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Balfour Beatty turnaround doubles profit to £165m

Figures posted for 2017 confirm recovery of the UK's biggest contractor: "We had our road to Damascus moment, simplified the business and strengthened its leadership," says Leo Quinn

Balfour Beatty chief executive, Leo Quinn.

Balfour Beatty has exceeded market expectations, posting an underlying pre-tax profit for the year to December 2017 of £165m, more than double the previous year's £62m and signalling a return to industry-standard margins on revenue of £8.2bn. 

The construction division of the UK's biggest contractor is back in profit and despite write downs against costs incurred from the Aberdeen Western Peripheral Route and other JVs with Carillion, the recovery in Balfour Beatty's balance sheet now looks to be on a much more sustainable footing. The results include a quoted order book of £11.4bn and cash reserves of £335m.

A turnaround in Balfour's fortunes comes after a turbulent period which saw the contractor record losses for a third successive year in 2015. That brought major changes in leadership, with CEO Leo Quinn brought in to implement a shake-up. The company's interests in the Middle East, investment markets and PPP deals including the M25 Connect Plus contract have been sold off. Quinn introduced a 'Build to Last' transformation programme, aiming at bringing individual divisions back to sustained growth, while problem contracts, particularly in the company's construction division, were worked out.

Speaking to Infrastructure Intelligence after the results were announced, Quinn said: "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."

Other important changes include strengthened governance, transparency and oversight. "We're now a lot more circumspect. We discuss and price risk accurately," Quinn said. "And all of this is under the banner of Build to Last, which has helped these values to pervade the organisation."

This does not mean 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.

Neither does he go along with the notion that the industry is operating under a broken model of procurement and project delivery. While margins vary, Balfour Beatty is seeking a bottom number of 5% and Quinn thinks it's out there under current ways of working: "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."

If you would like to contact Jon Masters about this, or any other story, please email jmasters@infrastructure-intelligence.com.