Balfour Beatty’s UK construction business was hit by a £23m loss in the first six months of 2021.
The contractor was hit by problems on a number of fixed-price residential projects in central London. It said disruption caused by the pandemic had caused delays, which had forced the firm to write-down its expected profit on them, resulting in a £23m underlying operating loss for the division. The company has vowed not to bid for fixed-price residential jobs in central London anymore.
The group is also facing potentially costly remedial works on another high-rise project in London, which was completed in early 2016. A structural survey in June this year identified problems with the stone panel facade that Balfour said will need to be modified, reinforced or replaced. It said it was too early to determine what the cost of this work could be, but warned it could reach £50m. It added that it would look to recover as much of its costs as possible from third parties.
The UK result matched the £23m loss it reported in the first half of 2020, when the pandemic first affected operations.
Overall, Balfour Beatty managed to report a £35m pre-tax profit for the half-year period, thanks to the profitability of its US and Hong Kong divisions. The US business in particular has recovered well since last year and profitability was above its pre-pandemic level in 2019.
The group’s revenue, excluding joint ventures, was up slightly at £3.61bn from £3.52bn last year. The bulk of its revenue growth came from the UK, where it rose to £1.26bn from £986m last year. It attributed the growth to more work on HS2 and at Hinkley Point C. The group added the proportion of its work for public sector and regulated clients now stood at 90 per cent, up from 80 per cent in 2020. Its UK order book stood at £6.2bn at the end of June, down from £6.4bn at the end of December.
Average monthly net cash was £611m at the half-year mark, up from £527m for the same period in 2020.
Looking ahead, the firm said planned increases to infrastructure spending by the UK and US governments should benefit the business. It added, however, that its ‘Project Speed’ plan in the UK to accelerate some road projects was “yet to fulfil its potential”.
The target margin for its support services operations has also been raised from 3-5 per cent to 6-8 per cent. It said the exit from the gas and water markets had helped raise its average margin on jobs. It is now focused on the power, road and rail maintenance markets.
An investigation by the Department of Justice in the US into allegations of fraudulent work logs on US Air Force contracts is still ongoing, the firm said. The contractor said it could not yet provide an indication of what possible fine or penalty it might incur from the case. Earlier this year, two former Balfour employees in the US pleaded guilty to “major fraud” relating to falsified records of military housing maintenance.
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