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Balfour Beatty improves construction margins

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Balfour Beatty improves construction margins

Construction & Build

​Results out from Balfour Beatty show improved profitability in its UK construction business.

In the year to December 2023 Balfour Beatty grew revenue by 7% to £9,595m (2022: £8,931) but pre-tax profit was down 15% at £244m (2022: £287m).

As expected, Balfour Beatty’s underlying profit for the year reduced to £205m (2022: £290m) as gains on investment disposals reduced as planned and a one-off £56m tax credit boosted 2022 numbers.

Average net cash reduced as expected to £700m compared to £804m in 2022.

The UK construction business improved its profitability, from a 2.1% operating margin to 2.3%, making a £69m operating profit from revenue of £3.03bn (2022: £59m from £2.76bn).

The UK construction market is proving more profitable for Balfour Beatty than the USA, where made £51m operating profit last year on revenue of £3.70bn at a margin of 1.4%.

Hong Kong was better though. Through its Gammon joint venture with Jardine Mattheson it made £36m operating profit from £1,357m revenue, a margin of 2.7%.

The medium-term ambition is to achieve a 3% operating margin in UK construction and the board expects to get closer to that this year.

New orders are steady in both the UK and the USA but down a bit in Hong Kong.  The group's 2023 year-end order book was £16.5bn, which is 5% lower than 2022 (although only 2% lower at constant exchange rates).

The UK construction order book remained flat at £6.1bn, with 91% of those orders from public sector and regulated industry clients.

Chief executive Leo Quinn said: “The group’s reliability and resilience has again delivered a solid performance, with increased revenue and profit from our earnings-based businesses and strong operating cash flow. This success against a challenging economic backdrop is driven by our disciplined contract risk management across a geographically and operationally diversified portfolio.

“The board remains confident in Balfour Beatty’s ongoing ability to deliver sustainable cash generation for significant shareholder returns, with growth from our earnings-based businesses in 2024 underpinned by the strength of the group’s order book. Looking to 2025 and beyond, we expect our unique capabilities and complex infrastructure project experience to drive further earnings growth, with attractive opportunities being pursued in the UK energy, transport and defence markets and in the US.” 

Balfour Beatty UK Construction currently has around 700 live projects in the portfolio, which is slightly higher than recent years. During 2023, work was completed on a wide range of projects including the Mayfield Retirement Village in Watford, the Forder Valley link road and bridge in Plymouth, the National Treatment Centre Highland Hospital in Inverness and the Institute for Regeneration & Repair at the University of Edinburgh. New projects that started in 2023 included a new building at the AWE Aldermaston site near Reading, civils work at Devonport Dockyard in Plymouth, the Central Rhyl Coastal Defence scheme in North Wales and the Dunfermline Learning Campus for Fife College.

In addition to projects started in the year, work added to the order book in 2023 included the £300m West Slope student accommodation development a Sussex University, which is a Balfour Beatty Infrastructure Investments project, and a £67m contract for a replacement Liberton High School in Edinburgh.

Balfour Beatty is also involved in HS2, Hinkley Point C and the now nearly completed Thames Tideway Tunnel. It is also main contractor for the £250m M25 Junction 10 (Wisley interchange) improvement scheme.

Article found on Construction Index.