Balfour Beatty makes Olympic-sized £59m loss, scraps dividend

After a string of disastrous profit warnings, the construction firm's annual results are in - and there's no succour for long suffering shareholders.

by Andrew Saunders

Construction giant Balfour Beatty has filed a £59m loss - down from profit of £185m last year - and is cancelling its dividend.

Even allowing for the six (yes six) profit warnings it has issued in the past 2 years that makes pretty grim reading. What’s more, that £59m loss balloons to a whopping £304m if the flattering effects of the sale of its US Parson Brickerhoff division are excluded. Not such an Olympic performance from the firm that worked on the post-games conversion of the 2012 London stadium.

Underlying revenues were broadly flat at £8.4bn, while the order book is down 7% to £11.4bn. Just to make sure that no-one was left out of the morning’s gloom-fest, the dividend was also scrapped, with plans to return it in 2016 provided company performance improves. Long-suffering shareholders will be aware that that’s quite a big ‘if’.

The figures certainly throw into sharp relief the job of work facing new CEO Leo Quinn - the son of a builder and former CEO of defence contractor QinetiQ who joined in January. At least no-one can say now that he does not have the requisite ‘burning platform’ from which the experts tell us all successful turnarounds must start.

Not the least of his problems is the inevitable long-tail effects of the construction industry - big infrastructure projects like that £154m Olympic stadium conversion take a long time to both secure and complete. So if - as Balfour Beatty has been doing - your firm has been bidding low to win business the inevitable consequence is that profitability is going to suffer badly and for a long time.

In other words, this is a business in which your mistakes can dog you for years. We think this is what Quinn means when he refers to ‘Legacy issues’ as the source of most of Balfour’s woes.

Still, it’s not all bad - the firm has plenty of work and its shareprice has been recovering somewhat since Quinn arrived. It also retains a feisty belief in its own independence, having managed to fight off a takeover bid from Carillion that chuntered on for most of 2014.

As well as today’s disappearing dividend, the firm has also scrapped a £200m share buyback plan. Having made the immediate prospects only to clear to his investors, we can now expect Quinn to start showing them that he knows how to tackle the problem, starting with the inevitable cost reductions.

A dread phrase which will have many of Balfour’s 36,000 employees quaking in their steel-toecapped boots. But giving how bad things have got, Quinn really hasn’t got much alternative…

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