Britain’s biggest contractor has emerged from the downturn in worse shape than the rest of its main rivals.
Balfour Beatty went into the recession led by an experienced management team with an armoury of big brands and leading positions in key infrastructure markets.
The firm had plotted a strategic course of global expansion to offset falling UK demand and enjoyed the full support of city investors.
But six years on Balfour enters the recovery with a vacancy at the top, an unclear strategic direction and few friends left in the Square Mile.
The contractor also faces serious challenges to its dominance in key rail and power markets.
Yesterday’s embarrassing third profit warning, despite repeated reassurances from chief executive Andrew McNaughton that there would be no more unexpected pain, left him nowhere to turn but the door.
Balfour’s core problems really stem from its size and the inevitable struggle a £10bn turnover organisation faces in trying to react to a sudden switch in the economic cycle.
By the time management agrees on a change in direction and strategy, fresh challenges have usually appeared on the horizon.
At Balfour a boardroom debate seems to have raged about whether its global expansion plans were realistic in present circumstances.
The firm has struggled to win clients over with its turnkey approach using the skills of Parsons Brinckerhoff on the global stage.
But McNaughton resisted selling off PB to improve the group’s finances for the good reason that his global strategy of front-end engineering Balfour’s way into international projects wouldn’t work without the consultancy arm.
He lost that argument.
And while not a foregone conclusion, it is now pretty certain PB will be sold if a suitable buyer is found.
The £600-£700m fetched in a sale would resolve the contractor’s rising average debt, which is now approaching an eye-watering £375m.
The new plan now looks like a return to the old plan of building a strong Anglo-American construction business.
That is not such a bad idea as it may first sound.
Demand is now on the rise in these two key markets, and it will be a lot less risky to go back to focusing on what Balfour has always been good at.
But the cracks widen at Balfour with every admission of bad news.
The business badly needs a period of stability and solid results or the biggest name in UK contracting will become vulnerable to a takeover which just months ago would have seemed unthinkable.
