Balfour Beatty has reported its UK construction business is back in the black after making major losses last year.

In its results for the year ended 31 December 2017, the division recorded a £16 million operating profit compared to a £65m loss in 2016.

Across the Group, pre-tax profit rose to £117m (2016: £24m) while revenue increased slightly to £8,235m from £8,215m. Underling profit from operations was £196m, up from £69m in 2016.

While its order book decreased by 8% to £11.4 billion (2016: £12.4 billion), the Group said this is a result of its selective bidding policy at appropriate terms "for those 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," the company said.

"Additionally, the order book does not yet include work won in two-stage design and build contracts, such as work awarded to Balfour Beatty's 50:50 joint venture (Balfour Beatty VINCI) for two major civils packages, Lots N1 and N2, for the UK's new high speed railway (HS2) valued at £2.5 billion. This type of work is characteristic of the strong pipeline of infrastructure projects in the Group's chosen markets and aligns with its balanced attitude to risk and reward."

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In addition, Balfour Beatty confirmed it is still continuing to manage problem contracts through to completion.

"Each requires a high level of leadership involvement to ensure the best achievable outcome and a positive effect on customer relations," the Group said.

"In most cases, the positions taken are proving adequate, reflecting, as expected, a mix of projects successfully closed out ahead of expectation, as well as others where the outcome, although disappointing, is being managed to its best conclusion. A very limited number of contracts have disappointed outside of this expectation. The largest of these is Aberdeen Western Peripheral Route (AWPR) which has experienced ongoing schedule and cost issues. These contracts have impacted the underlying results of Construction Services."

At the start of 2015, 89 historical contracts were identified by the company as having a material negative impact on profitability and cash.

"As at the end of December 2017 93% of these projects were at practical completion (90% at end December 2016) with over 80% at financial completion (70% at end December 2016)," the Group said.

Leo Quinn, Group Chief Executive, said the results show the Build to Last turnaround programme is "transforming" Balfour Beatty.

"The Group has been repositioned to drive sustainable growth in profits, underpinned by a strong balance sheet," he said.

"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."

(LM)