNaughton said Balfour Beatty’s UK construction business – which represents about 30 per cent of revenue – is performing well, with a 2 per cent margin expected for the full year.

The UK revenue and order book dipped slightly on the same period last year, by 2 and 3 per cent respectively.

Mr McNaughton said the firm is seeing a “slight shift in the scale and complexity of projects” in the post-Olympic period, during which Balfour Beatty delivered the Aquatics Centre.

He said parts of the company, such as Mansell, already specialise in the smaller, local schemes, adding they “don’t have a cut-off” in terms of how small they will go. Mr McNaughton said the UK realignment “does not change” that approach.

“We structure the business so that we can cover really large complex projects down to local community projects,” he said.

The deputy CEO said he expects a continued trend of rebalancing revenue towards more overseas work – including places such as Australia, the Middle East, the US and Canada – in line with a strategy that has seen a “dramatic” shift away from the UK in recent years.

“It’s difficult to see recovery and real growth coming out in the UK market any time soon. That’s a statement that’s generally held; it does not say that we have changed our commitment [to the UK] – it’s our key home market,” he said.

He welcomed moves by the UK government, which has acknowledged investment in infrastructure as a key for economic growth.

But he said initiatives such as the UK Guarantees scheme – in which Treasury could underpin £40bn-worth of infrastructure schemes – are unlikely to be the “golden nugget” for the industry.

He urged government to commit to enabling more investment in the power and energy sectors.

“The majority of power and energy investment comes from the private sector and what we really need the government to do is put the enablers in place so that the private sector will make the investment,” he said. 

“The frustrating thing is that these are things that don’t require the government to put money in.”

The deputy CEO also reiterated Balfour Beatty’s support for the UK Contracting Group’s Creating Britain’s Future campaign, and other similar movements that promote the role of construction in economic recovery, stressing that the industry needs to have skills and resources in place when the upturn comes.

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