Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 3% in the first half to GBP4.7 billion, with a 5% increase when excluding foreign exchange movements.
- Profit for the period increased by 9% to GBP81 million, driven by a lower tax charge due to a change in profit mix.
- Earnings per share increased by 18% to 15.3p, benefiting from a lower share count due to the ongoing share buyback program.
- The order book increased slightly to GBP16.6 billion, with significant new awards in power transmission and US buildings.
- The interim dividend per share was increased by 9% to 3.8p, reflecting confidence in future earnings growth.
Negative Points
- Group profit from operations reduced by 4% due to higher costs in the investments business.
- US construction PFO reduced in the first half due to delays in a small number of civils projects.
- The infrastructure investments business made a loss in the period, impacted by increased military housing costs and a canceled student accommodation project.
- Net cash reduced as expected, with working capital outflow and capital expenditure impacting the balance.
- The business faces challenges in managing capacity constraints and rising costs in the market.
Q & A Highlights
Q: Can you provide an update on the growth strategy for US construction and the expansion of your office footprint?
A: We've opened new branches in Sacramento, Phoenix, Charleston, Jacksonville, and Austin. Success in these areas is noteworthy, and we're leveraging our capabilities across the US, such as transferring our work with Universal and Disney to new locations and expanding our airport projects.
Q: What is your level of interest in PPP projects like the Lower Thames Crossing, and how could this impact your civil works?
A: We are very interested in using our PPP expertise for the right opportunities. However, the financial model may differ from traditional PPP due to its high cost. We are awaiting more details on how the government plans to bring these projects to market.
Q: Could you see your capabilities from Hinkley transferring to Sizewell, and could it be a similar-sized contract?
A: The premise around Sizewell is intelligent replication of Hinkley, which should bring significant savings. We would target a third of Sizewell, which would be larger than our Hinkley activity but a third of a smaller number due to expected cost reductions.
Q: Can you comment on the varying margin differentials across utilities and transportation in support services, and how will power scaling affect this range?
A: Road maintenance is lower margin, while power is our highest margin business. Rail can be just as profitable as power, depending on the mix. Our ambition is for double-digit returns in this business.
Q: What are your thoughts on scaling the investment portfolio, given its historical value creation?
A: We aim to invest about GBP50 million a year with a target of two times return. We maintain a disciplined approach, requiring a greater than 15% IRR. The US remains more favorable for investment, but we are open to UK opportunities if they meet our return hurdles.
Q: When do you expect monitoring costs on military housing to trend down?
A: Monitoring costs should complete in 2025, as it is a three-year cycle and we are currently in the second year.
Q: Can you explain the circumstances behind not winning the student housing bid?
A: The project was initiated when interest rates were low, allowing for an equity contribution back to the college. With rising interest rates, the college would now need to make an equity contribution, altering their cash flow and leading to the project's cancellation.
Q: When does the work on Hong Kong Terminal 2 peak?
A: Terminal 2 is scheduled for a soft opening at the end of this year, with some rework continuing afterward. The Automated People Mover (APM) will connect to it, extending revenue generation into 2026.
Q: What contributed to the 2.3% margin in UK construction, and what is the longer-term outlook?
A: Improved risk management and robust processes have contributed to better margins. We are targeting a 3% margin by 2026, with potential for higher returns as we continue to refine our operations and project selection.
Q: How can Balfour Beatty deliver infrastructure more efficiently under the new government?
A: Proper planning and early involvement in projects can significantly reduce costs. For example, early works on Sizewell, such as rail and road infrastructure, are crucial for keeping the project on schedule and within budget. Our digital capabilities also enhance efficiency and safety.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
