Balfour Beatty made a pre-tax loss of £150m in the first half of 2015 despite its Build to Last transformation programme improving the group’s cash position.
The loss was in line with a July trading update that warned that a review of legacy problem construction contracts had revealed a number of additional writedowns and was likely to produce a loss of between £120m and £150m.
The half-year figures, covering the period to 30 June, show the construction services division made a loss of £217m, following a £391m loss suffered in full-year 2014.
The group said the losses were made on engineering services contracts, particularly in London and the South-west “where there has been poor legacy management.”
It added that it has withdrawn from tendering for third-party work in these areas.
Balfour Beatty chief executive Leo Quinn said the losses “set out the consequences of the historic issues that are now being tackled”.
According to a statement released to the City this morning, Balfour Beatty expects 90 per cent of its problem contracts in the UK “to be at practical or financial completion” by the end of next year.
“The headline numbers set out the consequences of the historic issues that are now being tackled”
Leo Quinn, Balfour Beatty
The US construction business has also been hit by poorly performing contracts, suffering a £41m loss in the first half of 2015, having recorded a £12m profit for the same period last year and an overall 2014 profit of £29m.
Overall underlying losses for the group stood at £130m, compared with a £15m profit made in the first six months of last year.
The losses were boosted by £20m in non-underlying costs, including £12m spent on the Build to Last programme and a £5m cost for implementing the group’s UK shared service centre.
The Build to Last programme aims to take £100m of cost out of the business and add £200m in cash within two years.
Mr Quinn said the group was on target to achieve this after a £362m improvement in Balfour Beatty’s cash position at the halfway point this year compared with 2014.
The group had a £41m net cash inflow over the six-month period, compared with a £321m net outflow for the same period last year.
Mr Quinn added: “Six months in, our Build to Last transformation programme is gaining traction throughout the business.
“We have a new senior leadership team and an organisation re-aligned with key customer sectors.
“We are on course to meet our 24-month targets for £200m cash in and £100m cost out.
“In rising core markets, the group is continuing to win business on better terms across our operations.
“In the last few months the awards of contracts or preferred bidder status for three landmark projects – Bergstrom Expressway in Texas, Hinkley Point C power station electrical package and a UK smart motorway package – is a further endorsement of Balfour Beatty’s leading capabilities.
“Inevitably, the headline numbers set out the consequences of the historic issues that are now being tackled.
“However, the continuing confidence of our customers in Balfour Beatty’s expertise, the positive response of our people to change, demonstrated by our excellent net cash performance, and the underlying strength of our balance sheet, supported by the Investments portfolio, all reinforce my conviction that over the medium term we can provide our customers, employees and shareholders with superior returns.”