Balfour Beatty has undergone a significant transformation since new management took the helm in early 2015 © Bloomberg
Balfour Beatty, the UK infrastructure and construction group, has signalled confidence in its recovery by increasing its interim dividend by a third.
Balfour posted a more than three-fold rise in underlying profits from continuing operations to £39m in the first six months of the year and said it was on track to hit “industry-standard margins”.
Statutory pre-tax profit in the period was £22m, up from £13m a year before.
The FTSE 250 company has undergone significant transformation since new management took the helm in early 2015, following a torrid period involving seven profit warnings and losses caused by the mismanagement of construction contracts.
It returned to profit last year after completing most of its lossmaking contracts and integrating dozens of acquisitions, with analysts hailing a return to disciplined bidding and risk pricing.
Leo Quinn, chief executive, said: “These results demonstrate the transformation being driven by focusing Balfour Beatty relentlessly on its chosen markets and capabilities.
“Profitability is rising, backed by positive cash flow from operations, and the group had average net cash during the period; all achieved without any material investment disposals. The balance sheet remains strong.”
Shares in the group rose 5 per cent on Wednesday morning, to 276p, giving a market capitalisation of £1.8bn.
Balfour’s rehabilitation contrasts with the woes in other parts of the British support services and construction sector, which has been assailed by a number of profit warnings in recent months.
The group’s underlying revenues increased 8 per cent to £4.2bn, or 1 per cent at constant exchange rates. This measure is from Balfour’s continuing operations and includes its share of joint ventures, but excluded one-off charges of £10m.
Boosting earnings was a return to profit at Balfour’s construction services segment, which recorded an underlying revenue increase of 12 per cent to £3.4bn mainly due to growth in the US. This offset lower disposals at its infrastructure investments portfolio.
However, revenues in support services, which includes its rail and road maintenance divisions, declined on an underlying basis by 5 per cent to £519m, as an increase in utilities was overshadowed by lower transportation revenues.
Analysts at Liberum described an “encouraging set of interims”.
“We expect Leo to keep driving cost out of the business and there is increased scope for shareholder returns,” they wrote in a note to clients.
Chief among the casualties in the UK construction industry is Carillion, one of the UK’s biggest contractors, which failed in an aggressive takeover attempt of Balfour in 2014.
Carillion was left fighting for its survival last month after a profit warning, a sharp increase in debt and larger-than-expected writedowns on projects triggered a calamitous fall in its share price.
Balfour’s order book decreased 8 per cent to £11.4bn, mainly because of a fall in construction services orders, which the company put down to a “continued disciplined and selective approach to bidding”. Balfour recently won contracts for Britain’s high-speed rail project HS2 worth £2.5bn, as part of a joint venture with Vinci of France.
It declared an interim dividend of 1.2 pence per share, compared with 0.9 pence last year.