TIDMBBY
RNS Number : 6040Q
Balfour Beatty PLC
08 November 2012
News Release
8 November, 2012
BALFOUR BEATTY 2012 Q3 IMS
Balfour Beatty, the international infrastructure group,
announces its 2012 Q3 Interim Management Statement, covering the
period 30 June to 7 November 2012.
Trading
Our Professional Services, Support Services and Infrastructure
Investments businesses are demonstrating resilience and strength in
a challenging economic environment, performing well and in line
with our expectations.
In Construction Services, difficult trading conditions have
persisted in the period in our two major markets. US construction
markets remain depressed, and the performance of our UK
construction business is weaker than anticipated. Structural
problems in European Rail markets added to the challenges. We have
made good progress in implementing both phases of our cost
efficiency programme and that has been helpful in offsetting some
of the weakness.
As a result and based on the outturn for the third quarter,
profitability in 2012 will be slightly lower than expected at the
time of the half-year results although this will be somewhat offset
by a slightly lower effective tax rate. Furthermore, the conditions
that have led to a recent decline in the order book point to 2013
being a difficult year for Construction Services.
Operating performance
Order book
After a small decrease in the first half in the Construction
Services order book, we saw a more significant decline in the third
quarter. As a result, even though order intake in our other
businesses was stable, the Group order book closed at GBP14.4
billion at the end of September, down from GBP15.0 billion at the
end of June.
Professional Services
Professional Services has continued to perform well, benefitting
from its geographical diversity and the less cyclical nature of its
civil infrastructure work. The order book remained stable overall,
with small reductions in the UK and US offset by increases in the
rest of the world.
Revenue in the third quarter was in line with expectations, with
a decline in the UK being offset by modest growth in the US. We
made continued good progress in the rest of the world, particularly
in Qatar which is a new and growing market for our Professional
Services division. Last week our business in the North East of the
US was disrupted by the impact of Hurricane Sandy, although we do
not think it is likely to have a material impact on our financial
performance.
The division has maintained its focus on increasing utilisation
rates and combined with the successful completion of some large
projects in Asia Pacific, this is helping to improve profitability,
putting the division on track to achieve its medium-term margin
targets.
Construction Services
In the US construction market, the positive leading indicators
seen in the five months to March 2012 reversed, with the five
subsequent months showing negative indicators, pushing market
recovery further out than initially envisaged and keeping market
volumes at a depressed but stable level. In this environment, our
institutional building business has suffered from weak federal
demand and the general lack of larger complex projects where there
is greater opportunity to differentiate ourselves. In contrast, the
prospects for our civil infrastructure business remain positive
with some large design-build and PPP projects being tendered into
the market. Overall, our US construction business has performed in
line with our expectations, although the order book has
decreased.
In the UK, we are seeing further market deterioration. On the
one hand, the business is continuing to migrate towards smaller
contracts in a market with very few major projects. Approximately
half of our order book is now in our regional business, up from a
third a year ago. At the same time, the supply chain is suffering
which in turn, reduces our ability to negotiate terms that match
the worsening market conditions. The adverse impact of these recent
developments is expected to reduce profitability slightly this
year. Looking ahead, there is reduced visibility due to smaller
projects and shorter lead times, but in the absence of an immediate
improvement in these emerging market conditions, we expect further
decline in activity levels and pressure on margins into 2013.
We have continued to make progress in restructuring our
construction operations in both the UK and the US. The reduced
structural cost will, in part, offset the impact of volume and
margin pressure referred to above.
Our Rail construction business performed below expectations in
the third quarter. Activity levels in Italy and Spain have become
critically low. This, combined with the increasing commoditisation
of work in Germany and the UK, is expected to give rise to a
further adverse impact on profits of around GBP10 million in 2012.
We are currently undertaking a review of the operations across our
European rail business in the light of these structural
factors.
Cost efficiency update
Our cost efficiency programmes continued to make good progress.
Phase 1, which entails savings from indirect procurement and
combining transactional accounting and payroll in the UK in a
single Shared Service Centre in Newcastle, will reach its run-rate
savings of GBP30 million by the end of 2012.
Phase 2, the broader programme we announced in March 2012 with a
target of GBP50 million annual savings by 2015, is underway. The UK
Construction business has made significant progress in
restructuring its operations in the quarter. The new operating
structure, which will be in place by January 2013, combines six
operating companies into one, streamlining the number of locations
and creating a more efficient back office with 650 fewer employees.
