Balfour Beatty’s shares rose almost 5% yesterday despite the construction giant delivering a £70 million profits warning to investors and cancelling a £200m share buy-back programme.
The warning, Balfour’s fourth in less than a year, came after a review of the group’s UK construction division by KPMG which found shortfalls in the value of contracts.
There was speculation that Balfour could be vulnerable to a fresh takeover attempt, prompting the 10p rise in its share price to 215.6p.
Five months ago Balfour closed the door on an on-off £3 billion merger with industry rival Carillion.
The four profit warnings, including yesterday’s, add up to £210m.
A further assessment of risks facing the group over its deals will be announced in March when Balfour publishes full-year results. It will also review its dividend policy as it seeks to shore up its balance sheet.
Chief executive Andrew McNaughton was replaced by Leo Quinn, who said yesterday’s report was “an important step in drawing a line under a period of uncertainty for our customers”.
He added: “I was never in doubt that there was a great deal of work to be done to restore the group to strength.
“Balfour Beatty is a large organisation which had become too complex and too devolved for adequate line of sight and financial control.
“The key is that these issues can be put right and we now have clear action plans in hand. Significant opportunity exists across the group to drive reduced costs, improved profits and strong cash generation to the full benefit of our shareholders.
“Working changes into the culture of the group will take time and discipline, but everything I have seen so far reinforces my first impressions about the depth of engineering capability in Balfour Beatty.”
The KPMG report found most problems within Balfour’s engineering services, its London region including major projects and in the South West; all units that had previously been identified as “having issues”.
A shake-up to simplify the UK business will get under way, with Mr Quinn taking direct control of the major construction projects division.
There was a positive note as the group upgraded the value of its public private partnership contracts from £1.05bn to £1.3bn.