AILING engineering group Balfour Beatty has become such a serial offender on profit warnings that its latest one you might almost have expected the City to accept with a shrug. But no, the City still has the capacity to be surprised and disappointed with the group after five jolts to expectations in 18 months. Balfour Beatty’s bombed-out shares gave up almost 4 per cent.
The company, which rejected a £3 billion merger with rival Carillion a year ago, said pre-tax profit for 2015 would be hit by between £120 million and £150m after a continuing review of the business ordered by new chief executive Leo Quinn has found fresh “legacy issues” in the UK, US and Middle East businesses.
The UK accounts for about two-thirds of the shortfall. The latest blow comes after Balfour revealed in March that last year it slumped to a £304m pre-tax loss, cancelled the divi, and Quinn warned of major short-term challenges.
The latest legacy issues – the new corporate jargon for damaging present-day shocks that stem from past conduct and virtually patented by the banking industry, in particular – are especially disappointing as management consultancy KPMG in its review of the company has previously found a number of shortfalls in the value of contracts.
The rot apparently went deeper than anyone thought, with the cumulative profit warnings amounting to about £360m. Quinn says that he is seeing improving signs of cash performance that leads him to be confident that Balfour has the prospect of a successful future. He also points to the success of the company’s £100m cost reduction programme. But shareholders, probably still stung by the summary rejection of Carillion, are still being asked to take a lot on trust given the drumbeat of disappointing shocks over the past two years or so.
Chinese market living in interesting times
As one City commentator said this week, if the 30 per cent slump in Chinese stocks since mid-June had happened on Wall Street it would have been branded a “crash”.
But as it is happening in a country pivotal to global economic well-being it is like we are all holding hands and hoping for the best in calling it a “correction”.