Balfour Beatty will report its full-year results for 2016 on Thursday. But what will competitors and investors be looking for in the figures?
Here we pick out five areas of interests:
Chief executive Leo Quinn has been overseeing a much-needed turnaround at the construction giant since he was parachuted in at the start of 2015.
Prior to his return to the business where he started his career, Balfour suffered a slew of high-profile profit warnings and management exits.
It was partly weighed down by problematic acquisitions and regional offices shedding money.
Mr Quinn’s plan – launched in February 2015 and dubbed Build to Last – has involved cutting £100m of costs by simplifying the group, including streamlining IT systems to allow tighter controls on contracts.
Phase one of Build to Last appeared to work for Balfour, with the publication of its half-year results in August 2016 seeing the firm reinstate its dividend and record an underlying profit from continuing operations.
In the UK the company’s order book increased 11 per cent to £2.1bn – its first growth since 2013. This was helped by jobs including a £170m contract to upgrade baggage screening and handling systems for Heathrow Airport.
Mr Quinn’s target was ’£200m cash in, £100m costs out’, which the company expects to have achieved in the full-year.
But his work is not yet done.
Mr Quinn, who was previously group chief executive of defence research group Qinetiq, remains focused on bringing the firm’s margins up to “industry standard”. Any update on margins will draw significant attention.
Profitability in the UK
“If they have been able to move to profit in the UK, that’s a good sign,” says Peel Hunt analyst Andrew Nussey.
Balfour Beatty recorded a £66m loss in UK construction in the first half of 2016. The group’s total loss on these shores in 2015 was £195m, an improvement on 2014’s loss of £317m.
Mr Quinn’s efforts to tackle UK issues are expected to show further progress within the latest results this week.
In January, Liberum said: “Management still expects 90 per cent of the historical problem contracts to be resolved by the full-year.” The analyst is forecasting a group operating loss of £32m for Balfour’s construction services unit – which includes work in the US, the Middle East and elsewhere – compared with losses of £229m in 2015.
Having sold multiple PPP assets in recent years, it will be interesting to note whether the balance sheet is shored up enough to look at new PF2 opportunities as they emerge.
The future of EfW
Its partnership with Spanish waste firm Urbaser means it is currently signed up to two multi-million-pound long-term design, build, finance and operate contracts on EfW projects in Gloucestershire and Essex.
The Essex contract is worth £800m and has a 25-year life but has been beset by commissioning delays, while construction started on the Gloucestershire job in November after a number of challenges by local groups.
The company’s investment arm has also put money into two other energy-from-waste plants: a £17m stake in the £52m Welland Waste Wood plant in Northamptonshire as well as a stake in the £48m Birmingham Bio Power plant.
Neither plant Balfour is constructing uses the challenging gasification technology that was used on Interserve’s Glasgow plant.
Nevertheless, the EfW market is notoriously tricky. With contractors often liable for faulty technology or the plants not producing enough electricity or gas, there are a number of potential pitfalls.
At its half-year results last August, Mr Quinn said the company had seen “little sign” of an impact from the Brexit vote.
Like many FTSE-250 listed firms, Balfour’s share price took a hit in the immediate aftermath of the referendum – but it recovered within two months and has pushed on from there.
Figures last week revealed that construction output was up 2 per cent in January compared with the same month last year.
But Scape chief executive Mark Robinson has warned: “Brexit will create bumps in the road ahead, especially in the form of increasing costs, skills shortages and general uncertainty.”
Balfour would be affected like any other business by these factors, so look out for any comment on the knock-on effects of the referendum with Article 50 set to be triggered this month.
The Trump effect?
Balfour’s US arm is expected to have remained profitable.
But as Liberum analysts noted: “The challenge is to increase margins towards the group target of 2-3 per cent, given the lower risks.”
They added: “Balfour is more interested in the more complex civils and building works where they have experience and expertise such as hospitals and roads. Balfour will also focus on the regions where they are strongest, namely Florida, southern California and Texas.”
Focus on the US, and UK, will no doubt have increased since Balfour last month announced it was offloading its Middle East joint ventures for £11m.
In the US, Balfour – like its rival Mace – will be hoping to capitalise on President Trump’s $1tn infrastructure plans.