©Bloomberg

Balfour Beatty has restored its dividend and reduced losses in a sign it is returning to health after a torrid two years that saw the construction group issue a string of profit warnings and fend off a takeover attempt.

Balfour, which had been dragged down by construction contracts won on wafer thin margins, said pre-tax losses reduced 86 per cent to £21m for the half year to July 1 on revenues down marginally from £4.2bn a year earlier.

The group has proposed a half-year dividend of 0.9p a share, marking a significant milestone in its recovery plan led by Leo Quinn, the former boss of defence research group Qinetiq, who joined the construction company in March last year in a bid to revive the company.

Shares in the company rose more than 7 per cent to 261p as Mr Quinn said the business had “stabilised”. “Like an iceberg the numbers are just the tip of it and don’t begin to show the extent of the progress we have made,” he said.

Balfour took on too many contracts at rock-bottom prices in the wake of the recession but expects 90 per cent of those “historic” UK projects to be complete this year, allowing the company to focus on more profitable work. Losses in its UK business fell from £145m in 2015 to £66m as low margin or lossmaking contracts came to an end.

Balfour is focusing on winning fewer larger contracts worth more than £5m in the UK, which it says will improve its ability to control the work and help it to restore construction margins to at least 2 to 3 per cent by 2018.

It is also cutting £100m of costs and stripping out management layers under a turnround programme dubbed “Build to Last”. Nearly 1,000 back-office and administrative staff have been cut while the US business has been consolidated under a single leader.

Balfour’s order book rose 12 per cent to £12.4bn at the half-year stage, compared with £11bn at the end of its last full financial year.

Earlier this week Balfour Beatty won a £524m contract to electrify California’s diesel-hauled railway network, its biggest commission in the US to date. Other contract wins this year include a £170m contract to upgrade baggage screening and handling systems for Heathrow airport.

It has also secured a £416m contract to build the western section of the new £4.2bn London super sewer under the Thames river from Ealing to Hammersmith in a consortium with Morgan Sindall.

Britain’s construction industry slipped into recession last month making Mr Quinn’s efforts to revive the business more difficult. The company has joined business lobby groups in calling on the government to use historically low interest rates to boost infrastructure investment in the UK, including new road, rail, flood defence and power projects.

“We’re looking for a lead from government,” Mr Quinn said. “Money is effectively free so it’s a good time for the government to be making long-term decisions on infrastructure.”