Member Article

Balfour Beatty faces ‘major challenges’ as losses widen to £304m

International infrastructure group, Balfour Beatty, has fallen into the red after issuing four profit warnings in the last year.

The industry giant has reported a pretax loss of £304m for the year ending 31st December 2014, compared to £49m for the previous year.

Balfour Beatty’s underlying performance has been declining since 2010, with the sharpest and most noticeable decline occurring over the last 12 months. The company believes this is caused ‘not only by the significant operational issues impacting Construction Services UK’ over the last two years, but also because the high cost base of the group and ‘there have been significant working capital outflows since 2009’.

Balfour Beatty’s construction arm saw a disastrous £391m loss, compared to £103m for 2013, as it had suspended its dividend as a result of ongoing challenges in its UK construction contracts.

The group admits there has been ‘poor legacy management’ of Engineering Services (ES) contracts in certain regions, including London and the South West, and as a result, ES has withdrawn from tendering for third-party work due to the “problematic delivery” of these contracts, contributing £62m to group revenue whilst generating losses of £88m.

The announcement follow January’s initial £70m write-down as the results of contract reviews by KPMG filter through, which are now 70% complete.

Last month, the group’s chief executive, Leo Quinn, launched its ‘Build to Last’ scheme, a major cost-cutting scheme which aims to improve operating cash flow by £200 million in its first 24 months.

Leo Quinn, group chief executive commented: “Over the next two years we should work through the severe legacy of “problem” construction projects. However, in tackling the cultural change required to ensure these issues are behind us, we face major short-term challenges.

“The key is that we are determined to address this through self-help. Our transformation programme, Build to Last, is gaining rapid traction and we are driving initial improvements of £200 million cash in, £100 million cost out over 24 months. In addition, our Investments portfolio will provide the financial flexibility of both reliable income and the sale of maturing assets into a strong market.

“I remain convinced that all our operations can achieve industry-standard performance as markets improve. The real prize is a sustainable return to profitable growth, built on the group’s unique capabilities, underpinned by leaner, stronger processes and flawless execution.

“Longer term we believe that as a leader in its core markets Balfour Beatty should be able to deliver superior returns to the benefit of its customers, employees and shareholders.”

This was posted in Bdaily's Members' News section by Ellen Forster .