Balfour Beatty’s UK construction revenue dipped in the first half of the year, though the contractor’s worldwide turnover ticked up.
Half-year results released this morning (14 August) show UK construction turnover stood at £1.46bn in the six months to 28 June 2024, down from £1.52bn in the same period in 2023.
However, its underlying profit margin grew from 2 to 2.3 per cent, as underlying profit rose from £30m to £34m.
Worldwide revenue rose from £4.5bn to £4.7bn, driven by a £91m increase in its support services business and £131m growth at Hong Kong subsidiary Gammon.
Balfour’s total pre-tax profit was £112m, up from £82m in the same period last year.
On an underlying basis, profit from total operations dropped from £80m to £77m due to increased infrastructure investment costs, which it put down to capitalised bidding costs. It was also hit by continued fallout from the fraud that its US subsidiary pleaded guilty to in late 2021. Some of its employees submitted false information showing it had hit maintenance and resident satisfaction targets at several military housing projects from 2013-2019.
As well as paying a £49m fine at the time, the company agreed to take part in independent compliance monitoring for three years.
Today’s results cite this monitoring as having increased costs in relation to its military housing work and hitting underlying profit.
Chief executive Leo Quinn was upbeat about the future, saying the firm had secured work that will drive profitable growth in 2025 and beyond.
He said: “The outlook for the group’s chosen growth markets, where we hold unique capabilities in delivering complex infrastructure projects, remains encouraging, including in the UK with the new government reinforcing commitments to critical national infrastructure.
“Balfour Beatty’s prospects across these markets provide the board with confidence that the group will continue to deliver significant and attractive shareholder returns in the coming years.”
He added: “The new Labour government has committed to grow the UK economy and has highlighted proposed investment in energy and transport infrastructure, the leveraging of private investment, planning reform and upskilling the UK’s workforce as key components of their plan to achieve this.
“It has also pledged to increase defence spending over time. This direction of travel is positive for Balfour Beatty in the medium term.”
The group’s average net cash increased in the period to £735m, compared with £695m in the first half of 2023.
Adrian Lunn, director at property agency Eddisons, said: “Looking ahead, Balfour looks to be pretty confident and it has an intensely diversified portfolio of ongoing projects, which should stand it in good stead as the current uncertainty continues.”
Garry White, chief investment commentator at wealth manager Charles Stanley, warned that the Labour government’s announcement that it would cut back on transport projects and review them further at the forthcoming spending review was creating a “fog of uncertainty” for the industry.
“Encouragingly, [Balfour Beatty’s] management expects the strong performance seen in the first half to continue into the second half of the year. The group’s £16.6bn order book, which grew slightly in its interim results, will act as a prop to investor confidence,” he said.
“However, should government finances deteriorate further – and more key pieces of infrastructure spending are scrapped – the risk of profit warnings across the sector rises sharply. This is the main risk to the investment case going forward.”
