UK troubles batter Balfour Beatty profits

Troubles at Balfour Beatty's UK arm battered profits in 2013, in what its chief executive Andrew McNaughton has termed a "challenging" year.

The infrastructure-focused construction group made losses of £60m in the UK, one of its most important markets, where fierce competition for a shrinking pot of public money has squeezed profit margins. This helped drag the group's pre-tax profits down 78pc to £32m, despite rising revenues.

Balfour's UK construction division also faced ballooning costs last year due to financial penalties and other expenses related to project delays, after the company gave "over-ambitious" timelines when bidding for the work. Problems with sub-contractors and supply chains exacerbated its problems.

"We got some things wrong," said Mr McNaughton, who took over as chief executive in March last year. "We were very optimistic in a number of projects we were bidding on [at the end of 2012]."

The issues prompted the company to post a profits warning in April, when it first realised the extent of its problems in the UK. Mr McNaugton has since overhauled the operation, which included replacing the boss of Balfour's UK construction arm. He said the news boss had brought Balfour’s UK order book “under rigorous control”.

The Balfour boss also blamed the "significant downturn" in the Australian mining sector, which led to sudden cancellations of several major building projects, for the disappointing results. Despite cutting hundreds of jobs and finding other costs savings, Balfour's Australian project management arm made a £10m loss last year, compared with a £30m profit in 2012.

Mr McNaughton said he was nonetheless optimistic for 2014. In the US, the recent economic upturn has boosted Balfour's construction order book, with the value of its American construction orders overtaking those of the UK for the first time in the company's history.

He is also upbeat about growth opportunities in the Middle East, where it has won a number of contracts related to the Dubai Expo 2020. In another boost to the company, in January it won a £154m contract to convert London's Olympic Stadium into a facility that will be the permanent home for West Ham United Football Club.

Mr McNaughton was sanguine about the prospect of Scottish independence for Balfour Beatty, which he described as a "Scottish business by heritage". Balfour Beatty has a large operation in Edinburgh and was co-founded by a Scottish engineer and an English accountant in 1909.

"Whether Scotland is independent or not there's a need for infrastructure," he said, adding that while it would introduce more complexity, that the company could already cope with operating in 80 different countries. "It would just mean working in 81," he said.