Balfour Beatty UK construction boss Mike Peasland has been demoted and put in temporary charge of the firm’s struggling regional business.
He will now run Balfour Beatty’s regional contracting operation until the end of the year, when he will leave the company.
But he will no longer be responsible for UK major projects carried out for national clients in the power and transport sectors or for M&E work carried out by the firm’s engineering services division.
Peasland’s demotion comes after the firm warned that its profits will be hit for a second year running. This is as a result of “extremely tough” UK market conditions coupled with poor performance in its UK regional contracting business.
Balfour Beatty said that 2013 full year profits from the UK construction business will be £50M lower than management’s expectations at the time of its full-year results announcement last month.
“The new outlook suggests UK construction operating profit could be around break-even point in 2013,” said a statement from analysts at Bank of America Merrill Lynch. This indicates the original projected profit for the UK construction business was around £50M.
The statement goes on to say that a £50M reduction in operating profit would imply a fall in projected profit of around 20% from an expected pre-tax profit of between £255M and £260M.
Group chief executive Andrew McNaughton is stepping in to take personal charge of sorting out the UK business.
As a result Peasland has been pushed back to the firm’s regional operation. Managing director of the regional business stream Steve Waite leaves the business immediately.
Operating profits for the year ending 31 December 2012 stood at £212M, down £44M on 2011. This fall was largely attributed to the poor state of the UK construction market, but was also caused by the poor performance of its £465M turnover European rail operation.
The European rail operation is now being sold piecemeal, with the Spanish business sold to management last month.
But tough conditions in its home market are harder to tackle, with £3.2bn of the firm’s £7.0bn turnover earned in the UK.
At the time of the results announcement chief executive Andrew McNaughton warned that the deteriorating conditions in the UK in the second half of 2012 were expected to continue in 2013, making it a “difficult year” for its construction operation.
McNaughton said the firm was responding with “effective actions” which include a cost reduction strategy based around an internal restructure and centralising of back-office functions.
This has resulted in the loss of 650 jobs and is expected to save the firm £80M a year by 2015.
This week’s trading statement reveals that this restructure has also contributed to some of the firm’s problems.
“The Group’s latest monthly business reviews highlighted some poor performance in the UK regional construction business, and to a lesser extent the building part of the major projects business, which led to an internal review,” said the trading statement.
“This internal review has concluded that the combination of a difficult external environment and internal reorganisation has resulted in specific instances of poor operational delivery.”
A spokesman said that six of the firm’s 21 regional businesses “had issues” and that Peasland had been “demoted” to take charge of addressing these. It is understood that the decision for Peasland to leave to firm at the end of the year was taken before the internal review that led to the profit warning.
The spokesman added that Peasland was best placed to address the issues thrown up by the review having held positions as general manager for Balfour Beatty in Scotland, managing director of Balfour Kilpatrick, now integrated with Haden Young, and managing director of Mansell, which was acquired by Balfour Beatty in 2003.
He became Group managing director for the UK’s building businesses in 2006 and took up his role as chief executive of UK construction services in July 2010.
The firm said that trading in its other businesses was broadly in line with expectations, although it is also facing a further £10M profit hit from its up-for-sale German rail operation.