Balfour Beatty sees value fall by £394m after profit warning
Almost a fifth was wiped off the market value of British infrastructure group Balfour Beatty after it warned its 2014 profits would be significantly lower than expected and its chief executive stepped down.
The company said the weakness came from its British construction business, where it now expects a £30m shortfall in 2014, as it was hit by a slowdown in demand for large infrastructure projects and lost out on contracts to rivals.
As a result, it expects overall pretax profits for 2014 in the range of £145m to £160m. The mid point is about 19pc below the average analyst forecast of £190m.
Balfour CEO Andrew McNaughton, who took over about a year ago, stepped down after the profit warning.
Shares in the company fell 18pc, making it the biggest loser on the FTSE 250 and wiping about £390m off its market value.
While housing building in Britain has surged in the past year, the wider construction industry has been slower to recover from the financial crisis as contract lead times tend to lag behind residential building work by at least 18 months.
The company said, along with the tough market climate, it had lost out on contracts to competitors due to "poor operational delivery issues".
Last year rival Carillion picked up a contract in October worth £800m to build Airport City in Manchester, and another in November for £180m to build UK highways.
"This is about poor management and failure to implement a good strategy over many years at Balfour Beatty and not the markets in which it and others operate," said Whitman Howard analyst Stephen Rawlinson. "Our concern is that there is more bad news to come."
Balfour, which operates in over 80 countries, said it was looking into the possible sale of its engineering consultancy Parsons Brinckerhoff which it bought in 2009 for $626m. "The latter is arguably the most shocking, since it was supposed to be the game changer when it was bought, transforming the group into a full-value chain design-construction-services provider," said Westhouse Securities analyst Alastair Stewart.
Balfour Executive Chairman Steve Marshall said the board launched a strategic review of the group at the beginning of the year as part of plans to simplify its business earlier this year.
"It's going to take time to resolve these issues. My own view is that it will take a further 12 to 18 months to set our entire UK construction business on a firm recovery path," said Marshall, who will head the firm until a new CEO is found.