Balfour Beatty Share Discussion Threads

[smurfy2001] 29/9/2014 13:14

Balfour Beatty: bad project management to put £75m dent in profits

Shares plunge 25pc after fifth profits warning in two years, as infrastructure giant appoints KPMG to review its UK construction portfolio

Balfour Beatty is facing a major challenge to restore its credibility with shareholders, after warning that an internal review had unearthed a further £75m profits shortfall in its key UK construction business.

The infrastructure group's latest alert is its fifth in two years, and comes just months after it said annual profits from its mechanical and electrical engineering services unit would be £65m below forecasts.

The surprise warning sent the share price down as much as 25pc on Monday morning, to 168.1p.

Balfour has appointed KPMG to conduct an independent review of the UK construction contract portfolio, centred on how it forecasts the costs of each building project.

It said £30m of the profit shortfall came from engineering services, £20m from large London-based building projects, £15m from regional reconstruction and £10m from major infrastructure projects. The group pinned the blame on "programme slippage, resource and skills shortages, poor operational delivery and cost inflation pressures".

The problems relate to contracts, particularly smaller deals, which were awarded during the recession in 2012 and 2013 and which offer thin profit margins. As the contracts are now nearing completion, Balfour is realising it hasn't been able to meet the procurement savings or the budgets forecast at the time that it bid for the work. Balfour Beatty's profit warnings have increased in size since the first in November 2012, as the full scale of the problem becomes clearer.

Steve Marshall, executive chairman, described the profits shortfall as "extremely disappointing". "There has been inconsistent operational delivery across some parts of the UK construction business and that is unacceptable. Restoring consistency will take time and it has our full focus".

Balfour, which has been bereft of a chief executive since May when Andrew McNaughton resigned with immediate effect, said the hunt for a replacement is now at an "advanced stage". It is believed a replacement could be announced within a matter of weeks. It also said Mr Marshall will step down from the board soon after the appointment of a new boss.

The profits warning led to significant downgrades to profit forecasts. Liberum analyst, Joe Brent, slashed his forecast for full-year pre-tax profit to zero from £75m and said he expected the dividend to be cut from 8.5p a share to 5.6p a share.

Howard Seymour, analyst at Numis, cut his full-year pre-tax profit forecast to £72m from £145m and warned that the profit warning extended to parts of the UK construction business that were previously believed to be "back on a recovery path".

Balfour Beatty is currently in the process of offloading its US consultancy business, Parsons Brinckerhoff, which was the principle cause for the collapse of merger talks with its rival Carillion earlier this year. Carillion had wanted to keep hold of the US division but Balfour insisted on the sale. Critics of Balfour at the time said that by selling Parsons Brinckerhoff, Balfour would be left exposed to a highly volatile construction business.

[michaelwhight] 29/9/2014 11:56

An educational site in Cambridge too.

[michaelwhight] 29/9/2014 10:33

Balfour Beatty PLC Contract WinTIDMBBYRNS Number : 8402SBalfour Beatty PLC29 September 201429 September 2014BALFOUR BEATTY JOINT VENTURE APPOINTED AS SOLE CONTRACTORFOR NUCLEAR FRAMEWORK CONTRACT WORTH OVER GBP240 MILLIONBalfour Beatty plc today announces that its joint venture with AMEC and Jacobs has been appointed to a framework contract to provide a new nuclear waste processing plant at Sellafield in Cumbria, UK.The three way, equal, joint venture will be the sole contractor on the four year framework with Sellafield Limited which is worth between GBP240 million and GBP336 million to construct the new 'Box Encapsulation Plant' which will receive, segregate and encapsulate hazardous waste already stored on the Sellafield site.The processing plant is part of Sellafield's wider programme to prepare hazardous nuclear waste for storage and disposal. It will also process waste recovered from other facilities on the Sellafield site once they are decommissioned.The joint venture will be responsible for the complete life cycle of the scheme from design, engineering, procurement, installation and construction management through to commissioning and handover. Balfour Beatty's Major Projects business will provide a broad range of expertise including civil engineering, construction and mechanical and electrical capabilities, and supply chain management. Building Information Modelling will support accelerated delivery by integrating design and construction information within the construction programme to optimise planning and co-ordination.Work is scheduled to start in the fourth quarter of 2014. The joint venture is committed to engaging local small and medium sized businesses in the supply chain and employing local apprentices and trainees.Balfour Beatty UK construction Chief Executive Officer Nicholas Pollard said: "Balfour Beatty has a strong heritage in the nuclear sector including a 35 year presence at Sellafield. This is an important project to reduce hazardous waste across the Sellafield site and Balfour Beatty and our partners will draw upon and share our extensive experience of safely delivering major nuclear facilities. This latest award underscores Balfour Beatty's success and capability in the UK power sector. "Last week, Balfour Beatty was appointed by Magnox to deliver the GBP34m Solid Intermediate Level Waste Encapsulation contract at Hunterston A former power station in North Ayrshire. The project marks the final link in Magnox's process chain of safely encapsulating and storing intermediate level waste as part of the decommissioning of the nuclear power plant. Balfour Beatty will be responsible for the final design of the encapsulation process and construction of the plant including the complex mechanical, electrical control and instrumentation required.

