Balfour Looks To Forget Past As Loss Deepens

Balfour Beatty (Other OTC: BAFBF - news) has announced its half year losses have widened to £150m following a £152m profit shortfall associated with historic contracts.

The FTSE 250 engineering firm has been dogged by a string of profit warnings associated with "legacy issues" to its UK, US and Middle East businesses.

In a trading update last month the company indicated that the ongoing review of its business had continued to identify issues which would lead to a shortfall.

The actual shortfall of £152m which just exceeds the top end of the expected range is comprised of impairments to its UK, US, and Middle Eastern operations.

Two thirds of the shortfall was attributed to "schedule slippages and operational deterioration" in its UK construction sector. Whilst the other third was partly blamed on project overruns in the US and Middle East.

In an independent review of Balfour's business practices, KPMG, the accountancy firm, found issues with the company's bidding process, whereby the engineering firm tendered at very low margins with over optimistic cost assumptions and inadequate risk provisions.

Although this ultimately led to a greater win rate, it did so at the expense of profitability, hence the £152m shortfall.

The company is confident that by the end of the year 90% of these problem contracts will have been settled or completed.

Results for the first six months of 2015 show underlying revenue flat at £4.1bn but the company fell to an underlying pre-tax loss of £130m from a £15m profit in the same period last year.

Leo Quinn, Balfour's boss, said: "The group is continuing to win business on better terms across our operations."

Balfour Beatty has recently been appointed as the preferred bidder for the £460m Hinkley Point C power station project, for EDF Energy in Somerset.

It employs around 36,000 people to work on projects such as transforming the London Olympic stadium and major building sites in the US.

Reflecting on the past Mr Quinn noted: "Inevitably the headline numbers set out the consequences of the historic issues that are now being tackled."

Investors who must now think the worst is behind the beleaguered firm sent the shares nearly 4% higher in morning trading.