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Balfour Beatty Is Back in Profit

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The UK’s biggest contractor, Balfour Beatty, has exceeded market expectations with a pre-tax profit for the year to December 2017 of £165 million, more than the double of the previous year. This news signals a return to industry-standard margins on revenue of £8.2 billion.

The construction division of Balfour Beatty is back in profit and the balance sheet now looks to be on a much more sustainable footing. This turnaround of events comes after a turbulent period, which saw the contractor record losses for a third consecutive year in 2015 that led to major changes in leadership and the company’s interests in the Middle East, investment markets and PPP deals being sold off.

“To find the reasons behind these results you just have to look at why Carillion failed. Its collapse was a failure of leadership. They had their opportunity to spot the problems, but didn’t. We had our own road to Damascus moment. At one point we were shedding something like £600m in cash in a year, which is an astonishing amount of money, but we simplified the business, focused on core markets of the UK, US and Hong Kong and upgraded our leadership; 80% of our top team are now new and we promoted a lot of good people,” said CEO Leo Quinn, who was brought in to implement a shake-up.

Quinn also said that the company is now more circumspect when it comes to pricing. However, this doesn’t mean that Balfour Beatty will be committing to not being the lowest bidder: “Unfortunately with the way things are, when you win, by default it means you’ve bid the lowest. But that doesn’t mean you’ve bid too low. We’re looking for work that gives good returns and allows us to provide our skills and value,” Quinn said.

What Balfour Beatty is seeking is a bottom number of 5%: “Industry has to see it and price for it, on their capability; and we’re already seeing that from a top row of contractors. Going down some new routes that surrender our competitiveness is not the answer. It costs money to retain that level of expertise,” concluded Quinn.

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BDC 317 : Jun 2024