These initiatives constitute the largest portion of the current
target savings. The new operating structure will also be more
flexible, agile and adaptable to change, should market conditions
require.
The US Construction business is in the process of reducing its
operating structure from five regions to three, with a significant
focus on leveraging resources across a broader geographic base.
Furthermore, Parsons Brinckerhoff has announced plans to move the
majority of its support functions from New York City to Lancaster,
Pennsylvania, which is expected to improve its cost effectiveness
from April 2013 onwards. The successful implementation of our
initiatives to date gives us confidence that we will achieve the
majority of the Phase 2 savings in 2013.
Support Services
Trading has been consistent with expectations in the period. The
order book was stable with an increase in the local authority
outsourcing contracts - including the North Tyneside business
services contract - offsetting the anticipated modest decline in
the Utilities (water and power) order book.
Revenue grew year on year in the third quarter; WorkPlace, our
facilities management business, and Utilities were particularly
good performers.
Profit performance has recovered from cost increases incurred in
the first half and the division is on track to meet our
expectations.
Infrastructure Investments
Performance has been resilient given the long-term and stable
characteristics of this business. In the period, we have been
working on bringing our preferred bidder positions in US military
housing to financial close. We are also diversifying the business
into new geographies such as Canada, the USA and Australia, and new
sectors such as energy-from-waste and biomass, while developing
investment models in addition to PFI and PPP.
A good example of diversification is the preferred bidder award
in August of University of Edinburgh's GBP110 million Holyrood
Postgraduate Student Accommodation and Outreach Centre project. The
50-year concession contract involves the design, build and
maintenance of student accommodation facilities for 1,160
postgraduate students, as well as an outreach centre which will
become the focal point for the University's community-based
teaching activities and continuous professional development
courses.
Financial position
Average net debt for the nine months to the end of September was
GBP15m. This reduction in cash is a reflection of further working
capital outflow in UK Construction and the delay in the anticipated
improvement in US Construction orders. While we still expect some
seasonal recovery in working capital by the year-end, a significant
change in the underlying position is unlikely.
Outlook
The construction market backdrop has become more difficult with
the continued absence of the larger complex projects coming to
market and a reduction in confidence in the US building market
following some encouraging signs earlier in the year. The impact of
these issues is evident in current performance and the reduction in
our order book which collectively point to 2013 being a difficult
year for Construction Services.
We have been managing our business on the basis that market
conditions would be tough, and this has been an effective strategy.
We will take further action, both operationally and strategically
where necessary, to mitigate any adverse impacts on our
business.
In the medium and long term, we are confident that our position
in infrastructure markets, our focus and competitive advantage in
the transportation, rail, power, water and mining verticals, and
our initiatives to access growing markets such as Australia,
Canada, Brazil and India will stand us in good stead as well as
making the business more robust.
ENDS
Conference call
Balfour Beatty will host a conference call for analysts and
investors at 8:00 (UK time). To join the call, please dial +44
(0)20 7784 1036 and quote confirmation code 1896430. A recording of
the call and its transcript will be posted on our website within 24
hours of the event.
Analyst/investor enquiries:
Basak Kotler
Balfour Beatty plc
Tel 020 7216 6924
Media enquiries:
Rebecca Salt
Balfour Beatty plc
Tel 020 7216 6865
This document contains forward-looking statements which have
been made in good faith based on the information available at the
time of its approval. It is believed that the expectations
reflected in these statements are reasonable, but they may be
affected by a number of risks and uncertainties that are inherent
in any forward-looking statement which could cause actual results
to differ materially from those currently anticipated.
Notes to Editors:
1. Balfour Beatty (www.balfourbeatty.com) is a world-class
infrastructure group with capabilities in professional
services, construction services, support services and
infrastructure investments.
We work in partnership with our customers principally
in the UK, continental Europe, the US, South-East Asia,
Australia and the Middle East, who value the highest
levels of quality, safety and technical expertise.
Key infrastructure markets include transportation (roads,
rail and airports); social infrastructure (education,
specialist healthcare, and various types of accommodation);
utilities (water, gas and power transmission and generation)
and commercial (offices, leisure and retail).
The Group delivers services essential to the development,
creation and care of these infrastructure assets including
project design, financing and management, engineering
and construction, and facilities management services.
Balfour Beatty employs 50,000 people around the world.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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