Balfour Beatty made a total loss of £206m in 2015, with chief executive Leo Quinn warning it could take years before it records “industry-standard” margins.
The group said it was on course to meet its target of “£200m cash in and £100m of cost out” through its Build to Last programme, implemented last year following years of profit warnings and under-performance.
Underlying revenue declined by 2.4 per cent to £8.24bn, while its order book declined by 4 per cent in 2015 to £11bn, which Balfour said was the result of “improved controls and disciplines on bidding, together with the decision to withdraw from certain types of work in non-core areas”.
Balfour Beatty had underlying losses in Construction Services of £229m (2014: £209m) which were largely caused, it said, by “historic issues in the UK, US and Middle East”, while the Far East performed in line with expectation.
Underlying revenue in the UK fell by 14 per cent to £2bn, predominantly due to a decline in the regional construction business.
The group’s total loss in the UK was £195m, an improvement on 2014’s loss of £317m.
Balfour Beatty said that of 89 historic contracts identified as having a negative impact on profitability and cash, 60 per cent of these projects were at practical or financial completion by the end of 2015, with that number expected to reach 90 per cent by the end of 2016.
The group hinted at further shake-up in the UK to come. “The UK Regional construction business is in the process of rationalising its management structure and offices,” it said.
Balfour is also increasingly walking away from bids in the tender stage. “Today across the UK and US approximately 14 per cent of bids are known to be terminated before Gate 4 – the final stage before bid submission,” the group said.
Despite the loss, chief executive Leo Quinn said Build to Last had made “significant progress in transforming Balfour Beatty”.
Among the actions taken were the reduction of 846 indirect employees, as well as the standardisation of working practices to make £60m of annualised savings in the year, comprising £39m from centralising back office and support functions, £13m from IT and £8m from indirect procurement.
Excluding the impact of Parsons Brinckerhoff, the group’s cash performance improved by £357m in 2015, compared with 2014.
By the end of 2016, Balfour Beatty said it will have achieved its phase one targets, and over the following 24 months the group expects each of its businesses to reach “industry-standard” margins.
Leo Quinn statement
“We have upgraded the leadership team and set out a clear direction. We are implementing consistent processes to integrate our businesses into a group with greater transparency and control.
“Our main markets are providing a positive backdrop, so that with stronger governance we can both win and deliver business on the right terms. Looking to the future, we are investing to maintain Balfour Beatty’s expertise and assets.
“By the end of 2016 we will achieve our phase one targets: our costs are coming down, our cashflow has improved substantially and we expect to reinstate our dividend later this year.
“Over the following 24 months, I am confident we can reach industry-standard margins. But above all, Build to Last is putting in place the foundations to build a Balfour Beatty with market-leading strengths and performance over the longer term.”
In 2014 Balfour Beatty recorded a £59m loss, with a £317m loss in its UK business alone.
The group’s losses would have been an eye-watering £293m had it not been for the sale of its US business Parsons Brinckerhoff.
Balfour Beatty’s construction arm was hit particularly hard, with its 2014 losses totalling £391m – up from £103m in 2013.
Following the 2014 results, Mr Quinn pledged to cut costs by £100m over two years.
Balfour Beatty in 2016:
- 3 Mar: Balfour Beatty teams shortlisted in four CN Awards.
- 8 Feb: CEO Leo Quinn among signatories to an open letter to the chancellor calling for Heathrow expansion.
- 5 Feb: Loses court case over disputed £23m payment on delayed London hotel job.
- 3 Feb: Scoops seven-year £245m highways maintenance contract in the West Midlands.
- 27 Jan: Fined £1m following the death of a road worker in 2012.
- 20 Jan: A Balfour Beatty whistleblower is paid £137,000 compensation after being “bullied” out of his job when he warned bosses of inflated costs on a Welsh Government project.
- 13 Jan: Worker dies after an incident on Balfour Beatty’s Third Don Crossing site in Aberdeen.
- 11 Jan: Bags a contract with developer LBS Properties to deliver a £150m residential tower in London’s Docklands.