[smurfy2001] 29/9/2014 10:04

Balfour Beatty warns on profits for fifth time

Shares in Balfour Beatty, the construction group which earlier this year shunned a £3bn merger with rival Carillion, tumbled on Monday after it issued its fifth profit warning since 2012 and announced that Steve Marshall is to stand down as its executive chairman.

[smurfy2001] 29/9/2014 10:02

Balfour Beatty has issued another profits warning, compounding concerns over the UK's biggest construction group.

The company's shares fell 20% as the market opened on Monday.

Balfour Beatty said there would be a further shortfall of £75m this year in its UK construction services division, following two earlier profits warnings this year.

The company is appointing accountants KPMG to review the contract portfolio.

'Extremely disappointing'
The accountancy firm is to conduct a "detailed independent review" into costs and controls at projects within that division, which will report before the end of this year.

The statement said Balfour Beatty had continued to experience "programme slippage" and "poor operational delivery" within some projects, including several London area building contracts.

"This latest trading statement is extremely disappointing," said executive chairman Steve Marshall in a statement.

"There has been inconsistent operational delivery across some parts of the UK construction business and that is unacceptable."

Mr Marshall has also announced he is to step down from his role on the company's board.

In August, a £2bn takeover offer from rival Carillion was rebuffed after repeated approaches.

Chairman to go
Balfour Beatty is involved in projects such as motorway building, power stations and office block construction, as well as public private partnership projects, and operates in 80 countries worldwide.

But it is the UK construction services division where significant problems have been identified.

Trading across the rest of the company remained in line with its expectations, the group said.

In May, the company's chief executive Andrew McNaughton quit after it became clear profits would be lower this year.

The company said it was now close to appointing a new chief executive.

Executive chairman Steve Marshall said he would step down, once a new chairman and chief executive had been found.

[smurfy2001] 29/9/2014 10:01

Balfour Beatty shares plunge 25% after forecast profits dive by £75m

KPMG instructed to investigate after internal reviews at troubled construction firm unearth extra losses and write-downs

Shares in Balfour Beatty plunged by almost 25% as the infrastructure group issued its fifth profit warning in two years following the discovery of a £75m shortfall in expected profits at its UK construction services business.

Balfour’s executive chairman, Steve Marshall, is also stepping down. The group has brought in KPMG to conduct a review of the construction services’ business. The accountants will analyse commercial controls, contract value forecasting and project-level reporting for contracts at the division. KPMG’s review follows an internal probe last year that found overruns and overspends.

Internal reviews over the last few days found extra losses and write-downs at the UK construction operation. Projects in London make up £50m of the shortfall.

Balfour’s shares crashed 25% in early trading to 170.25p.

Marshall will leave when a new non-executive chairman is found. He took over the company when Andrew McNaughton quit as chief executive in May following an earlier profit warning.

Marshall said: “This latest trading statement is extremely disappointing. The board has appointed KPMG to undertake a thorough review across the contract portfolio within construction services UK. There has been inconsistent operational delivery across some parts of the UK construction business and that is unacceptable. Restoring consistency will take time and it has our full focus.”

The company blamed late completion, skill shortages, cost pressures and poor project management. The number of problem contracts rose to 25 from 21.

Balfour also said it would review its final dividend in light of its decision to sell its Parsons Brinckerhoff consultancy business.

