Balfour Beatty announces new profit shortfall
Balfour Beatty, the international infrastructure group, has announced a further profit shortfall of approximately £75 million (US$121.7 million) in Construction Services UK.
The company said that internal reviews conducted in recent days have forecasted a further profit shortfall due to additional losses and write-downs across a number of contracts, estimated at £75 million in aggregate, and reducing 2014 results. The £75 million profit reduction is split across Construction Services UK in the following way:
- £30 million within Engineering Services,
- £20 million within large London area building projects,
- £15 million within Regional construction, and
- £10 million within Major Infrastructure Projects.
Balfour Beatty reported in a statement:
In Engineering Services the £30 million write-down relates mainly to previously highlighted problem contracts in London. We have continued to experience programme slippage, resource and skills shortages, poor operational delivery and cost inflation pressures. The total number of problem contracts has increased to 25, from the 21 previously disclosed. Of these, 19 are due to reach operational completion in 2014. As we previously indicated, we have now withdrawn from bidding any contracts for other Tier 1 contractors in London, as well as withdrawing from bidding any new contracts in the South West region. The business will continue to pursue contractual entitlements in relation to the problem contracts and to recover monies that we believe are fairly due.
Balfour Beatty has also announced that it has appointed KPMG to undertake a detailed independent review of the contract portfolio within Construction Services UK. The review will focus on commercial controls, on 'cost to complete' and contract value forecasting and reporting at project level.
The comapny also said that the process to appoint a new Group CEO is now at an advanced stage, and an announcement will be made in due course. Steve Marshall has indicated to the Board that, following the handover of his interim executive responsibilities to a new Group CEO and the identification of a new non-executive Chairman, he intends to step down from the Board.
The company announced that disposal proceeds from already identified PPP Investments are expected to generate outperformance against the revised Director's Valuation, arising in part from highly favourable market conditions.