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THE LEADERS 2018 Onwards and upwards for Balfour Beatty Sales £m Balfour Beatty 6,923.0 Amec 5,440.0 Kier Group 4,128.8 Morgan Sindall 2,561.6 Amey 2,119.6 Mace 1,965.8 Skanska UK 1,650.6 Costain 1,573.7 Laing O'Rourke 1,468.5 Interserve Construction 1,043.2 T he highest-turnover firm in the Leaders database, Balfour Beatty grew its revenue – including joint ventures and associations – very slightly to £8.23 billion in the 12 months to 31 December 2017. More significantly, its pre-tax profit increased more than 10-fold to £117 million during the same period. This followed a tough few years for the firm and signalled that chief executive Leo Quinn's Build to Last turna- round programme was bearing fruit. Quinn joined the UK's biggest construc- tion company on New Year's Day 2015, aŠer five years at defence technology specialist QinetiQ. He was handed quite a challenge at Balfour – the firm made a pre-tax loss of £304 million in the 12 months to the day before he took office. But its latest results – published just months aŠer it biggest competitor, Caril- lion, dramatically collapsed – show just what a job Quinn has done. Quinn's Build to Last transformation initi- ative focused on making Balfour four things: lean, expert, trusted and safe. "Today, Balfour Beatty is well placed to drive sustainable profitable growth, under- pinned by a strong balance sheet. It has strength and depth in leadership, a new, posi- tive culture is being embedded and the busi- ness is well positioned in each of its chosen markets," Quinn said in the latest annual report. "The group is on track to achieve industry standard margins in all of its earn- ings-based businesses in the second half of 2018 as it continues to drive three key levers for improved financial performance: Balfour Beatty Park Square, Newton Chambers Road, Thorncliffe Park, Chapeltown, Sheffield S35 2PH, www.balfourbeatty.com finalising the remaining historical contracts through to completion; reducing costs and raising productivity across its operations; and executing on the improved quality of the order book." Balfour said the water sector targeted by its support services division was stable. The firm forecast "incremental changes as AMP6 ramps down through 2018 and AMP7 ramps up from 2019". The firm said it had brought together its businesses serving the rail, gas, water and power transmission and distribution markets "under an experienced leader to drive back- office standardisation while maintaining a strong market, operational and safety focus". Underlying utilities revenue grew 3 per cent to £608 million in 2017. Balfour said this was "driven by a 10 per cent increase at gas and water, which is in the middle of the regu- latory period". It added that a decline in gas and water work led to a 13 per cent drop in the value of its utilities order book. "Many water contracts are extended over multiple AMP periods and the group has already started to engage on the AMP7 planning cycle," added the annual report, published in April 2018. Balfour expects its gas and water business to experience a "peak volume year" in 2018, as this represents the middle of the current AMP/RIIO cycles. The firm continues to build the Mayflower water treatment facility north of Plymouth for South West Water. Balfour said harnessing the Internet of Things and modern technology would enable remote monitoring of drainage systems and analytics to better assess the risk of flooding and enable timely maintenance. The firm has also been assessing 'buried utilities', building on the Mapping the Underworld project funded by the Engineering and Physical Sci- ences Research Council. Former South West Water regulatory direc- tor Barbara Moorhouse was appointed as non-executive director last summer, as was one-time Ernst & Young audit partner Michael Lucki. Balfour completed the £27 million Anchorsholme flood defence scheme in Blackpool last autumn. A kilometre of con- crete sea wall was replaced. A joint venture of Balfour Beatty, Skanska and MWH Treatment has a five-year, £800 million deal with Thames Water covering the AMP6 period. LEADERS 2018 11 THE NUMBERS 2012 2013 2014 2015 2016 % change Sales £m 8,656.0 7,488.0 7,264.0 6,955.0 6,923.0 -0 Gross profit £m 989.0 435.0 131.0 157.0 284.0 81 Operating profit £m 154.0 -33.0 -334.0 -226.0 -41.0 n/a Pre-tax profit £m 121.0 -49.0 -304.0 -199.0 8.0 n/a Staff 50,174 49,785 39,751 23,316 22,450 -4 Net assets £m 1,310.0 1,033.0 1,227.0 826.0 757.0 -8 THE RATIOS 2012 2013 2014 2015 2016 % change Return on capital % 9.2 -4.7 -24.8 -24.1 1.1 -104 Gross margin % 11.4 5.8 1.8 2.3 4.1 82 Operating margin % 1.8 -0.4 -4.6 -3.2 -0.6 n/a Net margin % 1.4 -0.7 -4.2 -2.9 0.1 n/a Sales/employee £k 172.5 150.4 182.7 298.3 308.4 3

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