Balfour Beatty M&E boss exits after profit warning

The boss of Balfour Beatty’s M&E business has stepped down, along with the firm’s group chief executive, after the firm announced a fresh £30m profit warning this morning.

Balfour Beatty today said that Balfour Beatty Engineering Services (BBES) managing director Phil McGuire had resigned with immediate effect, as the firm posted a £30m profit warning this morning.

McGuire has been with Balfour Beatty for 35 years and was given the role of heading up the firm’s new M&E business stream as part of the wide-ranging restructure the firm unveiled in 2012.

His departure follow a series of major changes at the M&E business in recent weeks, with three of the five regional engineering services directors replaced at the South, North-east and North-west operations, while one of Network Rail’s main project directors Uma Shanker was appointed to BBES in a new new role as chief operating officer.

Speaking to Building this morning, Balfour Beatty’s UK construction chief executive Nick Pollard, said that £20m of the forecast profit shortfall was focused on the firm’s M&E business and that following a “very deep and rigorous review” of the business over the past ten days McGuire had decided to step down.

He said that the remaining £10m forecast profit shortfall was focused on around “half a dozen” projects in the building side of the major projects business.

McGuire’s resignation comes alongside that of Andrew McNaughton, Balfour Beatty group chief executive, who only took up his role in March 2013.

The £30m profit warning this morning followed on a £50m profit warning in April 2012, with profit at the firm ultimately falling £60m short of expectations last year.

Pollard, who was appointed by McNaughton to his role last June, said he would not be resigning as fixing the problems iwas “exactly why I was recruited” and that he expected it to take another 12 to 18 months to “restore” the UK construction business.

He said he had now stepped into the Balfour Beatty Engineering Services business as managing director on an interim basis ahead of a permanent appointment.

“I arrived ten months ago to get the show on the road and lead the turn around and we’ve made a lot of progress in the last ten months in the regional and infrastructure  projects business, which we focused on quite rightly as being the areas that were the largest and that , in the case of the  regional business, was the area that had some issues and was the subject of a profit warning last year.”

“We’ve dealt successfully with much of that and now we’re addressing the rest of the business and the emerging market conditions.

“We will work tirelessly in order to turn the performance of the business around in the months ahead.

“I was recruited to work through this series of issues that appear to have been longstanding ones within the business and that’s exactly what I’ve been doing – helping the team work through those issues and deliver a change in performance.”

He said McGuire and McNaughton’s departures were about “taking ownership” for the problems identified in today’s trading update.

He said: “Phil McGuire, as the managing director, is responsible for the operational controls and commercial controls – or was responsible for those –inside BBES  and he was the leader of that business and it was his responsibility as a leader to hold himself to account.

“And that is the same as Andrew [McNaughton] as leader of our group – and sad though as it is, that is normal in business.”

Pollard said the “deep review” of the M&E business over the past ten days covered all of its contracts and had identified “some operational and commercial issues on some of the M&E contracts” as well as “some unwarranted optimism in terms of our risk position”.

He said that this, combined with a “slower than anticipated market recovery”, meant the “profit forecast for this year has been diminished”.

He said he was confident that the £20m forecast profit shortfall in the M&E business had captured the extent of the problems. “But I’d be crazy to sit here and promise there will never be a loss making project in future - construction is intrinsically a high risk business,” he said.  

“However I am confident that we now have  fully open and transparent visibility  and that’s why we’ve been able to communicate very quickly to the market the risks to our profit forecasts.”

On the major building projects side, he said the £10m forecast profit shortfall had emerged due to a “thorough review” of the current position of the problem jobs, most of which are due to reach completion this year.

He said: “As the jobs approach their conclusion, commercial redress is being sought over certain matters - in light of the emerging commercial settlements and in light of trading that has gone on since the year end and the more detailed knowledge as those jobs come rapidly toward conclusion - we’ve therefore flagged the risk to the forecast profits.”