黑洞社区

Balfour Beatty

Financials (for the year to 31 December 2011)

• Group turnover 拢11bn (up 5%)
• Pre-tax profit 拢246m (up 22%)
• Construction turnover 拢7bn (up 5%)
• Construction operating profit 拢169m (down 16%)
• Construction margin 2.4% (2010: 3%)
• Total UK construction staff 12,000

State of play:

• Ongoing restructuring is aimed at helping reach target of 拢50m in annual savings by 2015
• Focus on infrastructure and international growth
• New chief executive Andrew McNaughton to take reigns in April

Analyst鈥檚 view

Tony Williams, chief executive, 黑洞社区 Value
If Balfour Beatty has done something right it has been expanding in the United States with the 拢400m acquisition in 2009 of Parsons Brinckerhoff, the design services giant.

The more geographies you are in, the more this should help to smooth the earnings curve, and the firm has also established very useful presences in south-east Asia and the Middle East, with new target geographies in Australia, Canada, South Africa, India and Brazil.

As well as adopting a sharper focus on infrastructure work, it has also morphed from agent to principal by becoming an investor in PPP projects. In 2010, it launched a cost and efficiency drive to save 拢30m by this year - and is on target to do so.

Just this month, too, Balfour Beatty said that it was 鈥渆xploring strategic options鈥� for its UK FM unit - one of these options, of course, could be a sale. And, in January it announced that it was parting company with 51-year-old chief executive, Ian Tyler, after eight years in the job and 16 with Balfour. Tyler鈥檚 deputy and group chief operating officer Andrew McNaughton will take the helm on 1 April. Nothing stands still here, which I think is a very good thing.

I鈥檓 not sure what more Balfour Beatty could do.

Balfour Beatty declined to comment.

Laing O鈥橰ourke

Financials (full results for the year to 31 March 2012)

• Group turnover 拢3.54bn (up 6%)
• Group pre-tax profit 拢23.4m (down 22%)
• Europe turnover 拢2.16bn (down 0.5%)
• Pre-tax profit Europe 拢62.1 (up 24%)
• Margin (Europe) 2.9% (2011: 2.3%)
• Total staff 14,747 (Europe 10,937, Australia 3,810)

State of play:

• Only privately owned firm among 黑洞社区鈥檚 top five contractors
• Recent success in winning major UK infrastructure work but lost out on significant London construction jobs
• New chief executive Anna Stewart to take over from Ray O鈥橰ourke in April with O鈥橰ourke continuing in role as executive chairman

Analyst鈥檚 view

Anonymous*
This notoriously publicity-shy company鈥檚 practice of direct employment saw it make massive redundancies after the 2009 crash in the Middle East and reductions in the European business since. An overall headcount of 35,753 in 2009 has now fallen to 14,747 - a drop of nearly 60%.

Laing O鈥橰ourke is now also looking at where it can make further cost reductions and expects the full benefit of these measures to be realised in 2013/14. Although margins have held up in the UK, the firm reported a 拢39m loss in its rapidly growing Australasia business last year and the firm鈥檚 order book has remained flat, at around 拢8.2bn over the past three years.

Laing O鈥橰ourke has successfully targeted infrastructure schemes in the UK and abroad in recent years and continues to have an enviable record of winning prestigious construction projects around the world. But prestige does not always mean profit and some things - ambitious expansion at a difficult time in the industry and senior management changes - have concerned observers. If it were a quoted company, I would be enquiring about whether the group is chasing too many major jobs in too many countries; management reporting and risk controls and fixed costs. Cash control, too, is important for a company with such a high level of revenues.

*As Laing O鈥橰ourke is a private company and not formally tracked by city analysts, this analyst asked not to be named.

Laing O鈥橰ourke declined to comment.

