August 12, 2015 / 6:43 AM / 2 years ago

UPDATE 2-Balfour sees problem contracts resolved by end of 2016

* Aims to resolve problematic contracts by end of 2016

* Posts half year underlying loss of 135 mln pounds

* Sees strong pipeline of opportunities (Adds CEO comments, analyst)

By Li-mei Hoang

LONDON, Aug 12 (Reuters) - Britain’s Balfour Beatty said it would be rid of most of its problematic construction contracts by the end of next year, offering investors some respite following a string of profit warnings.

The company is reviewing all its businesses following the discovery of loss-making contracts in Britain, the Middle East and Asia which pushed it deep into the red at the half-year stage.

Chief Executive Leo Quinn, in the job only since the start of the year, told Reuters that the firm’s net cash performance, new business pipeline and underlying balance sheet strength meant he felt “reasonably buoyant” on the medium term outlook.

“The market is clearly starting to turn and we are seeing a strong pipeline of opportunities which is allowing us to be selective and on a rising tide, all ships rise and we are the largest ship,” he said.

Balfour employs around 36,000 people to work on projects such as transforming the London Olympic stadium and major building sites in the United States.

The 106-year-old company is still counting the cost of short-term contracts taken on during the recession when it accepted work with wafer-thin margins and then mismanaged them.

It posted a total underlying loss of 135 million pounds ($210 million) in the first half of its financial year. That was dragged down by a 152 million pound shortfall from the contract issues in its construction business, a figure at the top end of the range it provided from its last profit warning in July.

Quinn said he expected around 90 percent of the problem contracts in Britain to be resolved by the end of 2016.

Analysts said they expected the impact of the contracts to be contained from now on and maintained their estimates for next year.

”We believe that Balfour Beatty is through the worst. The new management team is reviewing the business and will use this as an opportunity to update us on their plans for the business, said RBC analyst Olivia Peters.

Shares in the company were 2.9 percent higher at 259 pence by 0945 GMT. They have recovered from a low of 205 pence hit on the day of their last profit warning on July 9.

As well as scrapping its final dividend, Balfour has cancelled a share buyback and reorganised its pension fund payments to strengthen its balance sheet. ($1 = 0.6419 pounds) (Editing by Kate Holton and Keith Weir)

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