August 15, 2018 / 7:40 AM / a year ago

UPDATE 2-UK construction firms more sensible after Carillion collapse-Balfour Beatty

* Pricing has become more sensible - CEO

* Industry “less fascinated with growth” - CEO

* Posts 69 pct rise in H1 operating profit (Adds CEO comments, shares)

By Arathy S Nair

Aug 15 (Reuters) - British construction firms are taking a more sensible approach to big projects, pursuing profitability rather than growth at any price, after paper-thin margins helped derail rival Carillion, the boss of contractor Balfour Beatty Plc said on Wednesday.

Balfour posted a 69 percent rise in first-half profit, benefiting from lower costs and higher margin projects, choosing contracts more carefully in Britain and Ireland, the United States and the Far East as part of its long turnaround plan.

Balfour said all of its businesses are now either achieving industry standard margins or are on track to do so in the second half. It expects to meet its full-year earnings expectations.

Shares in Balfour - which is working on projects that are part of High Speed Rail 2, a planned rail link between London and Birmingham, and the Hinkley Point C nuclear power station - rose nearly 4 percent to 301.7 pence.

“I think the industry has become much more measured and less fascinated with growth ... The industry is far more sensible than it has ever been,” Chief Executive Officer Leo Quinn told Reuters.

Quinn said pricing and terms on contracts had become more sensible with one less competitor in the market place, Carillion.

Carillion collapsed in January when its banks pulled the plug, triggering Britain’s biggest corporate failure in a decade.

Balfour Beatty said it was taking measures to maintain its margins long-term, as it faces growing uncertainty over Brexit and global trade tensions.

The company sees higher costs from trade wars flowing through to the supply chain and said that it would look to price some inflation into the contracts.

The United States has put tariffs on steel and aluminium imports and has imposed 25 percent tariffs on some Chinese imports, drawing Chinese retaliation.

While first-half margins at Balfour’s U.S. construction and support services units were in line with the company’s margin forecast, margins at its British construction unit came in at 0.5 percent, well below the 2-3 percent it was targeting.

However, Balfour said underlying British construction margins were 2.1 percent, excluding its Aberdeen Western Peripheral Route (AWPR) road project in Scotland, which suffered delays and cost increases.

Underlying profit from operations at its UK construction business rose to 5 million pounds ($6.36 million) from 2 million pounds, after a charge of 15 million pounds for the AWPR project.

One of Carillion’s joint venture partners on the AWPR, Balfour Beatty took a 23 million pound loss in the first half, on top of a 44 million pound charge in 2017.

Overall underlying operating profit rose 69 percent to 66 million pounds for the six months ended June 29. Revenue fell 8.5 percent to 3.84 billion pounds. The company forecast second half revenue in line with the first.

It also raised its interim dividend by 33 percent to 1.6 pence per share.

Balfour’s order book rose 10.5 percent to 12.6 billion pounds at the end of the first half, largely helped by U.S. construction wins, including a 30 percent share of a $2 billion project at Los Angeles Airport. ($1 = 0.7864 pounds) (Reporting by Arathy S Nair in Bengaluru; Editing by Adrian Croft)

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