Following a further £70m profit shortfall exposed by KMPG’s review of 127 Balfour Beatty projects, new chief executive Leo Quinn has told City analysts that he will focus on getting the basics right at the troubled contractor – including cash management, operational performance and staff training.
The stress on “fixable” issues and “sticking to our knitting” came in a teleconference with analysts yesterday, when Quinn also gave himself up to two years to deliver results.
“I’d be disappointed if we are not at a point 24 months from now where we’re comfortable, fully operational and performing well, ” he is reported to have said.
Quinn’s plan to restore Balfour Beatty’s fortunes – as detailed in a lengthy press statement yesterday – include “more rigour in tender assessments”, improving project accountability with a new set of key performance indicators, and enhanced mid-project reporting procedures.
Other strategies include “driving a culture of productivity and cash generation through systematic project-level training”.
The planned remedies address many of the “bread and butter” cultural and training issues highlighted by commentators recently in Construction Manager.
Nick Pollard
As with the £75m write-down in late September, the latest £70m shortfall is attributed entirely to projects in the Construction Services UK division, headed by chief executive Nick Pollard (pictured right).
Projects implicated are mainly in the Balfour Beatty Engineering Services M&E contracting division, but also in the south-west region of its regional business (which includes projects up to around £40m across the country, including London) and some higher-value projects in its Major Projects stream.
Stephen Tarr
In a reorganisation, Stephen Tarr (pictured right), managing director for major projects, will now be reporting directly to Quinn, rather than Pollard.
A Balfour Beatty spokesman said that this change would allow Pollard to focus more time and attention on fixing BBES and the regional business. He added: “It also reflects that Steve Tarr has been doing really well [in addressing issues in his portfolio] and it gives Leo Quinn additional direct exposure to operational issues.”
He said that Quinn’s expertise at his previous companies – Qinetiq and banknote printer De La Rue – lay in enhancing their offer for clients rather than in M&A activity, for instance, so the switch in reporting lines would also give Quinn more ability to play to this strength.
However, one industry insider suggested to Construction Manager that Balfour Beatty’s top management team is still light on operational construction experience. A new chief financial officer announced this week, Philip Harrison, arrives with a CV from travel group Hogg Robinson and IT hardware company Hewlett Packard; a new chairman is still being sought.
In other developments, Balfour Beatty is pursuing a strategy of conserving the cash it raised by selling Parsons Brinckerhoff for £820m in early September, by cancelling a planned £200m share buy-back that could have enhanced shareholders’ earnings per share. It also said that it plans to “review” a planned £85m payment to reduce its pension deficit of £397m.
The industry insider quoted above suggested that keeping hold of its cash might be more than just a prudent "rainy day" move for Balfour Beatty: if it has badly misjudged its position on a number of contracts and the profit write-down translates into actual losses on projects, then it might need the cash to complete them.
But one troubled project that has now been handed over is the £45m Fferm Pengalis accommodation block for Aberystwyth University, where Construction Manager is pleased to report that students are now moving in, albeit five months late.
Students were told that neither they nor the university would have to bear the costs of moving from their temporary accommodation – in other words, it looks as if Balfour Beatty picked up the tab.
Balfour Beatty is due to announce its results for the year to 31 December 2014 in March.
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