Balfour Beatty’s underlying profit from operations more than doubled to £196 million in 2017 (2016: £69 million, according to its newly-published full-year results.

Leo Quinn, Group Chief Executive, commented:

“These results clearly demonstrate that our Build to Last programme is transforming Balfour Beatty. The Group has been repositioned to drive sustainable growth in profits, underpinned by a strong balance sheet. It has the right culture and capabilities to capitalise on the rising tide of infrastructure spend in our chosen markets.

“As a result of Build to Last, and the governance and controls now in place, we remain on track to achieve industry-standard margins in the second half of 2018. In the medium term, we are building a Group capable of delivering market-leading performance.”

The Group reported an underlying profit from operations (PFO) of £196 million (2016: £69 million) driven by material year-on-year improvements in all earnings-based businesses. Both Support Services and US Construction reported PFO margins in the range of industry-standard margins.

Underlying revenue was flat at £8,234 million (2016: £8,215 million) as the Group continued with its more disciplined and selective approach to bidding. Balfour Beatty’s order book decreased by 8% to £11.4 billion (2016: £12.4 billion), down 3% at CER compared to prior year, and is directly in line with the order book at 30 June 2017.

The Group attributed the reduction to its policy of selective bidding at appropriate terms for the projects best aligned with its capabilities. “The business increased bid margin thresholds and focused on projects where Balfour Beatty’s capabilities can deliver value, coupled with a lower risk profile, so that the Group wins work at appropriate terms and conditions.”

Carillion liquidation - one-off non-underlying loss provision of £44 million in 2017

The Group has also been impacted by Carillion’s liquidation in January 2018 – Carillion, together with Galliford Try plc, were Balfour’s joint operations partners in the Aberdeen Western Peripheral Route (AWPR) project on a joint and several basis. As a result of the liquidation, both partners are now jointly liable to deliver Carillion’s remaining obligations on the contract in addition to each partner’s existing 33% share. Balfour Beatty has recognised a one-off non-underlying loss provision of £44 million in 2017 to reflect its additional loss on the contract, which is expected to complete in the summer of 2018.

Following the Carillion liquidation, Balfour Beatty has recently recruited over 150 employees . According to the Group, a growing pipeline of major infrastructure projects, particularly in the UK and US markets, will see increasing competition for skilled workers.

In the UK, Balfour’s businesses serving the rail, power transmission and distribution and gas and water markets have been brought together under a single leader to drive back office standardisation while maintaining a strong market, operational and safety focus.

The Civils business is continuing to create value, operating in the largely regulated markets of rail, water and road.

Underlying revenue for the Support Services segment made up of utilities, including power transmission and distribution and the gas and water sectors, together with transportation businesses, reduced by 4% to £1,061 million (2016: £1,103 million). The Group said an increase in utilities was more than offset by lower transportation revenues.

Underlying utilities revenue increased by 3% to £608 million (2016: £590 million), driven by a 10% increase at gas and water which is in the middle of the regulatory period. The utilities order book fell 13% due primarily to the expected decline in gas and water - growth in transportation was offset by the decline with the order book stable at £3.1 billion (2016: £3.1 billion).

In gas and water, the revenue increase in 2017 was due to the UK water regulatory cycle, as new contracts continue to mature under AMP6 (2015-2020) - the Group has already started to engage on the AMP7 planning cycle. The gas market is in the middle of the RIIO-GD1 period, with no changes likely before early 2021. The gas and water business expects a peak volume year in 2018, as it represents the middle of the current AMP/RIIO cycles.

Balfour Beatty is continuing to construct the new Mayflower water treatment facility for South West Water.

Other work in the UK water sector falls under the UK Construction business, which is organised into three business units consisting of Major Projects, Regional and Rail. UK Construction continues on its positive trend, the Group said, with a profit from operations of £16 million (2016: £65 million loss).

Underlying revenue in the UK fell by 7% to £1,998 million (2016: £2,143 million), but profit from operations remained positive following the return to underlying profit during the second half of 2016.

The Group said UK Construction was continuing to manage historical problem contracts through to completion. Of the 89 historical contracts identified at the start of 2015 that had a material negative impact on profitability and cash, at the end of December 2017 93% were at practical completion and over 80% were financial completion.

Balfour Beatty is continuing with work on the 6-kilometre West section of the Thames Tideway Tunnel which runs from Acton to Wandsworth. In 2017, the Regional business successfully completed the Anchorsholme flood prevention scheme in Blackpool to reduce flood risk to around 5,000 properties.

In July, Balfour Beatty created an engineering consultancy collaboration in the UK with Atkins (now SNC-Lavalin), Mott McDonald and WSP. The partnership will focus Balfour Beatty’s procurement of design consultants for its projects towards Atkins, Mott MacDonald and WSP with standard terms and conditions.

In May, Balfour Beatty was the first company in the world to complete the ISO 20400 assessment, the 2017 international standard for sustainable procurement. The Group said clients, particularly in the UK public sector, are increasingly taking into account social value and other environmental factors when making procurement decisions.