25th Mar 2015 09:09
LONDON (Alliance News) - Balfour Beatty PLC Wednesday reported a wider loss for 2014 as it booked another writedown against its struggling construction business, and it moved further to shore up its balance sheet by scrapping its dividend as Chief Executive Leo Quinn admitted it will take another two years to turn the business around.
The construction and infrastructure investments company reported a pretax loss from continuing operations of GBP304 million for 2014, compared with the GBP49 million loss it reported for 2013, as it booked a further GBP118 million write-down against its UK construction business and a GBP53 million accounting impairment in its German rail business.
Balfour Beatty has been going through a tough few years after its UK construction business ran into severe difficulties after it won contracts that proved unprofitable and overly risky. It fended off a takeover attempt by rival Carillion PLC last year, a deal that collapsed when Balfour refused to halt the sale of its US asset management arm Parsons Brinckerhoff, and is now embarking on a major restructuring. In December, Balfour also rejected a bid from John Laing Infrastructure Fund Ltd for its public-private partnership portfolio portfolio, saying the GBP1 billion offer undervalued the assets.
Balfour's shares fell by a third in 2014, after it issued a string of profit warnings and in September initiated a review of the UK construction services business by KPMG.
It said the GBP118 million writedown it has now booked against the construction arm followed an assessment of existing risk provision by its board.
Balfour has already cancelled a share buyback programme and re-phased its pension fund payments to help preserve cash on the balance sheet, and Wednesday said it has also decided not to pay a dividend for 2014. It said it hopes to reinstate a dividend at "an appropriate level" by March 2016.
"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," CEO Quinn admitted.
He said the company's transformation plan will be key to the turnaround, and it's initially targeting cost cutting of GBP100 million and cash flow improvements of GBP200 million over the next two years.
It is hoping that its investments portfolio will give it financial flexibility as it provides a reliable income and as it sells maturing assets into a "strong market".
Balfour said it has already strengthened its balance sheet with GBP219 million net cash in 2014, and its net assets rose to GBP1.23 billion at the end of the year, from GBP1.04 billion a year earlier, including the GBP306 million reduction in the pension fund deficits to GBP128 million.
The company's revenue from continuing operations, including its shares of joint ventures and associates, was GBP8.8 billion, down from GBP8.9 billion a year in 2013, although it would have risen 2% if exchange rates had remained the same. Underlying revenue in its overall construction business was flat at GBP6.6 billion as international growth offset a 6% decline in the UK, while revenue rose 1% to GBP1.27 billion in its support services business as a 35% rise in transportation revenue was mostly offset by an expected decline in the power sector.
Its infrastructure investments business, mainly comprising its PPP portfolio, performed well. Balfour had already increased its directors' valuation to GBP1.30 billion, from GBP766 million in 2013, one of the reasons it rejected a bid for the business from John Laing Infrastructure Fund. It said Wednesday that underlying pretax profit in the business rose to GBP162 million, from GBP132 million in 2013, thanks to higher profits on disposals, pre-disposal operating profits and net interest income.
The number of investments in the portfolio rose to 66 in 2014, from 61 in 2013, as it continued to expand into new sectors and geographies. The company expects to invest over GBP300 million in the portfolio over the next five years, and it estimates the value of the future pipeline at an additional 10% to 15% of the current directors' valuation.
However, the loss from Balfour's UK construction business was GBP229 million compared with a GBP20 million loss a year earlier. The loss was GBP317 million including some engineering services contracts That the company has now classified as exceptional items because it has withdrawn from tendering or there has been poor management of the contract.
Its overall net loss was GBP60 million, compared with the GBP35 million net loss it reported in 2013, as it booked a GBP234 million net gain in the sale of Parsons Brinckerhoff.
Still, Balfour Beatty shares were up 4.7% at 242.00 pence Wednesday morning, the second-best performing stock on the FTSE 250. The shares have risen nearly 14% so far in 2015, taking back some of the sharp decline in 2104.
Investec reiterated a Hold rating on the stock, and put its price target and earnings forecasts under review, but it welcomed the greater disclosure about Quinn's turnaround plans.
"Overall, much to digest from today?s statement. Phase 1 of the new strategy looks sensible in terms of a focus on cash flow improvements and cost savings, but clearly there are still risks to overcome in terms of its construction operations. We are glad to see greater disclosure in the results, but this also helps to highlight the task ahead," the broker wrote in a note to clients.
By Steve McGrath; [email protected]; @stevemcgrath1
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