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Balfour Beatty cuts 70m from profits forecast

Article By: ,  Financial Analyst
January 23, 2015 1:26 PM

Balfour Beatty has announced a £70 million cut in profits forecast for its construction business.

The company, which has been selected to transform London's Olympic Stadium into a permanent home for West Ham United, stated that it had experienced a number of problems with contracts which has led to it making a revision in its forecast. Accountants KPMG, which had recently overlooked the firm's construction arm, said it had been bidding with "optimistic assumptions".

KPMG's report on Balfour Beatty's performance also noted that the company had not been managing its contracts effectively. It highlighted a number of profit warnings issued during the last 12 months and the resignation of chief executive Andrew McNaughton. His departure came after the firm announced that group pre-tax profits would be "significantly lower" than previously expected.

The research highlighted three key areas deemed to be the "root causes of poor operational performance" at Balfour Beatty – bidding, commercial and contract management and accuracy of cost and programme forecasting. KPMG explained that the company had suffered from failing to recover genuine contract entitlement due to "poor contract administration".

Responding to the report, Balfour Beatty's board outlined a four point plan which aims to strengthen the company's performance in the coming months. It included having more rigour in tender assessments, improving accountability for project performance, better accuracy and timeliness of forecasting and reinforcing group policies to commercial and local financial management.

Leo Quinn, group chief executive of Balfour Beatty, said: "Working changes into the culture of the Group will take time and discipline, but everything I have seen so far reinforces my first impressions about the depth of engineering capability in Balfour Beatty, and the expertise, commitment and passion of our people."

Despite the revision in its profits forecast, Balfour Beatty's share price performed well edging up 3.11 per cent at 10:12 GMT on Friday (January 23rd).

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