Balfour Beatty has issued yet another profit warning. The construction group has made a habit of announcing ‘shortfalls’ for a couple of years now. Today’s statement that its 2015 bottom line will take a £120-150m hit is the seventh time it has revised profits down since the start of 2013. The combined value of those shortfalls is a staggering £390-420m.
‘Legacy challenges remain,’ lamented chief executive Leo Quinn. No kidding.
Balfour Beatty’s problem is that for years it bid unrealistically low for big construction projects, particularly in the UK, which accounts for two thirds of the latest black hole. Whenever Balfour realises that it actually can’t deliver as cheaply as it thought it could, it’s time for another ‘shortfall’.
This means the firm’s bad news comes with a time delay, which can’t be fun for a new boss. Quinn knew what he was getting himself in for when he took over in January, of course, but he may have hoped these grim discoveries would have stopped by now. He said he’s ‘making encouraging progress on the group’s transformation’, which is code for a £100m cost-cutting programme. In a rather refreshing turn, this doesn’t mean mass lay-offs, but rather a lean strategy called ‘Built to Last’. Get it?
The firm has already increased its net cash, which was one of its earlier objectives, expecting it to reach £200m by the end of its second quarter. But to get back in the black, its more recent –and more realistic – bids will need to come to fruition, and that takes time.
Whether this will be the last of Balfour’s profit warnings with roots in its overstretched heyday remains to be seen, but at least it’s tried to address the ‘very low margins’ and ‘optimistic assumptions around cost’ that a KPMG report identified earlier this year as the cause of its woes.
But investors, already chaffing from the suspension of the dividend in March, don’t seem to be showing much patience. Shares dipped 4.3% to 218.5p in morning trading.