Balfour Beatty warns on profits, again

Balfour Beatty has issued another profit warning, with pre-tax profit likely to be lower by between £120m to £150m due to problems discovered in various parts of the infrastructure construction group as part of a continuing business review.

The troubled FTSE 250 outfit, which has reported six profits warnings over the past two years, said "legacy issues" had been discovered in its UK, US and Middle East businesses, with two-thirds of the profit shortfall stemming from the UK.

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"The issues we are working through are as I set out in March and legacy challenges remain," said chief executive Leo Quinn. "However, we are making encouraging progress on the group's transformation. The positive response of our people to change, the continuing confidence of our customers in Balfour Beatty's expertise and the first signs of improving cash performance reinforce my conviction in the group's long-term success."

On the upside, good progress was said to have been made against the £100m cost reduction programme.

Quinn's transformation programme has seen new project disciplines and financial controls embedded into company culture via a new senior leadership team that is now mostly in place.

Helped by this new discipline, net cash is expected to exceed £200m at the half year end, which Quinn said demonstrated the group's ability to maintain balance sheet strength through self-help.

In March, Balfour's troubles in its UK construction business forced it to suspend its dividend, with a £304m pre-tax loss reported for 2014 and negative operating cash flow of £372m. The group slumped to a total loss of £59m in 2014 on revenue of £8.4bn.

At the time, Balfour wrote down further £118m on problem contracts in UK construction as its auditors found out that the firm undertook low margin contracts and then managed them poorly.

The market was not impressed, with the shares tanking in the first few minutes after the stock market opened before rebounding to be down 3.5% to 220.4p by 08:25 on Thursday.

Analyst Alastair Stewart at Westhouse Securities pointed out that the UK business "was supposed to be cleaned up following numerous profit warnings, a root and branch KPMG review and what appeared to be further 'kitchen sinking' by the new CEO".

He added: "Based on the word 'continuing' we suspect more is to come from these three regions plus possible huge issues in Hong Kong, which we have highlighted in recent days. It all looks very negative and could run and run."