Balfour Beatty is to close its Nottingham office as part of its response to the findings of a recent review, which has already caused a substantial reduction in estimated profits for 2014 and the cancellation of the proposed share buyback.
The company announced the summary findings of the review by KPMG on January 22 and as a result, expects to reduce 2014 UK construction profits by a further œ70 million, including œ50 million relating to an assessment of contract forecasts and subsequent deterioration in project performance up to the end of December 2014.
The Board will also assess the overall level of contract risk provisions in the UK construction business in light of the operational issues identified in the report, and will announce the outcome at the full year results in March
In order to maintain a strong balance sheet, the proposed share buyback of up to œ200 million has been cancelled, with dividend policy also set for review in March.
KPMG identified Balfour Beatty’s bidding as one of the root causes of its poor operational performance, claiming that it tendered at
“very low margins with optimistic assumptions around cost, programme and procurement savings, and inadequate provisions for risk.” It also claimed commercial and contract management was in need of improvement, and that the company was inaccurate when forecasting.
Leo Quinn, appointed group chief executive at the beginning of January 2015, said:
“I think the most important observations I’d make is that I’m not surprised at all by any of the root causes. Fundamentally, poor tendering, poor control, lack of contingency, over optimism in terms of cost to complete – which I refer to as a conspiracy of optimism – [and] poor administration of contracts. These fixes are not complicated, they will take time to put right but we know the solution.
“Balfour Beatty as a company has become too large, overly complex over the last five to ten years and that has resulted really in a lack of transparency and a loss of control. In that time it’s acquired too much cost, far too little cash flow generation.”
The company released a statement regarding the closure of the Nottingham facility, which said:
“Our decision to close our Nottingham office was based on a review of our business and where likely construction opportunities exist. We are simply integrating our support operations in to fewer offices.”
Around 30 members of staff are expected to be made redundant or relocated to other locations.