Carillion

Financials (for the year to 31 December 2011)

• Group turnover 拢5.1bn (no change on 2010)
• Pre-tax profit 拢143m (down 15%)
• Construction turnover (UK) 拢1.3bn (down 24%)
• Construction operating profit (UK and Canada) 拢57.9m (up 41%)
• Construction operating margin (UK and Canada) 3.1% (2010: 1.9%)
• Total UK staff 20,000 (including support services)

State of play:

• Predicted the impact of government austerity and downsized its UK construction business
• Current focus on Canada and the Middle East
• Chief executive Richard Howson took the reins at the start of 2012

Analyst鈥檚 view

Kevin Cammack, partner, Cenkos Securities

Back in 2009-10, Carillion made a strategic decision to downsize its UK construction business by around a third by 2012 and has played this cycle better than most.
But Carillion is now at a crossroads. Does it:

a) Hold the new status quo, which means getting back into the market to rebuild the order book, thereby accepting that this almost certainly brings in a lower margin workload than it has been enjoying for the past three years?
b) Attempt to re-grow the division? That looks financially untenable - unless it acquires a contractor or two?
c) Downsize the business even further, since the short-term pressure on revenue remains negative? The problem is that it will be expensive to cut again and cash balances will shrink faster.

In the short term, I believe it will go for the first option and that this is the only sensible thing. Because of the circumstances of the market, I don鈥檛 think it鈥檚 the time to take a bold decision. To retrench significantly further to say, 拢800m of UK revenue, would risk Carillion becoming marginalised within the industry鈥檚 top players. This, in turn, risks losing some of its skill base and the key relationships that support its wider activities.

Carillion declined to comment ahead of its interim results on 27 February.

Bouygues Group

Financials (for the year to 31 December 2011)

• Group turnover 鈧�32.8bn (拢27.9bn) (up 5% on 2010)
• Group operating profit 鈧�1.9bn (拢1.6bn) (up 4%)
• Construction turnover 鈧�9.8bn(拢8.35bn) (up 6% on 2010)
• Construction operating profit 鈧�353m (拢300m) (up 12%)
• Construction operating margin 3.6% (2010: 3.4%)
• Total Bouygues UK staff 412

State of play:

• UK arm largely focused on hospitals, schools and housing
• Acquisitions mean it now has 10 wholly or part owned subsidiaries in the UK, giving it collective UK turnover of nearly 拢1.6bn
• Bouygues Construction鈥檚 chairman and chief executive, Yves Gabriel, has been in the post since 2002

Analyst鈥檚 view

Alastair Stewart, building analyst, Progressive Research

Construction is just one element of Bouygues, but it is a critical one and the construction division鈥檚 latest results looked encouraging. However, compared with some of its giant international rivals, the construction division鈥檚 activities are heavily dependent on its home market: France accounted for 55% of the order book at Q3 and
65% of incoming orders. This leaves the company conspicuously exposed to any contraction in French building or infrastructure spending. Nagging worries persist about whether France could succumb to the eurozone鈥檚 woes, while wrangling about the EU鈥檚 budget could threaten French investment.

Bouygues鈥� response would seem to be further expansion abroad. So far, UK expansion has appeared deliberately gradual and the best opportunities would appear to be in Asia and the Middle East, which account for 18% of the order book.

Bouygues could reduce dependence on France further either through taking on more work abroad or by becoming more selective on what to bid for at home and what margins to accept.

More generally, Bouygues appears big enough and technically competent enough to stand firm on pricing, but like its smaller competitors, still needs to keep a tight rein on costs.

Bouygues declined to comment.

Kier

Financials (for the year to 30 June 2012)

• Group turnover 拢2.07bn (down 5% on 2011)
• Group pre-tax profit 拢70m (up 2%)
• Construction turnover 拢1.38bn (down 4%)
• Construction operating profit 拢35.2m (down 10%)
• Construction operating margin 2.5%
• Total UK staff 10,700

State of play:

• Viewed as steady because of its place on major framework agreements
• Profit margin expected to drop to around 2% this year
• Chief executive Paul Sheffield became boss in 2010

Analyst鈥檚 view

Andy Brown, construction and support services analyst, Panmure Gordon
Kier does have a strong balance sheet along with the potential to generate additional cash from its property and housing portfolio. This positions it well relative to its peer group.

The group also has a strong reputation for being soundly managed but that will not fully protect it from growing cost and margin pressure. Less work and customers flexing their buying power will see the margin drop to around 2% this year. Its presence, however, on a large number of frameworks (which make up about 60% of its revenue) as well as broad infrastructure expertise gives the group good short-term project visibility.

I expect further efficiency initiatives to be delivered. There is scope to reduce the number of regional offices through relocating some or all of divisions under one roof. There is also scope to bundle more of its divisional activities together, which would spread the cost further.

Finally, it is important that the group retains its broad national presence to ensure it is well placed for when spending picks up again.

Kier declined to comment ahead of interim results later this month.