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Contractor Balfour Beatty is to scale back its UK M&E business after identifying a further 拢35m hole in its profit expectations for the year.

In an unscheduled trading update this morning, the firm said it had seen a 鈥渇urther worsening in the trading performance of the mechanical and electrical engineering part of our UK construction business鈥� since the firm鈥檚 May interim management statement, leading to a 拢35m profit shortfall from the business.

Today鈥檚 announcement is the latest in a series of profit warnings at the contracting giant, which in May culminated in the departure of chief executive Andrew McNaughton and the decision to sell the firm鈥檚 consultancy arm, Parsons Brinckerhoff.

Balfour said the profit warning was the result of 拢20m of deepening losses on problem contracts already identified, and a further 拢10m of new problem jobs.

In addition it said the firm was currently being so conservative in the new M&E work it was taking on that it was expecting 拢5m less profit from new orders in 2014.

The statement said a number of factors have contributed to this further deterioration, including 鈥渄esign changes, project delays, rework on projects and contractual disputes on a number of projects.鈥�

The firm said it would make up the shortfall in profits with additional disposals of PPP assets, meaning it expected overall profits for the year to hit expectations.

Balfour Beatty鈥檚 M&E division makes up just 10% of the turnover of its UK Construction Services business.

The statement said: 鈥淕iven these issues, we are reviewing the size and geographic footprint of the [M&E] business with the aim of ensuring a smaller, more focussed business.

鈥淚n central London, Engineering Services will only be working with Group companies where it can influence design and add value for customers.鈥�

Balfour Beatty said it was on a 12-18 month programme to restore its UK construction business, and that outside the M&E business the regional and major projects division were performing in line with expectations.

The firm said the sale process for Parsons Brinckerhoff was 鈥渇ully underway鈥� and on track, and that it鈥檚 order book was unchanged at 拢12.9bn.

Average net debt was higher than expectations at 拢420m.