Skip to main contentSkip to navigationSkip to navigation
Crossrail site in London/Balfour Beatty
The Crossrail project in London. Balfour Beatty has found a £75m hole in expected profits. Photograph: CROSSRAIL / HANDOUT/EPA
The Crossrail project in London. Balfour Beatty has found a £75m hole in expected profits. Photograph: CROSSRAIL / HANDOUT/EPA

Balfour Beatty shares plunge 15% after forecast profits dive by £75m

This article is more than 9 years old
KPMG instructed to investigate after internal reviews at troubled construction firm unearth extra losses and write-downs

Shares in Balfour Beatty plunged by 15% as the infrastructure group issued its fifth profit warning in less than two years following the discovery of a £75m shortfall at its UK construction services business.

Balfour’s executive chairman, Steve Marshall, is also stepping down. The group has brought in KPMG to conduct a review of the construction services business. The accountants will analyse commercial controls, contract value forecasting and project-level reporting for contracts at the division. KPMG’s review follows an internal inquiry last year that found overruns and overspends.

Internal reviews over the last few days found extra losses and write-downs at the UK construction operation. Projects in London make up £50m of the shortfall. Major UK projects carried out by Balfour Beatty include building the aquatics centre for London 2012 and transforming the Olympic stadium in the wake of the games.

Balfour’s shares closed down 15%, or 34.4p, at 190.5p.

Marshall said a new chief executive would be appointed within weeks and that he will leave when a new non-executive chairman is found. He took over at the company when Andrew McNaughton quit as chief executive in May following the first of three profit warnings this year.

Marshall said: “The company has had a series of surprises and it has been surprised itself. We have all been surprised by what has happened at this business. I and the board judge that the right thing to do to give [the board] the assurance it needs and, frankly, to give investors the assurance they need is to have an independent review.”

The company blamed optimistic pricing of contracts, late completion, skill shortages, rising costs and poor project management for the woes at its UK business. The number of problem contracts rose to 25 from 21.

Net debt for the second half of the year will rise to £580m from £420m in the first half. Marshall said the company had no problems with debt covenants agreed with its banks.

Balfour also said it would review the final dividend following its decision to sell its Parsons Brinckerhoff consultancy business. The company plans to return up to £200m of the sale proceeds to shareholders but Marshall said the board would look at how Balfour was performing before deciding on the size and timing of its share buyback.

Balfour has been trying to rally shareholder support after rejecting a merger offer from its rival Carillion last month. The company has struggled since the downturn in large UK construction projects following the credit crunch. However, analysts have said Balfour Beatty’s problems are the result of bad management and not the wider market.

Alastair Stewart, an analyst at Westhouse Securities, said: “Yet another profit warning, again within the troubled UK construction division. This supports our view that losses on these London contracts could be completely open ended. KPMG is doing a review of the full order book. We would not be surprised at all to see further losses emerge as a result of this exercise.”

He said that although other parts of the business were trading in line with expectations, bidding on projects is a highly competitive process and “the outlook is looking grim in our view”.

Comments (…)

Sign in or create your Guardian account to join the discussion

Most viewed

Most viewed