LONDON: Shares in Balfour Beatty plunged yesterday after the British construction firm cut its profit forecast for the third time in less than five months, blaming increased losses on the mismanagement of a number of UK contracts.
Balfour, which rejected the merger advances of UK rival Carillion for the third time last month, said profits at its UK Construction Services unit would be £75m ($122m) less than expected after taking writedowns on engineering contracts in London and hitting a number of costly setbacks on building and infrastructure projects.
Many of the problem contracts relate to work undertaken during the recession at wafer thin margins, as Balfour chased volumes, which have since failed to meet savings targets or budget forecasts as they approach completion.
In future the company has said it will now bid more selectively, focusing on higher returns as the construction market recovers, and reducing its exposure to harder to serve regions in southwest England and Wales.
Reacting to the latest warning, shares in the firm fell as much as 25 percent in early trading, their biggest ever single one-day drop.
By 1227 GMT the shares were trading down 18 percent at 184 pence, reducing its market value by over £300m to £1.2bn ($2bn).
The group has now issued five profit warnings in two years, with the share price down over 40 percent in that time. Its last chief executive, Andrew McNaughton, quit in May after the first of the profit warnings this year, which was followed by a second in July, and has yet to be replaced.
“This latest trading statement is extremely disappointing,” Executive Chairman Steve Marshall said yesterday.
“There has been inconsistent operational delivery across some parts of the UK construction business and that is unacceptable.”
Work within the construction arm had suffered from persistent skill shortages, particularly in the south west of England, as well as programme slippages, cost inflation and poor operational delivery, the company said.
The review will focus on commercial controls, on costs incurred, the forecasting of contract values and reporting at project level, the group said, and a report is due to be completed by the end of the year.
Balfour also announced that following the $1.35bn sale of its US engineering and design consultancy unit Parsons Brinckerhoff to WSP Global, the 2014 final dividend and future dividend cover would be reviewed in light of the group’s changing shape.
Reuters
