Chief executive says the firm should āfocus on the knittingā as KPMG review prompts fresh profit warning
Balfour Beatty chief executive Leo Quinn has said he is targeting turning around the troubled contractor within two years, .
Todayās profit warning is the firmās sixth in two and a half years, the latest resulting from an independent review of the contractorās UK construction business being carried out by KPMG.
Asked today how long it would take to turnaround Balfour, on a conference call with journalists, Quinn said: āIād be disappointed if we are not at a point 24 months from now where weāre comfortable, fully operational and performing well.ā
Quinn, who joined Balfour at the start of this month, said the firm should be more āfocussed on the knittingā, after KPMGās review uncovered more problem contracts in the firmās UK construction business.
Quinn also raised the prospect of further downsizing of the contractor, acknowledging the firm would be a different shape and size under his leadership, adding he would seek to determine āthe optimal size and risk portfolio [of the firm], and Iāll take a judgment over time.ā
He added: āWe have to cut our cloth to what is a low margin industry.ā
Quinn emphasised he placed a high value on Balfourās investment business, after the firm rejected a Ā£1bn bid for it by John Laing Infrastructure Fund last month.
Balfour revised up the value of its investment portfolio to Ā£1.3bn this morning, the second upward revision in value in five months.
Quinn said construction and investment were āthe ying and yang of construction and we see that relationship moving forward.ā
Asked if Balfour was putting out a possible āprice tagā out in the market for the investments division, Quinn said: āIf we were hanging out a price tag we wouldnāt be saying how integral it is to our businessā, but when pressed said āmy job is to maximise value for shareholders.ā
On problems in the UK construction business, Quinn said he believed āpoor tendering and a conspiracy of optimisim got in the way of good judgement.ā
He said: āItās all fixable, it just takes time [ā¦] Itās wrong to say āhow badly has that been mismanagedā, our attention was not focused on the knitting.ā
He said he was āfrom the school of second chanceā when it came to Balfour bosses who had made mistakes on contracts.
Quinn said the firm was aiming to achieve āindustry marginsā of around 3% in construction.
Quinn highlighted that the firm had āgrown rapidlyā in recent years and should now shift its focus from āthe top lineā to ācash flow and profitabilityā.
He added: āIād love to see it restored to strength [ā¦] Itās a challenge and weāll give it our best shot.ā
In May 2014 Balfour Beatty UK construction chief executive .
Analysts raised doubts as to whether Balfourās bad news is behind them, after Balfour said this morning it may make a further assessment on contract risk when it posts its full-year results in March.
Balfour said it would āassess the overall level of contract risk provisions in the UK construction business in light of the operational issues identified [by KPMG] and will announce the outcome at the full year results in March.ā
Cenkos analyst Kevin Cammack said: āQuinn has clearly left the door open for further big write-downs in March. So one of the big questions is, whatās the scale of the further provisioning that needs to be made? Is it half a percent of contract value? 1%? 2%?ā
Balfour Beattyās share price was trading over 3.5% up at around 213p a share mid-afternoon on Thursday.
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