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Balfour Beatty to close 35 offices

Contractor says it expects a £75m one-off restructuring cost as it reports a 12 per cent increase in group profits in the first half of 2012.

Balfour Beatty is set to close 35 offices and incur a one off cost of between £50 and £75 million as it restructures its UK construction business.

The contractor has so far incurred £45m of underlying costs across the group in the first half of 2012, including £14m of ‘principally redundancy’ costs as it embarked on the restructure of its UK businesses.

Balfour Beatty posted half year results this morning, reporting group revenue up by 6 per cent to £5.5bn (2011:£5.2bn), while underlying pre tax profit rose 12 per cent to £154m (2011: £138m). Net cash has sunk from £292m to £34m, due to a “£117m increase in working capital outflow compared with the first half of 2011”.

The group expects up to £75m of one off costs for its UK restructure – or 1 to 1.5 times the £50m annual savings it is anticipating from the changes.

It said it expects to rationalise its property portfolio from 75 to 40 locations.

The UK construction business employs 12,000 staff, and includes Mansell, Balfour Beatty Civil Engineering, Balfour Beatty Engineering Services and Balfour Beatty Construction.

Construction profit from operations in the first half dropped 21 per cent, from £67m to £53m, as revenue rose seven per cent to £3.5bn.  Margin fell from 2 per cent to 1.5 per cent, while the order book dropped by 9 per cent to £8.3bn.

It said this morning: “The UK construction business is being rationalised with a new operating model based on just three business streams which will be up and running in January 2013.

“This will allow us to reduce the number of employees in back office functions by approximately 650 and rationalise our property portfolio from 75 locations to around 40 locations. The support services division is also undergoing tactical cost reduction.

“These two divisions will account for the majority of the targeted savings, and most of the savings are expected to come through in 2013.”

The costs incurred so far include £9m in UK sonstruction services, where six business units will be combined into three. It also saw £2m of costs in UK support services - where operating margin fell from 3.3 per cent to 1.2 per cent in the first half. There were also £1m of costs in other UK entities and £2m in non-UK entities. Cost efficiency initiatives are also underway in IT.

The UK construction order book and revenue have declined by 3 per cent and 2 per cent respectively in the first half, ‘in a marketplace that has continued to shrink’.

It said having delivered the Olympics Aquatics Centre, it is focused on “more varied, smaller, often private sector projects”.

The firm - which has won an Essex Waste Treatment contract and was chosen as preferred bidder for a Gloucester Waste to Energy contract -said it is awaiting the result of three further schemes with a total potential value of £300 million and bidding four further schemes worth £400 million in the energy and waste infrastructure sectors.

It also cited ‘considerable success’ in student accommodation schemes, commercial property in the South East and nuclear decommissioning projects, with the ‘positive trends’ in these markets expected to continue.

Chief executive Ian Tyler said:  “We have delivered another set of solid results in challenging markets and remain on track to meet our expectations for the full year.

“We are making good progress on the early stages of our growth strategy in key industry verticals where our deep asset knowledge differentiates us from the competition.

“The increase in our interim dividend, consistent with our progressive policy, reflects our confidence that we are well-placed to take full advantage of the global growth in infrastructure markets.”

Balfour Beatty also booked £12m of costs related to post acquisition integration and reorganisation costs. It said £11m of these were from a recent UK Court of Appeal decision in a case involving a liability in respect to a geotechnical survey carried out by a Parsons Brinckerhoff project, dating back over 10 years ago.

Group revenue increased by 6 per cent to £5.5bn (2011:£5.2bn), while underlying pre tax profit rose 12 per cent to £154m (2011: £138m).
£5bn of new orders in the first half, order book at £15bn (FY2011: £15.2bn)
The contractor said it has gained £52m from infrastructure investment disposals (HY2011: £14m).
Net cash has sunk from £292m to £34m, due to a “£117m increase in working capital outflow compared with the first half of 2011”.
Interim dividend increased by 6% to 5.6p

Operating margin fell in support services fell from 3.3 per cent to 1.2 per cent, as profit from operations dropped by 60 per cent to £10m (H1 2011: £25m), as revenue rose from £757m to £828m.
As reported last  month, the dip was down to start-up costs on a number of substantial new contracts combined with one-off cost increases in a small number of contracts in the utilities sector, amounting to  about £10m.
Profit from operations in professional services were up 11 per cent to £42m, as revenue rose 1 per cent to £845m.