Balfour Beatty has returned to profit after suffering heavy losses in 2015.
After suffering a pre-tax loss of £199M in 2015, the company has returned to profit with a reported pre-tax profit of £8M.
At the start of 2015 the company launched its “Build to Last” transformation programme which it said aimed to address its performance with all stakeholders – customers and suppliers, employees and subcontractors, investors and communities.
It said that to turn the business around, targets were set against four objectives: building a business which is lean, expert, trusted and safe.
It attributed the need for such a programme as it said that by 2014, it had become “overly complex” following more than a decade of acquisition-led forced growth with an overall lack of leadership and strategic direction.
Operationally, it said that project bidding and delivery had “lacked standard processes and internal systems and controls were weak with little focus on cash management”. It said a federated culture had resulted in layers of unnecessary cost and a tendency for elements of the business to compete with one another.
This it said had led to poor performance financially and in terms of customer and employee satisfaction.
However it said that the new programme was paying off with the first 24 month phase delivering on its goals and tackling the root causes of its previous poor performance.
Underlying revenue also increased by 4% to £8,530M from £8,253M in 2015. But revenue fell by 3% after accounting for exchange rates fluctuation . Balfour Beatty said the fall was down to a more disciplined and selective approach to bidding.
The company reported underlying pretax profit of £60M before accounting for non-recurring costs of £52M. This reflected a positive general trend. Items included £25M of costs related to the reassessment of liabilities for historic health and safety breaches, following new sentencing guidelines, and £14M of restructuring costs relating to the Group’s Build to Last transformation programme.
In 2016, the group also commissioned a revised independent actuarial report on its historical exposure to industrial disease-related liabilities. As a result, it increased its provision for claims relating to these, adding a £14M charge to its 2016 income statement.
Other non-underlying items included amortisation of acquired intangible assets of £9M, profits from Rail Germany of £1M, and losses resulting from legacy ES contracts of £6M.
Balfour Beatty group chief executive Leo Quinn said: “The transformation of Balfour Beatty is well underway. We have returned the Group to profit and significantly exceeded our Build to Last Phase One targets. We have upgraded leadership, processes and controls while continuing to invest in the Group’s unique strengths. As a result, we have improved not just the quality of our order book but our customer satisfaction scores.
“Having simplified the group, we are focused on our core markets in the UK and US, where governments are committed to large scale expenditure on infrastructure. All this positions us for future profitable growth.
“During the next two-year phase of Build to Last, we expect to achieve industry standard margins and over the medium term, industry-leading performance.”