Balfour Beatty (BBY) saw its profits wiped out in the six months to 30 June, swinging to a £26m statutory pre-tax loss – this compares to a £63m profit a year earlier. It came as Covid-19 hit its construction services business, with the impact felt most keenly in the UK.
While 73 per cent of UK sites remained open in April – rising to 96 per cent by the end of June – lockdown saw operations in Scotland effectively closed for the second quarter. Meanwhile productivity in London dropped as a lack of public transport caused difficulty in travelling to work sites. The cumulative effect of the pandemic saw the UK construction division record a £23m underlying operating loss.
Balfour’s half year numbers coincided with the latest data from the Office of National Statistics (ONS) which laid bare the impact of Covid-19 on the construction sector. Output for the three months to 30 June collapsed by more than a third versus the first quarter – the largest quarterly contraction since records began in 1997, and five times larger than the decline seen in the third quarter of 2009.
If you dive deeper into the second quarter numbers, you will see that output started to rebound – it was 24 per cent higher in June than in May. The positive trajectory also tallies with the latest IHS Markit/CIPS purchasing managers’ index (PMI), which showed the strongest monthly rise in activity in almost five years in July. The index rose to 58.1 – up from 55.3 in June – with anything above 50 indicating an expansion in activity.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics has cautioned against overstating a recovery. He says that output has likely “overshot its sustainable level, as firms have hurried to complete work backlogs.” Indeed, according to the ONS construction output still has some way to go before it returns to pre-pandemic levels – the June figure is down a quarter from February, the month before lockdown began.
Still, Balfour is feeling optimistic about its the second half. “The financial impacts of Covid-19 are unavoidable; but they will pass,” says chief executive Leo Quinn. The group believes underlying operating profit will return to roughly pre-pandemic levels in 2021.
