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Balfour Beatty chief: 'We must turn this around'

Balfour Beatty’s chief executive has refused to blame the economic climate for the firm’s second profit warning in six months and insisted it has to look internally for answers after “falling off the pace”.

Speaking to Construction News after the firm issued a £50 million profit warning, Andrew McNaughton said “there has to be accountability” but that the business was not changing its focus.

He said: “I wish there was a magic wand [to solve the UK’s problems]. We can all be critical of the government but it is symptomatic of the times we are in, and that’s what I have been telling my investors.

“You can blame the external market but you have to look inside. We have fallen off the pace and have to turn it around.”

Asked by Construction News whether it would roll back on bidding for smaller projects where it was harder to make good margins, Mr McNaughton insisted that “small projects can be very profitable”.

Mr McNaughton has temporarily replaced Mike Peasland as UK construction chief executive while Mr Peasland has taken control of Balfour Beatty’s regional business.

The pair will work together to find a long-term successor as UK Construction chief executive.

He said: “Mike had indicated [he supported] that move to us because [he is near to retirement age] and he would only be here for a limited period of time anyway.

“I want to get the business stabilised and he will work for a period of time until we get the appropriate successor.

“The importance of Mike going in [to the regional business] is that if you go back on his history, when we bought Mansell [in 2003] he grew that and built it up and he has the experience we need.”

Mr Peasland takes on the role vacated by Steve Waite, the former Mansell managing director, six months after he was publicly confirmed as the new regional MD.

The managing director of Balfour’s major projects business, Bob Clark, will remain in his role.

The profit warning was delivered on Monday after a month-long review of around 1,000 contracts showed there had been “clear issues” with six underperforming business units in the South-east and South-west of the country.

Profit warning

Balfour Beatty announced on Monday that its UK construction business is expected to deliver “significantly lower profits” in 2013 than expected.

The firm downgraded forecasts made in its full-year results in March by £50m, due to “extremely tough conditions” which have “deteriorated significantly” in the second half of 2012.

Poor performers included the regional UK construction business, as well as the building part of its major project business.

It added that substantial restructuring to the UK construction business, coinciding with poor market conditions, had resulted in “specific instances of poor operational delivery”.

Trading in other business was broadly in line with expectations, with a £10m profit deterioration in rail operations in Germany but strong performance in investments and professional services in US transport, Asia and the Middle East.

Balfour Beatty put the profit warning down to high levels of competition, tight timescales, supply chain failure and costs due to delays.

In March, Balfour Beatty reported restructuring costs of £34m in its 2012 accounts and warned that it expected UK construction revenue to fall 20 per cent in 2013.

That followed a major restructure which saw the firm reduce its number of offices from 75 to 37 and realign into three central business streams, while cutting core brands from 15 to seven.

However, Mr McNaughton said he had been reassured by investors that they were pleased with the level of restructuring already completed and insisted that while it was right to call it the UK’s biggest contractor, its international presence would play a strong part in its future success.

Regarding his dual role, he said: “If you have a situation, you need to step up and put the right people in there.

“The construction business is where I come from so I will step back in and put the right focus on it. My commitment to shareholders is that I will be closer to that business.”

Panmure Gordon analyst Andy Brown said that “while the unexpected trading update yesterday was disappointing… management action has been swift, including a thorough contract review” and that it remained “a strong player in the global infrastructure market”.

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