Balfour Beatty forced to suspend dividend as it reports fat losses

LONDON (ShareCast) - British construction firm Balfour Beatty (Other OTC: BAFBF - news) on Wednesday was forced to suspend its dividend as a result of ongoing challenges in its UK construction contracts which resulted in multi-million pound losses. Balfour reported a £304m pre-tax loss for 2014 and negative operating cash flow of £372m. The group slumped to a total loss of £59m in 2014 on revenue of £8.4bn.

Balfour has to write down further £118m write-down on problem contracts in UK construction as its auditors found out that the firm undertook low margin contracts and then managed them poorly.

These fresh losses for the company come after six profit warnings over the past two years, board departures and a failed takeover approach. Balfour's auditors last year also found a £70m profit shortfall.

Balfour, which provides construction, engineering and facilities management services in more than 80 countries, said it planned to work through the severe legacy of "problem" construction projects and faced major challenges in the short term.

New (KOSDAQ: 160550.KQ - news) chief executive Leo Quinn has now launched a major cost-cutting drive designed to save £100m in overheads.

"In the UK, enabling functions - those not related to front-line delivery - are being consolidated to remove duplication and improve efficiency, to deliver significant cost takeout," said Quinn.

"The Group's property portfolio is being streamlined to reduce overheads and detailed procurement initiatives, commencing with key suppliers and areas of direct and indirect spend, will deliver meaningful and growing savings," he added.

Balfour is not paying a final dividend to shareholders this year "to maintain balance sheet strength throughout this period," however the company's board does to reinstate the dividend by March 2016.

At 0803 GMT, Balfour shares rose 0.6% to trade at 231p with traders citing the cost saving programme as a positive catalyst for a turnaround. "The worse appears to be over for Balfour. New CEO has some well thought out cost savings measures and the dip in share price performance presents a buying opportunity," said a London-based trader.