Balfour Beatty Halts $303 Million Buyback After KPMG Review

Balfour Beatty Plc canceled a share buyback program of as much as 200 million pounds ($303 million) and said profit will be 70 million pounds less than forecast, after an external review of its struggling U.K. construction business.

The shares erased initial losses today to rise 2.4 percent at 1:48 p.m. in London as new Chief Executive Officer Leo Quinn said Britain’s biggest builder is well-placed for a recovery, helped by its investment portfolio.

Balfour, which has struggled with mismanaged projects and a lack of demand, announced the KPMG review last September to investigate the U.K. unit’s poor performance after five profit warnings in less than two years. KPMG found a tendency to underestimate contract expenses, poor cost-forecasting and weak administration in the construction business, the builder said.

Balfour parted company with its chairman and chief executive officer last year. It rejected a takeover approach in August from U.K. competitor Carillion Plc, and Quinn today ruled out accepting any renewed approach.

John Laing Infrastructure Fund also offered to buy Balfour’s infrastructure portfolio, although Quinn said today: “Our construction and our infrastructure businesses are very strong bedfellows and I see them as an integral part of our strategy.”

Balfour had “180 million pounds net cash on the balance sheet, a 1.3 billion pound investment portfolio, that’s not a bad place to start with a turnaround,” Quinn said on a conference call. The portfolio valuation has risen from 1.05 billion pounds since June last year. The company's market value is 1.45 billion pounds.

Further Provisions

With today’s trading statement, the “market will be disappointed that this doesn’t draw a line under the issue, with a further provision for 2015 likely to be announced in March,” the sales team at Berenberg wrote in an e-mailed statement.

Balfour also said it will review its dividend policy in March with its full-year results.

“I was never in doubt that there was a great deal of work to be done to restore the group to strength,” Quinn said in today’s statement. “Balfour Beatty is a large organization which had become too complex and too devolved for adequate line of sight and financial control.”

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