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Balfour Beatty profits up 9pc despite fall in UK construction

Balfour Beatty saw profits rise by nine per cent in 2011 as overseas and support service work mitigated a weaker UK construction market.

Group pre tax profits for the year ended 31 December 2011 were up to £334m (2010: £306m) while revenue, including joint ventures, rose 5 per cent to £11 billion (£10.5bn). The contractor has a group order book of £15.2bn and £340m net cash.

Construction profit margin fell from 3 per cent to 2.4 per cent. Profit from operations dropped from £201m to £169m, while revenue increased from £6.7bn to £7.1bn.  The order book dropped from £9.2bn to £8.5bn.

In the UK the firm said the market remained competitive - particularly in health and education - public spending fell and there was a drop in commercial development. It said its average project sizes were smaller than previous years. It reported a 1 per cent decline in UK revenue, particularly in civil infrastructure.

It said:  “In this difficult environment, margins in UK construction held up reasonably well at 2010 levels.

“This performance was helped by the cost reduction initiatives we have been implementing in back office and procurement in parts of the UK business. Our rail business had a solid performance overall, although a small number of projects in Germany and Scandinavia held back overall profitability.”

Year highlights included handing over the Olympic Aquatics Centre and the A3 Hindhead road project as well as 42 education projects across the UK and four hospitals.

Balfour said it is pursuing UK growth in the power, rail and commercial sectors, along with public sector opportunities such as the Priority Schools programme, which is being procured through the private finance iniatiative.

Support services profit increased from £62m to £67m on £1.58bn of revenue (2010: £1.44bn), providing a 4.2 per cent margin (2010: 4.3 per cent).

Professional services – which includes US division Parsons Brinckerhoff – saw margins hold at 5.3 per cent, with £87m of profit on £1.65bn revenue (2010: £85m, on £1.61bn). This was despite a drop in UK consultancy work.

Chief executive Ian Tyler said:  “We delivered a strong performance in 2011, made further progress towards the delivery of our strategy and demonstrated the diversity, flexibility and resilience of our business. We are excited by the opportunities in growth sectors such as rail and power and growth markets like Australia, Canada and India.

“Our ongoing programmes to achieve cost efficiency and to recycle capital in our investments business were successful in 2011, and we plan to accelerate them. We have confidence that these programmes will underpin performance. This should ensure that we make progress in 2012.”

The group made £15m of efficiency savings in 2011, focusing on back room staff and procurement costs. It plans to make another £50m over the next three years.

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