Last Updated March 16th 2021
Balfour Beatty plc
Balfour Beatty is one of the UK’s largest contractors with a global business spread which generates a turnover of around £8.6 billion. Styling itself an “international infrastructure group”, the company has recovered from heavy losses in 2014 and a ‘build to last’ transformation programme over recent years under chief executive Leo Quinn is yielding positive results.
In common with other majors in the sector, the group reported markedly lower profits for 2020 but it also showed a healthy balance sheet with net cash of £527 million and a promising long term outlook, focused on its core markets in the UK, US and Hong Kong. The group’s order book rose 15% to £16.4 billion helped by its largest-ever contract with the go-ahead for HS2 and more work on Hong Kong Airport.
Today, Balfour Beatty is one of 30 companies working in a new partnership with the government to steer the post-Covid economic recovery as part of the Build Back Better Business Council. The council will focus on innovation, infrastructure and skills – all key themes for the company.
Unveiling the group’s results in spring 2021, Leo Quinn said: “Our leading positions in large growing infrastructure and construction markets, record year end order book and £1.1 billion Investments portfolio provide confidence in future cash generation.”
Financials
To view the financials for Balfour Beatty Plc.,visit Companies House and use Company ID 00395826
After some difficult years, Balfour Beatty is well on the road to recovery and has a solid financial position with a healthy order book and some strong market positions at home and overseas. In 2020, Covid inevitably took its toll and the group reported an underlying pre-tax profit of £36 million, down from £200 million previously on an underlying turnover of £8.6 billion, up from £8.4 billion. The group reported a fall in underlying profit from operations to £51 million, down from £221 million. At end-2020, the group’s net cash balances stood at £581 million, up from £512 million although it also had £317 million of (non-recourse) borrowings. The dividend was trimmed to 1.5p from 2.1p and a share buy-back was launched.
Construction Services
Underlying revenues at the group’s construction division rose to £6.97 billion in 2020, from £6.86 billion previously. The year saw a small rise in the US to £3.789 billion; growth at Balfour’s Hong Kong-based business Gammon to £985 million and slightly lower UK revenues at £2.19 billion. The group’s total construction order book rose to £13.7 billion from £11.1 billion.
The division has become increasingly selective and the launch of a ‘gated lifecycle’ has improved control. Today, the group’s UK construction business is organised in three units covering major projects on complex projects and ground engineering services (such as transportation, heavy infrastructure and energy); regional (private and public, civil engineering, M & E and building and integrated civil and building services) and rail.
Balfour Beatty has created an engineering consultancy collaboration in the UK with Atkins (now SNC-Lavalin), Mott McDonald and WSP, which will focus its procurement of design consultants for its projects towards these firms with standard terms and conditions.
In the UK, Balfour’s order book more than doubled to £6.4 billion from £3 billion in 2020, although it reported an underlying loss from operations of £26 million compared to a profit of £47 million previously. Whilst maintaining selective bidding, the order book was boosted by a notice to proceed at HS2 where Balfour Beatty, in jv with VINCI, will deliver the £5 billion Area North section south of Birmingham – involving extensive earthworks, ground engineering, viaducts and tunnels on a 90-km stretch. HS2 has also awarded a Balfour Beatty/VINCI/SYSTRA jv a £1 billion construction management contract for the Old Oak Common hub station in London.
Meanwhile in late 2020, a BB/Vinci/TSO joint venture was shortlisted for four lots of track systems contracts at HS2 and a Balfour Beatty/NG Bailey jv was shortlisted for a tunnel and M&E systems contract. Balfour Beatty also plans to tender for Phase 2a contracts on HS2, which will extend the line north of Birmingham to Crewe.
By securing a place on Highways England’s Smart Motorway Alliance, Balfour is one of three contractors which will deliver a programme worth up to £4.5 billion over 10 years. Major flagship projects which Balfour is progressing include the M4 Smart Motorway contract, where a Balfour Beatty VINCI jv is converting the hard shoulder into an additional lane for traffic and is on track for completion in 2022.
Key milestones have also been reached at Balfour’s contract at Hinkley Point C nuclear power plant where around nine km of tunnel are being excavated.
At the group’s regional business, the group has reduced risk with fewer fixed price contracts and more negotiated contracts and framework agreements with more early contractor involvement. Balfour is a major contractor on a series of innovative frameworks such as SCAPE, Crown Commercial Services and NHS Shared Business Services. In late 2020, under the £10.5 billion NHS SBS, Balfour Beatty was selected as one of seven contractors on Lot 5: Public Sector (National) £35m+.
Under the group’s largest framework agreement, Balfour Beatty has been appointed as the sole contractor to Scape’s second generation civil engineering frameworks, worth up to a combined £2.1 billion over four years (2019-22), and which includes a framework covering Scotland worth £500 million.
Key recent regional business wins included: a £197 million contract to construct Phase Two of the Lewisham Gateway regeneration scheme, involving four mixed-use buildings. The group is also preferred bidder for a new Mayfield Riverside retirement complex.
Overseas Construction
In the group’s key US market – where Balfour has revenues of £3.79 billion and reported an underlying profit from operations of £26 million in 2020 – the group should benefit from the new President’s economic recovery plan and its focus on infrastructure. At end-2020, the order book stood at £5.2 billion, down from £6.5 billion and today, around 80% of the business is on building and 20% on civils. Key contract wins at the buildings business included a $127 million contract at Museum Place to redevelop the historic Randall School, creating an arts campus and new residential apartment building in Washington D.C.· Meanwhile, Balfour Beatty has been selected to construct the next phase of the Epic Phase II project in downtown Dallas which will include the largest Uber office outside San Francisco.
