Balfour Beatty’s ongoing restructuring following a £50m profit warning at the end of April – resulting this week in the closure of three regional offices – is linked to a failure to embed the management and cultural style of the business into recent acquisitions, according to analyst Howard Seymour of Numis Securities.
The Rochdale office now due to close was once owned by Rok, becoming part of Balfour’s regional construction business Mansell in November 2010. Balfour Beatty acquired parts of Rok from the administrators for £7m.
At the time, Mansell also took on Rok’s social housing business in the south west and north west. In total, it added 381 staff and said it had added £100m in turnover.
The Doncaster office became part of the group in December 2009, when Mansell acquired local social housing specialist Strata Construction for £10.3m.
The Dartford office is also to close. In total, there could be around 200 redundancies.
Balfour Beatty also made a string of other acquisitions in the pre-recession years, including Bristol-based Cowlin in 2007, Dean & Dyball in 2008, and Birse in 2006.
But on 29 April, Balfour Beatty told the Stock Exchange it had uncovered problems with a number of contracts, including delays, subcontractor failings, and changes to forecast commercial outcome. At the time, it also said there were more problems in the south than the north.
Speaking to CM, Seymour said: “My feeling is the businesses they acquired were basically left to their own devices, in a difficult market. They were out there bidding unprofitably, and that’s where the problems [with contracts] were. Predominantly I think the issues were in the new acquisitions.
“But [the Balfour Beatty directors] are the ones who should have assimilated the new acquisitions into the business, and made sure that the bidding strategies were complementary to the bigger business.”
But Seymour said that Balfour Beatty senior management should be credited for taking responsibility for the underperformance problems. “Credit where credit is due, they could have blamed the market. But they have been quite upfront and said ‘it’s our problem’.”
The task of completing the restructuring and delivering better margins now falls to new group chief executive Andrew McNaughton, who was appointed to the role in March. He was chief operating officer at Balfour Beatty from 2009-13, and prior to that worked for the company in the Middle East.
At Balfour Beatty Construction Services UK, he will be joined by newly appointed chief executive Nick Pollard, formerly of Navigant Consulting, Bovis Lend Lease, Network Rail and Skanska. His appointment earlier this week has been welcomed by many analysts as a “new face” at Balfour Beatty.
