Balfour Beatty has recorded a £59m loss for 2014 and 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 net gain from 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 – including a £317m loss in its UK business alone.
Balfour Beatty has scrapped its final dividend payment to shareholders for 2015.
The UK figure included a £118m writedown “following an assessment of the existing risk provisions by the board”.
The overall loss for the group comes on the back of a £35m hit in 2013 following a troubled period for the construction giant during which it has issued six profit warnings in two-and-a-half years.
Balfour Beatty’s share was 232.52p at 8.27am this morning.
In a statement to the stock market, the Balfour Beatty board said it had taken the decision to scrap dividend payments “to ensure balance sheet strength is maintained”, but added that it expects to reinstate payments by March 2016.
Chief executive Leo Quinn said the company has now launched a programme to save £100m in costs over the next two years.
Results at a glance
Group revenue: £8.79bn
Order book: £11.4bn
Loss for the year, from £35m in 2013
Mr Quinn said: “Over the next two years we should work through the severe legacy of ‘problem’ construction projects.
“However, in tackling the cultural change required to ensure these issues are behind us, we face major short-term challenges.
“The key is that we are determined to address this through self-help.
“Our transformation programme, Build to Last, is gaining rapid traction and we are driving initial improvements of £200m cash in, £100m cost out over 24 months.
“In addition, our investments portfolio will provide the financial flexibility of both reliable income and the sale of maturing assets into a strong market.”
The group’s latest £70m profit warning in January came after an internally commissioned investigation by KPMG found flaws in its bidding and valuation process.
The warning was Balfour Beatty’s sixth in two-and-a-half years but the first under Mr Quinn’s stewardship, after he took up the reins at the start of 2015.
“The cost base of the group is too high”
Leo Quinn, Balfour Beatty
In the morning’s statement, the group said the latest £118m writedown came as a result of its assessment of UK construction contracts in the wake of KPMG’s recommendations.
It said that “independent reviews” were now complete on 70 per cent of the group’s business operations, with the rest due to be under way “by the end of the summer”.
In his chief executive’s report, Mr Quinn said: “Balfour Beatty’s underlying performance has been declining since 2010, with the sharpest and most noticeable decline occurring over the last 12 months.
“This has been caused not only by the significant operational issues impacting Construction Services UK over the last two years, but also because the cost base of the group is too high and there have been significant working capital outflows since 2009.”
He added that the “root cause” of the problems “lies in the group’s rapid fourfold revenue expansion since 2000, largely by acquisitions which were insufficiently integrated”.
Mr Quinn reiterated that driving down costs was a priority, adding that overheads across the group were “approximately 1 per cent of revenue above industry benchmarks”.
In addition to a 24-month target of achieving £100m of savings on overhead and procurement costs, Mr Quinn said he intended to improve operating cashflow by £200m over the same period.
Overall revenue at the group was £8.79bn, down slightly from last year’s £8.85bn. Its order book stood at £11.4bn, down from £11.8bn.
US construction revenue remained flat at £3bn while revenue from Balfour Beatty’s international construction business grew 24 per cent to £1bn.
Balfour Beatty results breakdown
UK Construction Services
- Revenue (excluding engineering services): £2.23bn (2013: £2.37bn)
- Loss (excluding engineering services): £180m (2013: £9m)
- Revenue (engineering services): £121m (2013: £136m)
- Loss (engineering services): £49m (2013: £11m)
US Construction Services
- Revenue: £3bn (2013: £3bn)
- Profit: £29m (2013: £27m)
Rail - UK & International
- Revenue: £368m (2013: £388m)
- Loss: £6m (2013: £12m)
Overseas Joint Ventures
- Revenue (Middle East): £177m (2013: £129m)
- Loss (Middle East): £15m (2013: £6m profit)
- Revenue (Far East): £706m (2013: £571m)
- Profit: £12m (2013: £17m)
- Revenue: £1.27bn (2013: £1.26bn)
- Profit: £50m (2013: £55m)
- Pre-tax profit: £162m (2013: £132m)