Balfour Beatty has issued a £30m profits warning linked to the performance of its UK construction business, a move followed by the resignation of group chief executive Andrew McNaughton after just over a year in the post.
McNaughton succeeded former group chief executive Ian Tyler, who stepped aside in January 2013 after an earlier profits warning then left the company in April 2013.
Chairman Steve Marshall will now take over as executive chairman until a successor is appointed.
In this morning’s trading statement, Balfour Beatty told the City that it expected a £30m profits shortfall in the UK construction business, forecasting a new range of £145m to £160m of pre-tax profits for 2014.
In March, Balfour Beatty’s annual results for 2013 included an underlying pre-tax profit of £187m.
According to the group’s new statement, the actions taken to bolster performance in its UK regional construction business in 2013 are “taking effect, but at a slower pace than expected.” These included appointing Nick Pollard as chief executive of Construction Services UK, and tightening up on bidding and commercial procedures.
The statement also highlights disappointing performance on major building projects where the company has “ experienced further cost increases and delays, mainly on specific projects we highlighted in March.”
But the problems have also affected the M&E sub-contracting business, Balfour Beatty Engineering Services, part of Construction Services UK. It has been “impacted by adverse market conditions towards the end of 2013. These conditions have continued into 2014 and, taken together with poor operational delivery issues on a number of contracts and low order intake, the business has experienced an extremely challenging first quarter.”
However, other aspects of the group’s business are more encouraging. The Middle East order book has benefitted from new contracts, including the expansion of the Dubai Mall and Abu Dhabi airport, and the Professional Services order book has also increased.
Balfour Beatty has also announced it is considering a sale of 14 000 strong engineering and design division Parsons Brinckerhoff, acquired in 2009 under Ian Tyler. The statement said: “As anticipated at the time of the acquisition, there has been growth in the market towards design and build and Public Private Partnership contracts. However, having professional services and construction capabilities combined within one organisation has not delivered material competitive advantage for the Group. Therefore, we are examining how best to realise the substantial value of the Parsons Brinckerhoff business.”
The Financial Times has reported that Balfour Beatty’s shares were down 19% by mid-morning. They have apparently lost more than 25% since the March announcement of full-year results.
McNaughton was formerly chief operating officer at Balfour Beatty from 2009-13, and prior to that he worked for the company in the Middle East.
