Just three years ago, Balfour Beatty was facing serious financial difficulties after posting a £304M pre-tax loss for continuing operations for the 2014 financial year.
During that year it had even snubbed Carillion’s takeover bid, which at the time was envisaged to create a £3bn construction powerhouse.
Since then the company has turned its fortunes around. Yesterday (Wednesday) it reported a £100M increase in underlying pre-tax profit, up from £62M in 2016 to £165M for 2017. Chief executive Leo Quinn said overhauling the firm’s leadership was crucial to its recovery and poor leadership was a major factor in Carillion’s collapse.
“We had our darkest hour three years ago, when nine months into 2014 we had £600M of cash outflow from the company,” Quinn told New Civil Engineer. “That forced us to take some immediate actions.”
Under its Build to Last initiative, designed to ensure the company has a long-term future, Balfour Beatty sold its Middle Eastern and Indonesian businesses, simplified its output, and concentrated on its US, UK and Hong Kong divisions.
It has also carried out a shake-up of around 80% of its leadership, bringing in new executives and promoting internally to make sure it has the best people in the right jobs.
“Leadership does makes the difference,” said Quinn, adding that if you have good leaders in a company you need to “love them to death” and keep them. “If you don’t have good leaders, you need to change them.”
On former rival Carillion’s collapse, Quinn is clear that poor leadership was a major factor in the firm’s downfall.
“When a company of that size, or any company, fails, it’s ultimately a failure of leadership,” said Quinn.
“You can’t blame the employees. It comes down to: you have a board, you have a senior executive team, and ultimately, whether you like it or not, the responsibility sits with them.
“If things go well they get a pat on the back, they get all the accolades, they get all the praise, all the bonuses; but then you have to equally accept that when it goes wrong, you’re culpable.”
Balfour Beatty incurred a one-off £44M loss last year on the 58km Aberdeen Western Peripheral Route as a result of Carillion’s collapse. Galliford Try, the third partner in the joint venture, said it would raise £150M to cover losses incurred on the contract. Balfour Beatty is expecting a £100M-plus cash outflow to cover costs associated with completing the job.
Looking to the future, Balfour Beatty is aiming to secure industry standard margins in the second half of this year, reaching 2% to 3% for its UK construction business. Despite some Tier 1 contractors mulling a switch away from Network Rail as a key client following its procurement shake-up, Quinn says Balfour Beatty is happy with Network Rail as a client.
He also hinted the firm could bid for a place on the £2.1bn Scape Group frameworks, which cover public sector civil engineering. The procurement body’s £1.5bn, four-year delivery framework deal with Balfour Beatty has just come to an end.
“Scape is a good client and we would look to maintain that relationship,” says Quinn.
In the long-term, Quinn is looking to move the firm “onwards and upwards”, continuing to win work on big jobs such as HS2 and Heathrow. “We want to be the biggest infrastructure supplier for the UK infrastructure market,” he says.