Balfour Beatty plc

Good morning everyone, I'm Philip Hoare, Group Chief Executive of Balfour Beatty and it gives me great pleasure to welcome you to our half year results announcement for 2026. I'm joined today by Myles Westcott, our new CFO who's been with us just a few months but is already having an incredible impact on our business and I know we'll all look forward to hearing from Myles a little bit later as he gives us the detail of the results announcement. But before we start, what a fantastic video. I just love watching images like that of Balfour Beatty because it really typifies the fantastic people that we have within our organisation, the depth and breadth of quality that we possess. It goes to the complex projects that we're delivering around the world and of course it goes to the pride that we have in terms of delivering for our customers. I wanted to start with a huge thank you to all of our Balfour Beatty colleagues. So for those of you that are listening now or in the future, thank you so much for your hard work and your commitment because it's down to you that I'm able to stand here today and talk about our company and the future. So thank you. So now let's get into the first half year results. I am really pleased with our first half performance. We've delivered profitable growth and strong cash performance across the business. And as I talked about last March, we anticipated the conclusion of the U.S. monitorship, and that happened as planned on the 6th of June. So a really important milestone for our company that allows us now to really get on and focus on delivery for the servicemen and women of the U.S. What that means overall when you look at it from a margin perspective is that our profit from operations in our earnings-based businesses increased to 2.9% up from 2.2% in the previous half year. So when you carry forward that strong first half performance and look to our outlook for the full year 2026, we've slightly upgraded our guidance on PFO, which you'll have seen within our numbers. Now, of course, our £200 million share buyback that I announced in March is well on track, and so overall we look to return £267 million to our shareholders over the course of this year. Now, turning to the future and thinking about momentum in the organisation, our order book remains substantial at £23 billion, and I'll talk some more about the details of that in a moment. But this gives us really strong visibility into the future and confidence about where we're heading as a business. And then finally, you know, we're well positioned in the growth markets that we've selected. And again, I'll give you some more colour on that. So I'm really pleased with first half performance. It's been strong. It's allowed us to slightly upgrade our guidance for the full year. And of course, I'm really positive about the momentum that we carry into the future. Let me talk about those markets for a moment. Now of course we operate across a number of geographies in different market areas but we've specifically selected these markets for the future growth of our business because either we can see significant scale-up opportunity or they're large resilient markets like UK transport. But we're focused around UK energy both on power transmission and on energy generation in UK defence, UK transport and in US buildings. and we've seen some really good positive momentum in those markets in the first half of the year. So I just wanted to share some of the highlights of that with you. So firstly, within UK power of transmission, you know, momentum continues to build and, you know, we've shared this graph with you on the right hand or left hand side of the screen before and it's one I really like because, you know, not only does it show where that growth is going to happen between now and 2030, but it also indicates that we have 25% market share and what we see is and what we aspire to do is to maintain that market share as that market continues to grow and the first half has been really positive from that perspective so you know 24% growth in revenue year on year our order book now stands at 2.1 billion pounds that's up from 1.6 billion pounds at the end of last year and that pipeline of opportunities where work has been awarded but we're not yet in the construction phase remains at six to eight billion pounds so if you remember before I've described the part a and the part b of that works where part a is all about design development and getting to the right cost profile for those works part b is when it goes into construction and enters our order book and so When I talk about momentum, we've seen that now begin to move. So in the first half of the year, we were awarded Netherton Hub with FFE. That's a £325 million scheme, which was in Part A and has now transitioned into Part B. We've also been awarded a new substation on top of the work we were already doing at Brantford to Twinstead for National Grid. So we're doing the overhead lines. We've now been awarded the substation work that goes alongside that. and we've secured further routes to market through a new framework with National Grid that will take us into the future. So there's, I think, really positive momentum underpinned by the further wins that we've had in this growth market. Turning now to UK Defence, we are really well differentiated in this space and I'll outline some of that in a moment. So the key thing that's happened in the first half of this year is the publication of something called the Defence Investment Plan. And the Defence Investment Plan does a few things. Firstly, it sets out with greater certainty the level of investment in UK defence infrastructure over the course of the period from now to 2030. So you can see the percentage has increased in spending there that happens. And really what that does is drives greater certainty for us in terms of the opportunities that are there in the market. But it went beyond that and also then set some guidance around what it looks like through to 2035 and an increase in UK defence spending to 3.5% of GDP. So again, this is positive from our perspective because it gives a longer term view of an already important investment market. And then additionally on top of that, I think it pointed to a number of things. So the first one of those is that having defence as a UK growth engine. So using that investment to create new jobs to think about not just defence as a national security point but also as something that's going to drive economic growth across the UK. UK capability is being prioritised and again this is good news for Balfour Beatty because as a UK domiciled business I think that allows us to really think about the Team GB approach to delivering defence in the UK. and clearly we'll be working closely with our clients in this space to really build out those deep and trusted relationships. And then finally, speed of delivery is important, isn't it? It's about being able to build on the programme as it stands and deliver that into the future. And so procurement reform that supports that I think is incredibly important. Now alongside that, I think we're incredibly well differentiated in this market. Our strong track record, our extensive capability that we have, our ability to transfer skills from the complex nuclear environment into defence, I think sets us apart. And then when you take into account the recent investments that we've made, both in security cleared staff and in a ring-fenced IT system that allows us to operate in that defence space, I think we're incredibly well positioned. And then finally, having a robust balance sheet, a strong relationship with UK governments, and the fact that we're a UK domiciled company I think puts us in a great position to really capitalise on the growth that we see in the defence space. So larger market, improved policy environment that should speed up delivery and momentum building across the programmes of work in the defence space. Turning now to the US, I just wanted to touch on a few factors and I might cast your minds back to March when we talked about some new growth areas that we saw within the US overall But look, it's been a great start to the year for US construction. Our revenue is up 19% on the half year 2025. And we've really begun to do something that I think is critically important in that market, which is about leveraging the great capability we have in one area or with one customer and taking that and spreading it across the US. So as an example, we've been targeting Wells Fargo, the banking group in the US, where we've had a 20-year relationship working with them and we're now on a national framework with Wells Fargo, which has meant that we've now started delivering work for them in each of the geographic areas that we operate in. So really simple, a customer we know well, doing work across the US, we're now working with them across the US. In particular, I wanted to highlight the aviation and data center market. So I spoke to you last time about those being important market verticals for us, important because we've got great capability but also because we see significant growth in the medium to long term. So the aviation market, $140 billion worth of construction between now and 2029. We have a great track record delivering across seven airports in the US. And in the first half of the year, we won another significant mandate with Raleigh Durham Airport for $361 million. And so we're now focused on that as a vertical within the US market. Data centres, I mean you can't pick up anything these days and not read about data centres and what's happening. Data centres are not new for us. We've been working with key clients for over 20 years delivering data centres. But actually we're putting increasing focus on, again, taking a relationship and a customer that we know well and working with them across the breadth of the US. So we made great progress in the first half of the year. A $350 million set of wins. taking and expanding our capability beyond the Northwest into Virginia and we've secured a further billion dollars worth of work that's been awarded but not yet contracted that we're in the process of moving through into our order book. So I see significant momentum occurring in that market overall. So what I wanted to do there was just give you a snapshot of some of the great momentum that we're seeing in the organization in the first half of the year. But what I'm going to do now is hand over to Myles and let him take you through the details of the financials.

