A cut in forecast profits at Balfour Beatty, the UK-based international infrastructure group, follows a review of its UK construction business by accountants KPMG.
Balfour Beatty has also produced an updated valuation of its investments portfolio, and a trading update in advance of the group’s full year results in March.
As a result of the KPMG review and recommendations, Balfour Beatty’s board expects to see 2014 UK construction profits reduced by a further £70 million (€93.6 million).
This includes £20 million (€26.7 million) relating to the difference between the reported contract positions at August 2014, and KPMG’s assessment as at the same date. There is also £50 million (€66.87 million) relating to an assessment of contract forecasts and subsequent deterioration in project performance up to the end of December 2014.
In addition, as recommended, the board said it would assess the overall level of contract risk provisions in the UK construction business in light of the operational issues identified, and it will announce the outcome at the full year results in March.
Balfour Beatty said that outside of UK construction, there had been no net material change in underlying trading since the third quarter trading update.
The company has cancelled a proposed share buyback of up to £200 million (€267.4 million) and said this decision was to maintain a strong balance sheet. Its dividend policy is to be reviewed in March at the time of the full year results.
Leo Quinn, the newly-arrived group chief executive, said, “The summary report on UK construction is an important step in drawing a line under a period of uncertainty for our customers, and enabling us to focus fully on delivering value.
“I was never in doubt that there was a great deal of work to be done to restore the group to strength. Balfour Beatty is a large organisation which had become too complex and too devolved for adequate line of sight and financial control.”
He said the key was that these issues could be put right and the group now had clear action plans in hand.
“Significant opportunity exists across the group to drive reduced costs, improved profits and strong cash generation to the full benefit of our shareholders,” he said.
“The updated valuation of the investments portfolio, together with its income stream, clearly demonstrates its ongoing ability to deliver significant value. Within Balfour Beatty’s business model, it also provides a strategic anchor both with key customers and to the group’s growth prospects, earnings and balance sheet.
Quinn added, “Working changes into the culture of the group will take time and discipline, but everything I have seen so far reinforces my first impressions about the depth of engineering capability in Balfour Beatty, and the expertise, commitment and passion of our people.
“Our goal now is to ensure that the value delivered to our customers by what is an exceptional workforce, translates into best-in-class performance and returns.”
Balfour Beatty has been appointed preferred bidder for an approximately £120 million (€160.4 million) UK student accommodation project with the University of Sussex’s East Slope Residences. In partnership, alongside the University, Balfour Beatty will design, build, finance and operate the project under a 50-year contract.
Subject to planning approval, the project will replace an existing 600-bed facility on the university’s campus with a new living space comprising 2,000 new bedrooms in a range of formats including townhouses and some with en-suite facilities. It will also incorporate amenities such as social hubs and new student union facilities.
Construction is expected to start in 2016, and would be delivered by Balfour Beatty’s UK construction services business.