Balfour Beatty is on the look-out to invest in new UK schemes after a “disappointing” 2013, according to UK chief executive Nick Pollard.
UK construction performance was highlighted in the group’s 2013 results as having dragged down its performance, and Mr Pollard admitted it had underperformed.
“It’s a disappointing year for us in terms of results, 2013, but we’ve known that,” he said.
“It’s not up to our usual standards and there have been two difficult areas: UK construction and Australia. It’s a real shame because when you look at the US, Middle East or Hong Kong it’s been going gangbusters.
“That was 2013; thankfully, it’s behind us.”
He spoke to Construction News after Balfour Beatty revealed it had recorded pre-tax profits of £32m last year, down from £147m in 2012 – a fall of 78 per cent.
Asked whether the UK market would affect the group’s ability to invest in schemes, Mr Pollard insisted the group would be “delighted to provide more” like its £110m student accommodation project at Holyrood, in which it invested 100 per cent of the equity.
“We have been taking every advantage in the UK where we can,” he said. “We’re a strong investor and have invested in land for housing schemes and new plant and equipment for ground engineering; we will continue to invest when we see good opportunities.”
Mr Pollard said payment terms were not always consistent between clients, contractors and their supply chains, but that it was “not the job of tier one contractors to become bankers”.
“We have been at the forefront of trying to pay suppliers much faster than 30 days, so that they can get paid the day after they get their approved invoice,” he said.
“The difficulty is not all clients want to be on that basis, and it’s not really the job of tier one contractors to become bankers and lend money – you need the whole chain to move.
“I’ll be delighted to see the Balfour Beatty Engineering Services business enjoying faster payment terms because they’re tier two.”
The group issued a £50m profit warning in April 2013, but said its work in M&E through BBES had further dragged down performance by around £10m.
The group said: “While we have seen a better than anticipated turnaround in the regional business, there was weaker financial performance on selected major projects in the building sector.
“In our mechanical and electrical engineering business, where we predominantly act as a subcontractor, financial performance in the final quarter was adversely impacted by increasingly difficult market conditions.
“The impact of these further deteriorations resulted in an overall £60m reduction in profitability versus expectations at the start of the year.”
Mr Pollard said the group was being “particularly selective with the customers we want to do business with” as some clients were continuing to promote adversarial working conditions.
He said: “The customer base is incredibly varied. You can find some who are really intelligent and recognise that by collaborating and working together early doors, they can gain a much bigger return on investment and neither party has to take particularly big risks.
“Others think that by imposing ridiculously onerous, punative commercial terms they’re absolving themselves of risk and yet history shows it’s the opposite – it generates adversarial behaviour in industry and doesn’t add value to customers.
“Some say they are the first one and turn out to be the second when you read the documents. So we are being particularly selective with the customers we want to do business with.”
The group’s underlying profit from continuing operations fell to £21m in 2013 from £119m in 2012, with the group putting the decline primarily down to the UK business.
Balfour Beatty has made several personnel changes in the last 18 months, including UK chief executive Nick Pollard’s first major restructure in November 2013.
Analysts Liberum Capital called the 2013 results and trading update “reassuring”.
It said: “We expect that 2013 will represent peak debt and trough earnings.
“The construction outlook is improving and that should drive earnings growth (2014 margin construction margin estimate of 1 per cent) and balance sheet repair.
“The order book is now stable at £13.4bn (£13.5bn) excluding discontinueds.”
Restructuring costs of £32m were incurred (2012: £62m) relating to: Construction Services UK £14m (2012: £34m); Support Services UK £5m (2012: £5m); other UK entities £7m (2012: £10m).
Discussions with potential buyers for its German rail business are continuing, as the group wraps up its exit from European mainland rail services.
Its board has recommended a final dividend of 8.5p in respect of 2013. This is in line with 2012’s final dividend and results in an unchanged full-year dividend of 14.1p.
Including the impact of exchange, negative working capital fell from £665m at the end of 2012 to £550m at the end of 2013. Of this decrease of £115m, the biggest component was £75m in Construction Services.
It said this was largely due to changes in the mix of business, away from larger more complex projects, which have the potential for more favourable terms, to smaller projects.
It expects to receive a £10m settlement in a longstanding contract dispute in Professional Services in 2014.