2010 Q3 Interim Management Statement
11 November 2010
Balfour Beatty 2010 Q3 IMS trading in line with expectations
Balfour Beatty, the international infrastructure group, announces its 2010 Q3 Interim Management Statement, covering the period 27 June to 10 November 2010.
Trading and market environment
Performance has been consistent with the outlook given at the time of the half-year results, demonstrating the resilience of our business in the current economic environment derived from our geographic spread, diverse capabilities and end-markets, and our continuing focus on cost efficiency.
The medium and long-term prospects for infrastructure markets in the Group’s geographies remain positive, while contract wins during Q3 have increased the order book to more than £15bn.
In the UK, the reductions in government capital spending announced in the Comprehensive Spending Review (CSR) were broadly as we expected. While there is a clear acknowledgement of the need for infrastructure spending, particularly in transport and energy, it is too early to predict the precise effect the CSR will have on our business, around 20% of which is driven by the UK government’s capital expenditure programmes. In contrast, we expect the CSR to present further opportunities for our Support services activities as public sector bodies utilise outsourcing to the private sector as one of the means of achieving the government operating expenditure reduction targets.
In the US, the Federal market has provided us with a good stream of work, particularly in the building construction market, but we await signs of a recovery in private construction markets. Despite the continuing delay in the re-authorisation of the six-year Highways Bill which has limited progress on the award of larger projects, demand for professional services remained strong.
Elsewhere in the world, the markets in Hong Kong and Australia continue to be buoyant, while in the Middle East, Dubai remains weak.
Performance in the period has exceeded our expectations, following the strong first half. The US and Hong Kong markets have delivered good growth offset in part by a subdued UK market.
In October, we acquired the Halsall Group, a Canadian professional services firm in the building market with particular strengths in sustainable design and restoration. Halsall provides a platform for us to leverage Parsons Brinckerhoff’s expertise, particularly in transport, into the attractive Canadian infrastructure market.
While year-on-year revenue was down in the third quarter, the rate of decline reduced from that in the first half, and the period saw very strong order intake. The size and variety of contracts added to our order book, including Heathrow Terminal 2B, Denver transit, Fort Hood Army Medical Center and a major data centre demonstrate our strength across the infrastructure landscape.
In the UK, continued strength in the civil and construction markets has been offset by weakness in the mechanical and electrical engineering and rail markets. Operational performance has continued to be good with continuing focus on cost efficiency.
In the US, following the very strong performance in the first half, as expected, profitability has returned to a more normal level as new contracts have started. The revenue decline in the third quarter was modest relative to that experienced in the first half. Order intake has been strong, particularly in the run up to the end of the Federal fiscal year.
We continue to see strong order intake and performance in Hong Kong.
Reduced volumes at the beginning of the AMP5 water utility cycle seen in the first half have continued through the period. We would however, expect to recover these through the remainder of the AMP5 cycle.
We have been awarded major local authority contracts, namely Southampton Highways and Coventry Street Lighting and have achieved preferred bidder status for Warwickshire Highways. Prospects continue to look healthy, particularly with UK Government and local authorities increasingly looking to outsource to the private sector.
Performance in the period has been in line with our expectations. In the UK, we have achieved preferred bidder positions on four projects and as a consequence we are now working to bring nine projects to financial close. The committed equity for these projects totals £69m.
The preferred bidder positions awarded in the period were the transmission assets of the Thanet offshore wind farm project, Gort to Tuam PPP roads scheme in the Republic of Ireland and BSF schemes in Oldham and Hertfordshire.
Developments in the period
We have made further progress towards achieving our efficiency saving targets. The Customer Support Centre in Newcastle, which will bring together the transactional accounting services and payroll processes of the Group’s UK Construction services and Support services businesses, has been established and fitting out of the facility is underway. Work is ongoing to transition the first tranche of activity into the facility in Q1 2011.
The financial position of the Group remains good with a strong balance sheet to support our growth ambitions. Average net cash for the third quarter remained strong, exceeding £400m.
Balfour Beatty is strategically well-placed in major markets to benefit from the long-term, growth in global infrastructure spending. The Group’s order book and its capabilities across the infrastructure lifecycle and its operations in diverse markets and geographies give the business strength and resilience.
We remain confident about the outlook for the Group.
Balfour Beatty plc
Tel 020 7216 6924
Balfour Beatty plc
Tel 020 7216 6865
This document contains forward looking statements which have been made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.
Notes to Editors:
Balfour Beatty (www.balfourbeatty.com) is a world-class infrastructure group with capabilities in professional services, construction services, support services and infrastructure investments.
We work in partnership with our customers principally in the UK, continental Europe, the US, South-East Asia, Australia and the Middle East, who value the highest levels of quality, safety and technical expertise.
Key infrastructure markets include transportation (roads, rail and airports); social infrastructure (education, specialist healthcare, and various types of accommodation); utilities (water, gas and power transmission and generation) and commercial (offices, leisure and retail).
The Group delivers services essential to the development, creation and care of these infrastructure assets including project design, financing and management, engineering and construction, and facilities management services.
Balfour Beatty employs 50,000 people around the world.