PFI projects buoy Balfour Beatty
BENEFITS SHOWING FROM RESTRUCTURING:
Financial Times, Aug 16, 2001
By CHARLES BATCHELOR
Government-funded private finance projects underpinned a growing
proportion of first-half profits at
Balfour Beatty, the engineering and construction group.
Underlying profits for the six months to June 30 rose 17 per cent to
Pounds 41m on turnover 18 per
cent higher at Pounds 1.44bn. After accounting for goodwill, and Pounds
12m profits on sales of
operations last time, pre-tax profits were down from Pounds 47m to
Pounds 36m.
Operating profit from building, building management and services -
including work for several large
hospital and school PFI projects - rose 57 per cent to Pounds 22m.
Profit from the investment and development businesses, including PFI
concessions, rose 28 per cent to
Pounds 23m with good returns from Barking power station, which was shut
for maintenance in the first
half of 2000.
Balfour Beatty has 11 PFI concessions but did not gain any new ones in
the first half, which meant it
was unable to recover any of the costs of bidding for schemes. However,
North Durham hospital,
which opened in April, made a first contribution to profits.
Mike Welton, chief executive, said that even if the company were to win
no more PFI concessions,
those it already had would provide a rising stream of earnings over the
next few years. But Balfour
Beatty expects the continuation of government spending to improve
infrastructure.
"The political will and the money to fund an infrastructure programme is
there for the first time in at least
a decade," said Mark Hake, analyst at Merrill Lynch.
Balfour Beatty's order book rose 20 per cent to Pounds 3.9bn in the six
months to June 30. An
increasing proportion is in long-term contracts with more predictable
margins.
The rail business recovered from a difficult 12 months with profit
rising 17 per cent to Pounds 7m. A
new form of contract with Railtrack, which makes planning maintenance
work easier, has come into
force.
The interim dividend is increased to 2.2p (2p) on earnings of 4.4p
(6.7p). The shares rose 15p to
185p.
Comment
* The better-than-expected result reassured investors that the
restructuring of the past two years is
beginning to work. Last month's sale of the 30 per cent stake in Dubai
Cable completed Balfour
Beatty's withdrawal from cable. It leaves a company that can claim to be
one of the few UK
construction/engineering groups with an international reach. The problem
area of rail is looking healthier
and work is progressing on the London Underground bid. This will start
incurring costs in the second
half as the financing is put in place. Full-year forecasts are for a
profit of Pounds 101m-Pounds 106m
producing earnings of about 14p. In the short term the shares look fully
valued, but longer term
prospects are good.
Full article at:
http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=01
0816001914
Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland
[EMAIL PROTECTED]
