The construction firm posted an underlying pre-tax profit of £56mln for the first six months of the year, up from £22mln a year ago, reflecting higher margins and cost savings achieved under its so-called Build-to-Last turnaround plan.
Underlying revenue fell to £3.8bn from £4.2bn last year due to a managed reduction in the order book in 2017. The company said it expects second-half revenue to be in line with the first.
The construction services division saw revenue fall 13% to £2.9bn due to a decline in the US, while revenue in the support services unit grew 5% to £543mln on the back of growth in utilities and transportation businesses.
Balfour’s order book rose to £12.6bn from £11.4bn last year after a number of wins in the US construction business, including a 30% share of the US$2bn Los Angeles Airport Automated People Mover project.
Impact of Carillion collapse
Following the collapse of Carillion in January, Balfour and Galliford Try became the remaining joint venture partners in the Aberdeen Western Peripheral Route project. Balfour, which now has a 50% interest in the contract, recognised a £23mln loss on the project in the first half.
The group now expects cash outflow of £135mln on the project for 2018, up from the previous guidance range of £105 -£120mln, based on completion in autumn.
However, Balfour was upbeat about the outlook, saying a strong order book and balance sheet gives it “confidence for profitable growth in 2019 and beyond”.
The dividend was raised to 1.6p each from 1.2p last year as net cash rose to £366mln from £151mln.
Chief executive Leo Quinn. said all of the businesses are now either achieving industry standard margins or are on track to do so in the second half.
“The disciplines installed under Build to Last are also enabling us to increase the order book with key infrastructure projects to translate Balfour Beatty's expert capabilities into future profitable growth,” he said
"Given the strength of our balance sheet and the board's confidence that the Group's full year earnings will meet expectations, we are raising the interim dividend by 33% and plan to repay the outstanding convertible bonds this year."
Shares rose 2.6% to 298p in morning trading.
Strategy calls for above-average margins beyond 2019, says analyst
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the real test for the company will be from 2019 onwards.
“The Build to Last strategy, which has seen the group return from the brink, calls for above average margins beyond 2019 and at the moment many divisions are still lingering at the bottom end of their target ranges. In an industry where pricing is notoriously competitive, convincing buyers that Balfour is worth a premium is a tough ask,” Hyett said.At least government spending on infrastructure on both sides of the Atlantic provides a fairly benign backdrop.”