Balfour has been trying to rally shareholder support after rejecting a merger offer from its rival Carillion last month. It has struggled since the the recession prompted a downturn in large UK construction projects but analysts have said its problems are the result of bad management and not the wider market.

[dealy] 29/9/2014 09:40

only 8m shares have traded. that's 16m quid's worth. looks like capitulation. many uk stocks are warning at present despite growing economy (tesco, de la rue, tate and lyle etc.).

still think this is a huge over-reaction given a)sale of US business b) improved PFI valuation c) contract wins

[deanowls] 29/9/2014 09:20

What price was it that they could have sold out at?

I would expect CLLN to be back in about six months and they can have it cheaper.

[michaelwhight] 29/9/2014 09:18

I'm in @172 ish. Liberum maintain buy rating and with new management I hope for a good recovery.

[ruethewhirl] 29/9/2014 09:07

aspers - was that you "piling in" at 2293?

You've lost a quarter of your money in a week.

Not bad.

[salpara111] 29/9/2014 09:00

A bid may well come but a professional investor "buys the business" not the hope of a rescue takeover.
We simply don't know where the bottom here is as they have called in the forensic accountants and they will doubtless turn up a few more rotten apples over the next few months.

[dealy] 29/9/2014 08:58

chairman to go and clln to resubmit bid. back to at least 220p soon

[aspers] 29/9/2014 08:54

I feel another bid coming at this price.........there's more to this trading statement than meets the eye 😉

[g2theary] 29/9/2014 08:46

Way over sold for the day :)

[lord gnome] 29/9/2014 08:38

CLLC had a narrow escape here. Thank Goodness the bid failed.

[ruethewhirl] 29/9/2014 08:36

Ouch, smashed. Where's sanks when you need him? Discl: none held.

[deanroberthunt] 29/9/2014 08:35

Brits for the most part can't run businesses, leave it to the Yanks and Asians.

[lord gnome] 29/9/2014 08:34

Well done Barclays analysts. Don't you just love them. Looks like a lot of investors were suckered in last week - no doubt allowing a lot of Barclays clients to get out!

[salpara111] 29/9/2014 08:33

I know a senior guy in BBY, he told me that in order to cut costs over the last 5 years they got rid of a lot of experienced staff who put bids together. He is not at all surprised that they are experiencing massive losses now as he explains that people with less than 5 years experience in the business were putting together quotes for multimillion pound contracts because they cost £10-15K a year less than the experienced staff who were made redundant......well that worked out well for them.....save pennies loose pounds!
There is now absolutely no confidence in the business.

[compound_dave] 29/9/2014 07:51

What a bunch of incompetent thunder*nts we have managing this company.

What part of issue cautious revenue and profit figures and then EXCEED expectations don't they understand?

[randomwalker] 29/9/2014 07:44

hmm

not great timing for Deutsche.....

[smurfy2001] 26/9/2014 12:30

Balfour Beatty builds up rise after buy note
Barclays analysts say recent share price fall is overdone and move from hold to buy
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In a downbeat market, one of the day's bigger risers is an unfamiliar one.

Balfour Beatty has been in the doldrums following profit warnings, a failed bid from Carillion and general market malaise. But the company's share price decline could have been overdone, according to Barclays. The bank has raised its recommendation from hold to buy and its target price from 245p to 270p. Analyst Manu Rimpela said:

After several profit warnings in the Construction division, two chief executives (it currently has no chief executive) and a failed approach by Carillion, the shares have been one of the weakest performers in the sector, down 24% year to date.

Given the lack of visibility and clear strategy, it would be daring to argue for a sudden, sharp Construction recovery. However, the current share price implies zero value for Construction (excluding joint ventures), which is overly negative. The announced sale of Parsons Brinkerhoff addresses both the balance sheet concerns and together with the stable PPP-assets portfolio anchors the valuation. This combined with the overly negative market sentiment provides an opportunity.
The positive comments have helped lift Balfour 5.4p or nearly 2.5% to 225.6p.

[neilyb675] 26/9/2014 08:54

Deutsche upgraded to buy with 270 target

[neilyb675] 26/9/2014 08:53

226.10 - 226.40 (GBX) at 08:53:11
on Market (LSE)

[neilyb675] 26/9/2014 08:46

226 touched...........up 2.3% LIVE

ex div for 5.6p 9/10/14