Balfour Beatty reports 8% revenue growth

Balfour Beatty delivered a “solid performance” last year with revenue growth of 7.8 per cent to £9.6bn, chief executive Leo Quinn has announced.

In an update published via the London Stock Exchange this morning (13 March), the UK’s biggest construction company stated that pre-tax profit for the year ending 31 December 2023 was £261m, up from £244m.

By geographical segment, revenue from UK construction activities (including joint ventures) rose 10 per cent to £3.03bn compared with £2.76bn the previous year.

Balfour Beatty’s US construction segment saw revenue grow by £46m to reach £3.69bn. Its other construction arm, Hong Kong-based Gammon, grew at the fastest rate, with a 27 per cent revenue increase to £1.36bn.

Overall, revenue from global construction activities grew 8 per cent to £8.08bn last year compared with £7.48bn in 2022.

However, the group’s order book fell 5 per cent to £16.5bn at the end of 2023. The UK construction order book remained flat at £6.1bn, while the US and Gammon’s decreased by £400,000 and £900,000 respectively.

Balfour Beatty said that “the proportion of the order book signed on lower-risk target-cost or cost-plus contracts compared to higher-risk fixed-price contracts remained high at 82 per cent”.

The contractor added that it was “unaffected” by the government’s decision last October to cancel HS2 phase two, saying: “The group continues to expect to deliver material volumes of HS2 work across the balance of the decade and is awaiting results for its bids submitted in November on four new packages of HS2 work.”

In August, Balfour Beatty was named as one of 10 preferred bidders on SSEN Transmission’s ASTI electricity framework valued at approximately £10bn, and it also gained a £1.2bn contract from National Highways last January to deliver a package of works for the Lower Thames Crossing, although the government later announced a two-year delay.

The firm flagged up opportunities in the civil nuclear-power sector and carbon capture, in addition to “opportunities to grow its market share” in the defence market, where it is already supporting the Ministry of Defence’s nuclear enterprise.

Balfour Beatty’s net cash position at year-end was £842m, up from £815m in 2022.

The firm said it would pay a dividend of 11.5p per share but the board “is committed to a sustainable ordinary dividend which is expected to grow over time”, targeted at a payout ratio of 40 per cent of underlying profit after tax.

In terms of loan debt, the group completed the refinancing of its core £375m revolving credit facility in June 2023 (16 months ahead of its expiry date). This was replaced with a new £475m sustainability-linked loan that will expire in June 2027, with the option to extend it until June 2028.

Quinn hailed “a solid performance, with increased revenue and profit from our earnings-based businesses and strong operating cashflow”.

Looking ahead, he foresaw “growth from our earnings-based businesses in 2024 underpinned by the strength of the group’s order book”, with further growth expected in the UK and US in 2025.

Adrian Lunn, director at Begbies Traynor subsidiary Eddisons, said: “The benefits of a well-diversified set of revenue streams are clear to see through Balfour Beatty’s numbers today.

“As others in the UK construction market have struggled with reduced housebuilding, Britain’s largest operator has posted commendably robust results with underlying profits healthily ahead of last year.

“In a really difficult year for the sector, Balfour has seen varied progress across its divisions in 2023. Certain infrastructure projects have clearly been impacted by inflationary pressures, but there’s been encouraging signs of increased progress on HS2 and Hinkley Point C so it’s a real mixed bag.

“Looking ahead, the company’s substantial order book highlights the vast amount of money governments on both sides of the pond are looking to spend on key developments in the years to come.”

Additional reporting by Ben Vogel.

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