BusinessBoosting Construction Margins: Balfour Beatty's Winning Strategy

Boosting Construction Margins: Balfour Beatty’s Winning Strategy

Balfour Beatty chief executive Leo Quinn

Financial Performance

Balfour Beatty, under the leadership of chief executive Leo Quinn, reported a 7% increase in revenue to £9,595m in the year ending December 2023. However, pre-tax profit saw a decline of 15% to £244m from £287m in the previous year.

Expectedly, the underlying profit for the year also decreased to £205m from £290m in 2022 due to planned reductions in gains from investment disposals and a one-off tax credit that boosted the 2022 numbers. The average net cash decreased as anticipated to £700m, down from £804m in 2022.

Business Segment Profits

The UK construction business saw an improvement in profitability, with an operating margin rising from 2.1% to 2.3%, generating a £69m operating profit from revenue of £3.03bn. In comparison, the USA operations reported a lower operating profit of £51m on revenue of £3.70bn at a margin of 1.4%. Hong Kong operations, through the Gammon joint venture with Jardine Matheson, performed better with a £36m operating profit from £1,357m revenue, resulting in a margin of 2.7%.

Balfour Beatty aims to achieve a 3% operating margin in UK construction in the medium term, with progress expected towards that target in the coming year.

Order Book and Outlook

New orders remained stable in the UK and the USA but slightly decreased in Hong Kong. At the end of 2023, the group’s order book stood at £16.5bn, reflecting a 5% decline from the previous year. However, at constant exchange rates, the decrease was only 2%.

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

CEO’s Perspective

Chief executive Leo Quinn expressed satisfaction with the group’s performance, emphasizing increased revenue and profit from earnings-based businesses, as well as strong operating cash flow. He highlighted the group’s disciplined contract risk management across diverse geographic and operational portfolios as key to its success in a challenging economic environment.

Looking ahead, Quinn remains confident in Balfour Beatty’s ability to generate sustainable cash flow and provide significant shareholder returns. He anticipates growth in earnings-based businesses in 2024, supported by a robust order book. The company’s unique capabilities and experience in complex infrastructure projects are expected to drive further earnings growth in the future, with a focus on opportunities in the UK energy, transport, and defence markets, as well as in the US.

Project Portfolio

Balfour Beatty UK Construction is currently managing approximately 700 live projects, slightly more than in previous years. Recent completions include projects like 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 commenced in 2023 include work at the AWE Aldermaston site near Reading, civil projects at Devonport Dockyard in Plymouth, the Central Rhyl Coastal Defence scheme in North Wales, and the Dunfermline Learning Campus for Fife College.

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