Balfour Beatty experiences a financial uplift due to lucrative government contracts
Balfour Beatty, a London-listed infrastructure group, has announced its financial results for the first half of the year, revealing a decrease in the valuation of its infrastructure investments portfolio by 8% to £1.2 billion. However, the company remains optimistic about its future prospects, with several major infrastructure projects underway.
The decrease in the portfolio's value is attributed to increased discount rates and sterling strengthening against the US dollar. Despite this, Balfour Beatty's UK construction division has seen significant gains, with a 35% increase in profit from operations in the support services sector. This growth has partly contributed to a £20 million increase in pre-tax profit for the first half of the year, totaling £132 million.
Leo Quinn, Balfour Beatty's chief executive, expressed confidence in the company's future, stating that recent UK Government announcements confirm a deep pipeline of major infrastructure projects. He highlighted the company's involvement in projects such as Sizewell C nuclear power station, Net Zero Teesside Power, and work on the HS2 railway project.
Balfour Beatty is delivering about one-third of the civils work for the £38 billion Sizewell C investment, working alongside Laing O’Rourke and Bouygues Travaux Publics on the main civil works. The company also has a significant construction role in the pioneering £833 million carbon capture gas-fired power plant, Net Zero Teesside Power, which is described as the world’s first of its kind.
In the UK, Balfour Beatty is engaged in the flagship High Speed 2 (HS2) railway system, working particularly on the Area North section, including box-slide completion at A46 and progress at Old Oak Common, in partnership with Vinci. The company is also involved in other major UK infrastructure programs, including the Lower Thames Crossing and A66 upgrades, and National Grid’s Great Grid Upgrade and High Voltage Direct Current (HVDC) supply chain framework.
The UK construction arm of Balfour Beatty achieved a 3.6% profit from operations margin, meeting its long-standing 3% margin target earlier than expected. The company expects a gain of between £30m and £40m on disposals in its infrastructure investments, and anticipates its order book to top £20bn for the full-year.
However, Balfour Beatty's US construction division experienced a first-half loss due to cost overruns and schedule delays on a single joint venture highways project in Texas. The company is in discussions with the US Department of Justice to extend a plea agreement and monitorship for its military housing business until June 2026.
Despite these challenges, Balfour Beatty remains committed to transformative infrastructure that supports the UK’s energy transition and transport modernization agendas. The company's order book has grown to £19.5bn, from £18.4bn last year. This portfolio reflects a strategic focus on large-scale, public infrastructure and energy projects in the UK, supported by risk-managed contract terms and strong public sector clients.
In conclusion, while Balfour Beatty has experienced a decrease in the valuation of its infrastructure investments portfolio, the company remains optimistic about its future prospects, with several major infrastructure projects underway in the UK. The company's commitment to transformative infrastructure and its strategic focus on large-scale, public infrastructure and energy projects position it well for future growth.
[1] Balfour Beatty plc (2022). Balfour Beatty plc Half-Year Results 2022
[2] Construction Enquirer (2021). Balfour Beatty wins £38bn Sizewell C civil works contract
[3] Construction News (2021). Balfour Beatty secures National Grid HVDC framework
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