Profit warning triggers shake-up at Balfour Beatty

A trading statement from Balfour Beatty says the company expects a UK£ 30 million (US$ 51 million) profit shortfall in its UK construction business this year. CEO, Andrew McNaughton has stepped down with immediate effect and the company is considering selling Parsons Brinckerhoff, the US$ 2 million per year US engineering company it bought in 2009.

The Group is expected to see lower profits in 2014 than previously forecast. Pre-tax profits are now expected to come in at UK£ 145 million – UK£ 160 million (US$ 240 million – US$ 270 million) due to the slow pace of operational improvements in Balfour Beatty’s UK business, particularly related to mechanical & electrical (M&E) and major building projects.

The company’s order book stood at UK£ 12.9 billion (US$ 21.9 billion) at the end of the first quarter of the year, compared to UK£ 13.4 billion (US$ 22.8 billion) at the end of 2013. Balfour Beatty said increases in its Professional Services division had been more than offset by reductions in the Construction Services and the Support Services order books.

No further comment was made by the company regarding the departure of Mr McNaughton as CEO. Chairman Steve Marshall will handle his duties as executive chairman until a successor is found.

On the possible sale of Parsons Brinckerhoff, the company said a strategic review had highlighted this as a way of simplifying the group’s structure. However, it said in a statement, “A sale will only be pursued if it provides attractive shareholder value.”

The statement continued, “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.”

Mr Marshall added, “Today’s trading update is once again disappointing. The Board is committed to rapidly addressing the root causes. As a result, action is being taken to improve operational delivery in the UK construction business. Our recent strategic review meanwhile has concluded that a sale of Parsons Brinckerhoff could deliver attractive shareholder value and make Balfour Beatty a simpler and more focussed Group going forward.”