6th May 2014 07:17
LONDON (Alliance News) - Construction giant Balfour Beatty PLC Tuesday said its construction business has continued to struggle which will result in "significantly" lower group pretax profit for 2014 than previously expected.
The infrastructure group also said Chief Executive Andrew McNaughton has stepped down with immediate effect, and Non-Executive Chairman Steve Marshall will take over as executive chairman until a successor has been appointed. Balfour said it will begin the recruitment process "shortly".
In a trading update for the period January 1 to May 5, Balfour said that although its Professional and Support Service businesses have traded in line with management expectations, it now expects a GBP30 million shortfall for its UK Construction business in 2014.
The UK Construction business underwent a reorganisation in 2013. However the firm said the changes are taking effect at a "slower pace" than anticipated.
Balfour said there has been significant performance improvement in the regional construction business, but the mechanical and electrical engineering and major buildings projects businesses have both experienced significant operational issues.
As a result group pretax profit for 2014 is expected to be significantly lower than previous expectations, in the range of GBP145 million and GBP160 million.
The group has been struggling for some time, and in March it reported a sharp drop in profit for 2013, due to the reorganisation of its UK construction business and a significant downturn in the Australian natural resources sector.
The FTSE 250 company posted pretax profit of GBP32 million for 2013 compared with GBP147 million a year earlier, even though group revenue rose to GBP8.74 billion from GBP8.66 billion.
At the time Balfour Beatty said the UK construction market has been a challenging environment in which to win and execute work, "allowing clients to impose increasingly stringent conditions onto contractors, and as a result, placing subcontractors under significant financial pressure".
The company on Tuesday said its Investment division has also struggled in 2014 with delays in reaching financial close on certain projects, resulting in slightly lower than anticipated profit for the business.
It said given these delays, and a continuing favourable secondary market for infrastructure assets, it is now targeting total public?private partnership profit disposal gains of GBP50 million in 2014. This is GBP10 million higher than previously anticipated.
Overall, in first quarter of 2014, Balfour said its group order book fell to GBP12.9 billion compared with GBP13.4 billion at the end of 2013.
Increases to the Professional Services order book have been more than offset by reductions in the Construction Services and the Support Services order books, the company said.
During the period, Balfour said it underwent a strategic review to explore ways to simplify its structure and create a more focused group. The review has led to the decision to assess options for the possible sale of its engineering and design business Parsons Brinckerhoff, Balfour said.
The company said Parsons Brinckerhof has been a successful business since it was acquired in 2009, and as anticipated there has been growth in the market towards design and build and public private partnership contracts.
"However, having professional services and construction capabilities combined within one organisation has not delivered material competitive advantage for the group," the company said.
Therefore the company is examining "how best to realise the substantial value" of the Parsons Brinckerhoff business.
Financially, the firm said it continues to operate with "good balance sheet strength". Average net debt for the three months to the end of March was in line with expectations at GBP310 million. Balfour said its expectation for average net debt for the year has increased by GBP25 million to GBP375 million.
Balfour Beatty shares were down 16% at 239.90 pence at the open Tuesday.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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