Balfour Beatty cuts profit forecast by £70m

London's Olympic stadium Balfour Beatty has a contract to help rebuild London's Olympic stadium into a new home for West Ham United football club

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Balfour Beatty has said it expects profits for 2014 to be £70m lower at its construction business due to problems with contracts.

The accountants KPMG have been reviewing the firm's construction business and found that it had been bidding with "optimistic assumptions".

The report also said it had not been managing contracts effectively.

Balfour Beatty has also cancelled a proposed £200m share buyback and says it is reviewing its dividend policy.

It follows a string of profit warnings last year and the resignation of its chief executive.

The company has already made a provision of £135m related to its UK building business.

Start Quote

Balfour Beatty is a large organisation which had become too complex and too devolved for adequate line of site and financial control.”

End Quote Leo Quinn Balfour Beatty chief executive

It said the directors would "assess the overall level of contract risk provisions in the UK construction business in the light of the operational issues identified and will announce the outcome at the full year results in March".

The KPMG report criticised its bidding processes, saying it tendered for contracts at very low margins with optimistic assumptions around cost, and failed to manage contracts effectively.

The report also said Balfour Beatty was hit by high levels of employee turnover because of an "overly complex reorganisation programme" during a time of extremely challenging market conditions.

Action plan

Chief executive Leo Quinn, who was appointed at the beginning of the year, said: "Balfour Beatty is a large organisation which had become too complex and too devolved for adequate line of site and financial control.

"The key is that these issues can be put right and we now have a clear action plan in hand."

Balfour Beatty has a contract to help convert London's Olympic Stadium into a new home for West Ham United football club.

This week it recruited travel group Hogg Robinson's finance chief Philip Harrison as its new chief financial officer.

Last year, a merger with rival Carillon collapsed and in December Balfour rejected a £1bn offer from John Laing Infrastructure Fund for assets it operates in partnership with government, saying the price was too low.

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