Balfour Beatty’s construction chief Mike Peasland said today that no decision has been made to sell the FM division Workplace following reports last month that it could be sold for £250m.
The UK construction services chief executive officer also warned government against legislating for prompt payment, stressing his firm pays on time, and describing cash flow as the “lifeblood of the business”.
Balfour Beatty saw a £37m loss from construction operations after the extensive restructuring to make it a “more agile” business, reducing offices from 75 to 37 and realigning into three central business streams.
Discounting the restructuring, construction recorded a 28 per cent fall in profits from £169m to £122m, as revenue fell 6 per cent from £7bn to £6.95bn, with cash down from £340m to £35m.
The UK’s biggest construction firm had appointed Citigroup to advise on a potential £250m sale of the unit, the FT reported last month, citing sources close to the deal.
Mr Peasland told H&V News the unit is “not definitely up for sale”.
“We are reviewing where we are going with Workplace. It’s a question of whether it’s a strategic fit going forward.
“We are reviewing that but have not yet decided what the direction will be.”
Mr Peasland said this would not affect their private finance offering with Living Places also offering FM.
Balfour Beatty, which also revealed it will exit the mainland European rail division, said today it expects a 20 per cent fall in UK construction revenue this year.
Mr Peasland said the firm would not be reducing the UK business structure further as it has already shifted in anticipation of the fall in volume and margin.
He also said there are no plans for the group to exit from any UK markets.
The construction boss said his division now has “flexibility” to move with the market, but said they “don’t want to be busy fools” working for little or no profit.
He put the fall in working capital down to a drop in volume, fewer major projects – including PFI schemes – and a move to more smaller and short term contracts.
“I don’t see it [cashflow] getting better any time soon,” he added.
“When you do more shorter terms contracts and [are] dropping revenue, then it will fall. [But] I think it will generally stabilise due to the nature of the contracts that we pick up.”
He said there is also a shift due to the use of target-cost contracts which will see payment come through later.
Mr Peasland said this year is “really about bedding down” as they continue with the office reorganisation and rearranging the back office staff and services, which he said should be complete by July.
But he added: “I think our projects were affected more than I [had] thought in terms of where we were in 2012.
“We expected all our changes to be around the structure and organisation, not the projects. But we have seen some effect on projects just because of the nature of the changes we have made.
“But that’s all behind us now.”
The contractor will also be looking at its bids more strategically “in terms of winning, and winning the right jobs”, with more of a focus on projects “where we have a one in two or one in three chance of winning”.
Mr Peasland said the UK margin is at 2 per cent for the year, which he expects to sustain for 2013, while US is at 1 per cent - although analysts pointed out that excluding joint ventures, the construction division as a whole returned a 0.9 per cent margin.
Mr Peasland also said he does not see Balfour Beatty shutting down its social housing business after deputy CEO Andrew McNaughton told H&V News in November that it is looking at whether it is a “good place to be”.
Pointing to the cyclical nature of the markets, Mr Peasland said: “I don’t see us shutting down our social housing business, but the question is what are we going to do with it.
“The whole social housing agenda has changed and there’s not so much of it about.”
He said it could mean more of a mix of social and private which could require more investment by the group.
Mr Peasland also said fit-out has had a difficult time, but the firm will be looking to build that up again through its OPL division, adding there is a question whether smaller fit out businesses “will be there at the end or not”.
The group had also pointed to government cuts and policy indecision for a drop in workloads.
But Mr Peasland said he is not expecting much from George Osborne’s budget next week, saying there is a “reasonable pipeline” of major schemes coming through in roads along with schemes such as the Mersey Gateway.
Project bank accounts ‘not right’ for industry
Balfour Beatty construction boss Mike Peasland has rejected project bank accounts,saying they are not the right for the construction market.
Mr Peasland said there is an “unintended consequence” of government-led pay initiatives.
He explained it would not be in Balfour Beatty’s interest to mistreat its supply chain as it would simply “bounce back on us”.
“We don’t see project bank accounts as the right thing to do,” he said.
We don’t see project bank accounts as the right thing to do
“At the end of the day it’s not in our interest not to pay our supply chain correctly for the things that they do, and pay them on time, because 90 per cent of what we do is done by the supply chain.”
Asked about clients taking longer to pay, he said: “I think the issue has been more about pushing back to government and saying ‘don’t try to legislate for this, because you have got to recognise that the lifeblood of this business is cash flow and if you try to restrict cash flow you are trying to change the nature of how we operate and the margins we need to find in the market’.”
Mr Peasland also described supplier financing as a “win-win” for the banks, contractors and supply chain, and said it enables suppliers to access money at a better rate.
He said it is sign of a smaller market place that customers are looking more at risk transfer and holding onto cash for longer.