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Balfour Beatty hit by another £35M profit shortfall

Balfour Beatty has discovered a further £35M black hole in its troubled M&E business, Engineering Services.

The firm said that £30M of the shortfall relates to existing contracts, predominantly in the London area: £20M from a further deterioration in projects previously highlighted, and £10M due to issues identified on other contracts.

Asked if there may be further issues with the M&E business, Balfour Beatty Construction Services CEO Nick Pollard told NCE: “This is all the stuff that we can see. Who knows what will happen tomorrow? We could get a curve ball – either positive or negative – and if we do, we have to tell the City.”

The news follows a £30M profit warning announced earlier this year at the firm’s construction business, £20M of which was blamed on the M&E division.

Following this announcement, Balfour appointed new management to Engineering Services. The contractor said “improved transparency” plus “greater rigour and scrutiny of contract positions” had exposed the latest financial woes.

It explained: “A number of factors have contributed to this further deterioration. These include design changes, project delays, rework on projects and contractual disputes on a number of projects.

“Given these issues, we are reviewing the size and geographic footprint of the business with the aim of ensuring a smaller, more focussed business. In central London, Engineering Services will only be working with Group companies where it can influence design and add value for customers.”

Balfour Beatty, the UK’s biggest construction group, said its profit expectations remained unchanged, and the shortfall would be “broadly offset by further targeted PPP disposal gains in the second half of 2014. Overall Group pre-tax profit expectations for 2014 remain unchanged since the Q1 IMS, in the range of £145M to £160M.”

It added: “As previously highlighted we are on a 12-18 month programme to restore our UK construction business to a firm footing. The regional and major projects businesses, which comprise 90% of the UK construction business, are on track and continue to perform in line with our expectations.”

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