Balfour Beatty, the UK’s largest contractor, has announced pre-tax losses of £123m ($173m) in 2015 compared with £80m ($112m) in the previous year, but claims that "significant progress" has been made in turning around its business.
The results reflect the first year of Leo Quinn’s leadership. The former head of defence contractor QinetiQ was brought in at the beginning of 2015 to reorganise the company and stem a series of losses both in its finances and its senior management.
What’s key about self-help is that we were going to manage the transformation using our own assets and resources; we weren’t going to go to the market for an equity call or some other form of cash raising– Leo Quinn, Balfour Chief Executive
His 24-month "self-help plan" to transform the business, called "Build to Last", aimed to end a series of poor management practices at the company.
In a presentation to analysts yesterday, Quinn commented: "What’s key about self-help is that we were going to manage the transformation using our own assets and resources; we weren’t going to go to the market for an equity call or some other form of cash raising. So the last 12 months have been very, very challenging and we’ve turned in a strong performance."
He added that the company still has 12 months of the plan to go and that he would not be "declaring victory in any way, shape, form or size".
He added: "We have simplified our organisation, we’ve upgraded the leadership team and our governance and controls have improved dramatically and we’re starting to see a culture change based around measurement and transparency."Â
In particular, the company has put in place a system to scrutinise projects throughout their lifecycle so as to respond quickly to problems as they arise.
Balfour is not paying a dividend this year, but Quinn promised that one would be forthcoming in 2016.
The losses were blamed on non-performing contracts in Britain, the US and the Middle East. Quinn said the firm had "negotiated an exit" from many of these deals, and Balfour expects that 90% of them will be completed by the end of this year.
It has also shed some 850 administrative posts and cancelled a £200m ($280m) share buyback, which it promised during its 2014 takeover battle with Carillion.
City analysts gave a sympathetic reception to Quinn’s statement.
A note from boutique investment bank Numis Securities said: "We believe the tangible management progress on costs and cash performance set the scene for movement back to profit in 2016. We contend that the majority of legacy issues will be eliminated this year."
Numis said it expected Balfour to make a pre-tax profit of £185m ($260m) and earnings per share of 23.5p in its 2018 results, partly as a result of its strong portfolio of PPP assets.
Investment bank Liberum Capital said it valued Balfour’s PPP holding at £1.5bn ($2.1bn). It added: "We believe there is positive value in the construction business in spite of its being loss making in 2015, and we see a 2.5% margin as achievable in the medium term."
Photograph: Leo Quinn presenting the Balfour’s results to the City on 15 March (Balfour Beatty)