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Balfour Beatty predicts continued shift from major infrastructure

Balfour Beatty will continue to shift its business mix away from major infrastructure into regional work, the firm said this week, due to a “weak” visible pipeline.

The firm said: “In the major projects business, there continues to be an absence of large infrastructure projects.

“The visible pipeline looks weak, and we see little prospect for change in the next couple of years. We therefore anticipate a continuing shift in our business mix away from major infrastructure and into regional work.”

This came despite Construction News revealing its joint venture with Bam Nuttall and Morgan Sindall had been shortlisted for all three sections of the Thames Tideway Tunnel – contracts which could be worth up to £2.3bn.

The firm’s UK chief executive Nick Pollard told Construction News in August the increase in regional work would help to protect Balfour Beatty against rising material and labour costs, and insisted it had concluded its spate of office closures.

Balfour Beatty announced a slight improvement in its Q3 interim results, but said the impact of a weaker US dollar had resulted in its order book dropping to £13.8bn, compared with £13.9bn at the end of the first half of 2013.

Group chief executive Andrew McNaughton said the market remained “difficult” but added: “The clear action we took in the first half has helped to offset these challenges in the second half.”

The group also said it saw dips in both volume and pricing of its Australian business, which it expects to continue into Q4.

Balfour Beatty’s recovery remained “uncertain”, according to analysts. Investec analyst Andrew Gibb said it was encouraging to see improvement in profitability in construction but added the general consensus for the UK looked “downbeat”.

He said: “The group talk about a dearth of work in its major projects business and sees little upside in the next couple of years. As a result, regional work will dominate in the UK, the area that has hurt this business the most of late.”

Balfour Beatty said its Engineering Services business “relies on major infrastructure and complex buildings for growth and consequently, its outlook remains somewhat subdued”.

It said the UK Rail projects business “remains difficult and we anticipate that it will be modestly loss-making for the full year”.

On construction services, Balfour Beatty said it expected the ongoing housing recovery to feed through into its regional business, particularly its civils operations.

Balfour Beatty chief executive Andrew McNaughton said: “Together with a larger contribution from our investments division, we have delivered, as anticipated, a stronger second-half performance, ensuring the group remains on track for this year.”

Analysts’ forecasts

Investec analyst Andrew Gibb said despite exceeding market expectations for year-end 2013, an underlying weakness in Australia has meant 2014 forecasts for Balfour Beatty “will need to be pared back again”.   

Investec predictions for year-end 2013 revenue currently stand at £9.6bn with 2014 estimated at £9.8bn, compared with £10.4bn in 2012.

Mr Gibb said it was encouraging to see improvement in profitability in construction but added the general consensus for the UK looked “downbeat”.

“While it is encouraging to see an improvement in profitability in construction, the general commentary around the UK looks to be downbeat,” he said.

Howard Seymour at Numis Securities said positives from the contractor’s interim statement came in improving trends in the US for professional services and construction, and that “UK construction issues have not resurfaced”.

He added: “It is also interesting that the company is more upbeat about regional construction in the UK, which we see as the traditional early-cycle recovery area for construction.”

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