Balfour Beatty plc, the international infrastructure group, has warned that it is facing a £35m profits shortfall. A competitive sale process for Parsons Brinckerhoff is now also fully underway.

The news comes with the publication this morning of its latest trading update ahead of its results for the half-year ended 27 June 2014 which will be announced on 13 August 2014. This replaces the half year trading update scheduled for 10 July 2014.

The Group said it has seen a further worsening in the trading performance of the mechanical and electrical engineering (Engineering Services) part of its UK construction business since the Q1 Interim Management Statement.

The further deterioration amounts to a £35 million profit shortfall – Balfor Beatty said this will be “broadly offset” by further targeted PPP disposal gains in the second half of 2014. Elsewhere, there has been no material change in the Group's operations. Overall Group pre-tax profit expectations for 2014 remain unchanged since the Q1 IMS, in the range of £145 – £160 million.

Balfour Beatty is currently on a 12-18 month programme to restore its UK construction business to a firm footing. Whilst the regional and major projects businesses, which comprise 90% of the UK construction business, are on track and continue to perform in line with expectations, there has been further deterioration in the Engineering Services business.

Earlier in the year Balfour appointed new management to Engineering Services to strengthen management control and project reviews – a move the firm said has improved transparency and introduced greater rigour and scrutiny of contract positions. As a consequence the Group identified a further £35 million profit shortfall within Engineering Services. £30 million of this relates to a small number of existing contracts, predominantly in the London area: £20 million from a further deterioration in the projects previously highlighted, and £10 million due to issues identified on other contracts.

The company said number of factors have contributed to the further deterioration, including design changes, project delays, rework on projects and contractual disputes on a number of projects.

Balfour said that greater selectivity in a slow market coupled with rigour in estimating and tender margins has resulted in a low order intake, a reduction in revenue expectations and therefore a £5 million reduction in forecast profit from new orders in 2014.

The update says:

“Given these issues, we are reviewing the size and geographic footprint of the business with the aim of ensuring a smaller, more focussed business. In central London, Engineering Services will only be working with Group companies where it can influence design and add value for customers.”

Support Services is trading in line with expectations with good performances on highways services contracts and rail renewals activities. The Group said that in addition the division has performed well in the current framework competitions in the utilities sector..

Professional Services has performed well and in line with expectations. Folowing the announcement in May of the firm’s decision to evaluate options for the possible sale of Parsons Brinckerhoff, a competitive sales process is now fully underway and proceeding in accordance with the Board's expectations.

The level of the order book remains broadly unchanged from £12.9 billion at the end of Q1.