Balfour Beatty’s half year figures show £150M loss

Poor performing projects uncovered by company reviews put business in the red.

Leo Quinn, ceo Balfour Beatty

Balfour Beatty this morning reported half year results showing a loss of £150M on revenues of £4,085M. This compares to a £43M profit on turnover of £4,072M at the same time last year, although that was before reviews into project performance uncovered a new raft of problems that led to a series of profit warnings.Full year figures in March show a £304M loss on turnover of £8.75bn.

The loss reported in the half year figures today is equivalent to the losses reported on projects in the UK, US and the Middle East which led the group to issue its latest profit warning of £150M in July. UK projects account for £100M of that.

"Over the medium term we can provide our customers, employees and shareholders with superior returns" - Leo Quinn

The half year results revealed a loss for the UK Construction Services division – from where most of Balfour Beatty’s recent problems have stemmed -  of £145M “after provisions were taken to maintain an adequate level of cover against the likely end contract positions on a number of historic contracts, mainly within the Regional business, that have suffered schedule slippages and operational deterioration,” Balfour Beatty reported.

There are projects that could still cause problems, the company said.

"As at June 2015, 31% of the historic projects are already at practical or financial completion," Balfour Beatty said. "By the end of 2016 the number of these projects at practical or financial completion is expected to be greater than 90%. In the UK there are a handful of very complex projects where the range of potential outcomes could result in a materially positive or negative swing, the most significant of which are in Major Projects."

There was positive news to report. The order book is stable at £11.3bn, and cash, one of the key metrics with which Balfour Beatty is driving its Build to Last recovery programme stands at £260M. Infrastructure investments also put in a strong performance and are valued at £1,252M (2014: £1,300M) after realising £112M of disposal proceeds and £37M in distributions, with £64M of cash invested.

"Six months in, our Build to Last transformation programme is gaining traction throughout the business. We have a new senior leadership team and an organisation re-aligned with key customer sectors. We are on course to meet our 24-month targets for £200 million cash in and £100 million cost out.," said group chief executive Leo Quinn. 

"In rising core markets, the group is continuing to win business on better terms across our operations.  In the last few months the awards of contracts or preferred bidder status for three landmark projects - Bergstrom Expressway in Austin Texas, nuclear new build Hinkley Point C power station electrical package and a UK smart motorway package - is a further endorsement of Balfour Beatty's leading capabilities.

"Inevitably the headline numbers set out the consequences of the historic issues that are now being tackled. However the continuing confidence of our customers in Balfour Beatty's expertise, the positive response of our people to change, demonstrated by our excellent net cash performance, and the underlying strength of our balance sheet, supported by the Investments portfolio, all reinforce my conviction that over the medium term we can provide our customers, employees and shareholders with superior returns."

The results explained how the company is getting and maintaining a grip on new work.

This includes a business lifecycle process of 8 stage gates, which is being embedded across the group’s UK, US, Middle East and Asian businesses to drive governance and control during both the sale and delivery lifecycle phases. Starting with an analysis of whether an opportunity is one which it is appropriate and potentially profitable for Balfour Beatty to pursue, the approach “ensures rigour and control is applied at each and every stage to minimise the risks of further low-quality business”.

All significant bids are formally reviewed by a panel of senior management for approval before a bid may be submitted. Lower value bids are also required to be subject to the formalised process and appropriate rigour based on the size and complexity of the project, "providing enhanced oversight throughout the business".

And new uniform reporting dashboards have been introduced across the business to provide clear, regular reporting to senior management on a consistent basis allowing straightforward comparisons on key data points.


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