Balfour Beatty post £150M half-year loss

Stable order book and Build to Last programme are causes for optimism.

Leading international infrastructure group Balfour Beatty has posted its latest half-year results, which show losses of £150M.

The Company’s detailed contract reviews as part of the half-year process – up to 26th June 2015 – showed additional losses and write-downs across many historic contracts.

Because of an increased prudence level set out in March, it led to further assessment of risk-based provisions across Balfour Beatty’s entire contract portfolio.

In terms of UK construction, schedule slippages and operational deterioration on historic projects meant provisions had to be taken to maintain an adequate and cautious level of cover against expected end contract positions.

It is consistent to the approach from the end of last year, but the net impact on first half results was approximately £100M.

The Company’s other losses came through US and Middle East construction.

In the US division, two projects in the federal healthcare sector, which were bid for before 2011, have suffered from subcontractor performance problems and overruns, while provisions against other smaller jobs were also included. It led to a net impact of around £32M.

Middle East projects have required an increase in project-specific provisions for additional cost overruns, which have contributed to an impact of approximately £20M.

When comparing the half-year of 2014, the total loss has increased from £43M to £150M.

Balfour Beatty’s order book is stable though, at £11.3Bn after half of 2015. The full year order book for last year was £11.4Bn.

In addition, the underlying revenue is stable and the Company expects more than 90% of historic UK problem contracts to be at practical or financial completion by the end of next year.

Balfour Beatty can be heartened by its Build to Last programme which is delivering £260M net cash by 26th June 2015, which is up by £40M from last year.

There has been a £362M cash flow improvement half on half, while actions are underway to achieve £100M of cost out by the end of 2016.

Leo Quinn, is the Group Chief Executive, and he believes that medium-term prospects are encouraging.

He said: “Six months in, our Build to Last transformation programme is gaining traction throughout the business.

“We have a new senior leadership team and an organisation realigned with key customer sectors. We are on course to meet our 24-month targets for £200M cash in and £100M cost out.

“Inevitably, the headline numbers set out the consequences of the historic issues that are now being tackled. However, the continuing confidence of our customers in Balfour Beatty’s expertise, the positive response of our people to change, demonstrated by our excellent net cash performance, and the underlying strength of our balance sheet, supported by the investment portfolio, all reinforce my conviction that over the medium term, we can provide our customers, employees and shareholders with superior returns.”

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