Meanwhile, in Hong Kong and Singapore, Balfour Beatty’s share of underlying revenue at its Gammon jv rose to £985 million from £893 million and profit rose to £29 million from £26 million. The order book rose to £2.1 billion and Gammon secured it largest-ever award, a HK$12.9 billion contract for Airport Authority Hong Kong to expand the main Terminal 2 building and construct bridges, M & E works plus viaducts and roads.
Support Services
Profits from operations at the group’s £1.07 billion-turnover support services business dipped to £46 million in 2020, from £47 million previously, and the order book slipped to £2.7 billion from £3.2 billion.
Balfour Beatty has high hopes for the power transmission and distribution sector thanks to the UK’s Build Back Better initiative. Meanwhile, in highways maintenance its market should benefit from the extra £2.5 billion in funding which will lift local council budgets by 45% over the next five years; over £700 million of outsourced contracts are up for renewal between 2021 and 2025. The group is also well-placed in the rail maintenance sector where an extra £10 billion of funding for renewals is included in the latest Network Rail control period (CP6).
The group’s utilities revenue rose by 3% to £565 million and its order book fell to £0.7 billion from £1.0 billion as its gas and water workload reduced. The group started work on the £90 million Viking Link interconnector project in Lincs. and it recently won a £48 million contract to design and build a new 400 kV substation in Peterhead for SSEN Transmission.
The group is no longer persuing the gas market and in water, Balfour Beatty has only retained one contract, with Anglian Water, under the AMP7 regulatory period (2020-2025) as it deems terms on which contracts are being awarded as ‘not acceptable’.
Balfour’s transport revenues rose by 6% to £502 million although its order book slipped to £2.0 billion from £2.2 billion. On roads, the group’s largest contract, M25 Connect Plus, is set to continue for another 20 years. Balfour Beatty has a six year £217 million highways maintenance contract for Lincolnshire County Council.
At the group’s rail services business, Balfour’s performance has been good on Network Rail’s £1.5 billion Central Track Alliance contract, where it has an 80% share in a ten year alliance covering the development, design and delivery of track renewals and crossings and associated infrastructure works across the London North West, London North East and East Midland routes. Elsewhere, the group is delivering the new London Underground track renewals contract, worth up to £220 million over four years.
Infrastructure Investments
Profit from operations at the group’s infrastructure investment arm fell to £8 million in 2020, from £82 million previously, as deal numbers fell against the background of Covid. The business generates the best returns when its infrastructure investments, construction services and support services deliver projects together as one. Today, the group sees opportunities for Infrastructure Investments in the military housing sector linked to US Army efforts to refinance its military housing projects
Glenigan Data
Glenigan data shows that Balfour Beatty’s ranked as the 6th largest major UK contractor in the year to September 2020 with 51 signficant contracts worth £1,357 million split between building (£324 million) and civils (£1,033 million). Regional figures from Glenigan show Balfour Beatty ranked as the largest contractor in the South East with eight deals in a recent year worth £463 million; the second largest contractor in the West Midlands with nine major contracts worth £329 million and the second largest contractor in the North West in a recent year with eight major deals worth £303 million. It also ranked as the seventh largest contractor in Scotland with ten deals worth £126 million and the ninth largest in the East of England, with six contracts worth £75 million.
Conclusion : A major force at home and overseas
Balfour Beatty has seen some turbulent times earlier in the decade but having largerly recovered under new CEO Leo Quinn, the group is maintaining its momentum. Whilst its more selective approach is paying off, Balfour’s £16.4 billion order book continues to include some of the country’s largest infrastructure projects – notably on HS2 – and major building schemes. Today, it has a healthy workload in the highways sector and in promising areas such as rail and energy as well as retaining a place on key public sector frameworks. It is also making headway overseas, particularly in its chosen markets in the US and Far East. Today, with few remaining legacy contracts, the group is set to remain a significant force in UK construction and infrastructure.
Winning work with Balfour Beatty
Balfour Beatty spend two thirds of its revenues in procuring goods and services from suppliers and the group’s approach to its supply chain can be found on the home page of its website.
Numerous points of contact for the group’s main UK subsidiaries such as Balfour Beatty Construction and Balfour Beatty Civil Engineering are available on the Glenigan website.
Balfour Beatty spends two thirds of its turnover on procuring goods and services from suppliers and is concentrating business increasingly with its best-performing suppliers. Continuous improvement is a major theme.
Its philosophy for working with suppliers highlights: safety and sustainability; sharing information; recognising and rewarding high performance; encouraging innovation, learning and teamwork; continuous measurable improvement in service as well as trust, integrity and open communication. The group has a Supplier Code which provides a framework for decision-making.
The company aims to maximise the use of local labour and suppliers, minimise greenhouse gas emissions, apply lifecycle thinking to products, reduce waste to landfill and use major construction materials with high recycled contents and from recognised responsible sources. It also uses Building Information Modelling on major building projects to work more closely with its supply chain.
Key Contacts:
Mick Jennings, Regional Head of Procurement & Supply Chain – London & SE at Construction Services Division of Balfour Beatty
Email: mick.jennings@balfourbeatty.com
0121 701 2020
Matthew Munn, Head of Procurement, Highways at Balfour Beatty Construction Services UK
Email matthew.munn@balfourbeatty.com
0121 701 2020