Balfour Beatty profits sink 18% but strong UK and Hong Kong sales drive share price higher

Balfour Beatty delivered lower profits last year despite solid growth in its UK and Hong Kong construction businesses.

The infrastructure giant, which helped build the Channel Tunnel and Docklands Light Railway, posted a £228million underlying profit from operations in 2023, an 18 per cent drop on the previous year.

Earnings were primarily impacted by a £44million decline in gains from investment disposals, as well as some US civil engineering projects taking longer than initially anticipated.

This offset increasing underlying profitability at its UK division, which benefited from rising levels of transport-related work, such as the HS2 high-speed railway line and the Thames Tideway Tunnel.

Balfour Beatty’s domestic business saw revenue grow by 10 per cent to £3billion, even as elevated interest rates heightened economic uncertainty.

Its Hong Kong joint venture arm, Gammon, scored the biggest increase in turnover, with a 27 per cent rise to £1.36billion, due to work on projects like the Terminal 2 expansion at Hong Kong Airport.

As a result, the London-listed company’s total revenue expanded by 7 per cent to a better-than-expected £9.6billion.

Leo Quinn, chief executive of Balfour Beatty, said: ‘The group’s reliability and resilience has again delivered a solid performance, with increased revenue and profit from our earnings-based businesses and strong operating cash flow.

‘This success against a challenging economic backdrop is driven by our disciplined contract risk management across a geographically and operationally diversified portfolio.’

Balfour Beatty shares jumped 7.5 per cent to 365.2p on Wednesday morning, making them the top FTSE 250 performer and taking their gains over the past two years to around 37 per cent.

The firm forecasts higher operating profits from its earnings-based segments this year before ‘accelerating’ in 2025, spurred by the US chosen buildings industry and energy, transport and defence schemes in Britain.

For 2024, the group said growth will be supported by its £16.1billion order book.

Among the contracts won by Balfour Beatty in 2023 were a £330million six-year deal from Lincolnshire County Council for motorways maintenance and a £300million agreement to build student accommodation for Sussex University.

Outside the UK, the company gained $480million for federal work in Washington D.C. and a HK$3.7billion offer to build a new development at Cyberport, a business park home to Hong Kong’s largest fintech community.

Mark Crouch, an analyst at eToro, said: ‘While the stuttering UK economy may present bumps in the road ahead, Balfour Beatty’s impressive balance sheet, strong cash position and diversification overseas should offer more than sufficient insulation for their shareholders should an economic slowdown intensify.’