Balfour Beatty shares collapse in fifth profit warning

Shares plunged more than 20% in London trading

Balfour Beatty became embroiled in a fresh crisis after it warned of a new £75 million black hole in its UK profits and called on accountant KPMG to carry out a forensic review of its troubled UK construction arm.

The latest shattering profit warning — Balfour’s fifth in less than two years — sent its shares plunging more than 20 per cent, or 45.6p, to 179.3p, their lowest since 2003.

The news is all the more embarrassing for the company, as it comes little more than a month after fought off a merger proposal from rival Carillion and pressed the case for independence.

Executive chairman Steve Marshall, who has headed the firm since May when chief executive Andrew McNaughton was sacked, will leave Balfour after nine years once the company has found a new chief executive and chairman.

He called the latest trading update “extremely disappointing”.

Balfour Beatty has drafted in KPMG after uncovering another £30 million in write-downs in its troubled engineering services business, and £20 million in extra costs on London jobs. It also took another £25 million of write-downs across its regional building and major infrastructure arms.

The problems have arisen largely on jobs won at cheap prices in the wake of the recession, where costs have spiralled and skills are in short supply. The engineering services arm now has a new managing director.

KPMG will undertake a “detailed independent review” of all the contracts in its UK construction business, focusing on commercial controls, project management and costs, and will report by the end of the year.

Marshall said in a call with analysts: “We have to speak plainly. The problem is that we have all been surprised with what has happened in this business. [Appointing KPMG] is the right thing to do to give the company, and frankly the investors, the reassurances that it needs.”

But analysts are already speculating on what further problems KPMG could uncover — raising the prospect of yet another profit warning before the end of the year. Liberum analyst Joe Brent said: “We hope that we are now finding our way towards the bottom. The risk is that the KPMG review identifies further problems.”

Tom Gidley-Kitchin at Charles Stanley said: “There will surely be further write-offs. KPMG ... is unlikely to say that the directors have spotted all the problems and made all necessary provisions. There may well be more office closures and redundancies than are currently envisaged. For a really clean break, new management could even decide to close or sell off all the UK construction business.”

Balfour is planning to return up to £200m to shareholders through the sale of its professional services arm Parsons Brinckerhoff – another key plank in its case for staying independent – but Mr Marshall refused to put an exact number on the share buyback plan yesterday, which also worried the City. He said the board “will want to have regard to trading at the time”.