Balfour Beatty profits dive by £60m at construction arm

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Balfour Beatty saw UK construction profits fall £60m below its expectations for last year.
Final results for the year to December 31 2013 revealed bigger problems at the business than last April’s £50m profit warning.

Profits down at Balfour Beatty
Profits down at Balfour Beatty

Balfour bosses are confident of a turnaround after performance picked-up in the second half of last year as underlying profit in the global construction services division dropped to £21m from £119m last time on a steady turnover of £6.57bn.

Problems contracts at the UK regional contracting division forced Balfour to issue a £50m profit warning last April.

Balfour commented : “Whilst the UK business broadly performed in line with these reduced expectations, a further deterioration at the end of the year resulted in an actual profit shortfall of £60 million.”

The business went through a fundamental reorganisation last year but has been hit by a weakening demand for major projects.

Balfour said: “We undertook a review of the regional business and closed regional delivery units with weak future prospects.

“The management team reviewed all operational contracts, and have subsequently taken steps to improve key disciplines such as tendering, estimating and commercial governance.

“The actions we have put in place to strengthen the leadership and performance of the UK construction business are taking effect, and contributed to a stronger second half performance.

“Whilst we have seen a better than anticipated turnaround in the regional business, there was weaker financial performance on selected major projects in the building sector.

“In our mechanical and electrical engineering business, where we predominantly act as a subcontractor, financial performance in the final quarter was adversely impacted by increasingly difficult market conditions.

“The impact of these further deteriorations resulted in an overall £60m reduction in profitability versus expectations at the start of the year.”

The restructuring of the regional business cost the company £26m during the year.

Balfour is seeing its regional workloads pick-up again led by the housing recovery “and fewer major projects being brought to the market.”

Andrew McNaughton, Chief Executive Officer said: ”In 2013 we faced challenging economic conditions in several markets and experienced operational issues in the UK construction business.

“The remedial actions taken in underperforming areas are delivering results and have positioned us better for the future.

“Continuing to improve operational delivery and supply chain management will remain a particular area of focus throughout 2014.”

Group underlying pre-tax profit for the year was £187m from £277m last time on turnover up to £10.12bn from £9.97bn.

It looks like the UK is not as profitable this time around