Thanks very much, Philip. Good morning, everyone. I'm delighted to be here at such an exciting time for Balfour Beatty. This is joining in May. I've spent much of my time getting to know the business, meeting colleagues from across the group. Even in the short time I've been enrolled, It's been clear to see the depth of expertise we have, delivering such an impressive portfolio of complex projects together with an embedded culture of disciplined governance and risk management. Whilst I will of course bring a fresh perspective, I've joined the business with strong foundations and real momentum. I'm very much looking forward to getting to know about the beating even more in the coming months and working closely with Philip and the wider team to deliver our next chapter of profitable growth. which leads me nicely onto the financials and the strong first half results which I'll now take you through. So headline numbers. Revenue grew by 8% to £5.6 billion which was a 10% increase if you exclude foreign exchange movements. This was largely due to increased volumes in US buildings and UK power transmission. Profit from the earnings-based businesses increased by 42% to £153 million. The support services grew strongly, driven by power, and US construction returned a profit compared to the loss we reported a year ago. Group profit for the period increased by 44%, which, when combined with the effects of the ongoing share buyback programme, resulted in earnings per share increasing by 51% to 21.7 pence per share. As usual, our interim dividend is one third of last year's full dividend, which equates to 4.7 pence, 12% increase. The order book increased slightly in the period to £22.9 billion, and the director's valuation of the infrastructure portfolio remained around £1.1 billion. Cash performance was once again very strong, and included significant working capital increases in the US and in power. As a result, Net cash stands at £1.7 billion and average net cash for the period was £1.6 billion. So overall, positive first half and I'll take you through each of the elements in a bit more detail now. So starting with construction services which is much improved compared to the first half of last year. Operational performance in UK construction was strong in the first half delivering PFO margin of 3.4%. This represents improvements of 50 basis points after you exclude the one-off insurance recovery booked in the first half of last year. In the U.S., buildings continued to deliver profitable growth, driving a 19% increase in U.S. construction revenues. And in civils, the business delivered a much reduced loss with the Texas Highway Project, which has been a drag on profitability, expected to achieve final flows out shortly. As a result, US construction delivered 22 million of PFO compared to a first-half loss in the prior year. At Gammon, revenue dropped by 6% on a constant currency basis due to the reduced activity at Hong Kong International Airport, where Terminal 2 has recently opened. Margin percentage was lower than prior year, which is largely due to timing, as we progressed commercial closeouts on a small number of projects. Okay, moving to support services, which has once again shown healthy revenue growth and achieved strong margins. Power transmission volumes have continued to grow, driving 10% increase in support services revenue in the period. And moving to PFO, the division has delivered a very strong first half performance, growing profit to £66 million with a 9.1% margin. This includes margin improvement, across both power and transportation, and also a change in mix, with power now contributing a higher proportion of the division's volumes. It's also worth noting we're seeing less seasonality in support services than in recent years, which is likely to lead to a more even split between the first and second half profit this year. Okay, so the order book, which we've maintained at around £23 billion, This gives us really strong visibility over the next few years, allows us to plan ahead and invest confidently. As Philip mentioned, we've secured the Nellerton Hub contract with SSE, which will be delivered by the UK Construction Division. The ability to provide earthworks and civil infrastructure capabilities is a great example of the group's differentiated end-to-end offering which sets us apart in the sector. The US is slightly down, mainly due to civils, where we're commencing delivery of the three highway projects announced in recent periods. And in US buildings, new secured orders include the data centres and aviation contracts which Philip mentioned earlier. Gammon order work increased by 15%, including the contract award for a railway station in Hong Kong's northern metropolis development area. We expect this to be a strong demand channel for Gammon in the median term, with related projects already making up 30% of the order book at half year. Finally, within support services, we secured a £315 million highways maintenance contract in Warwickshire. In addition to the order book, we continue to have a significant pipeline of further work for which we've been selected, including the £6-8 billion of power projects which we're currently in the design phases of. We expect to convert the majority of these schemes to order book in the next 18 months as we move into the construction phase. Moving now to our infrastructure investments business where the important news in the first half was the conclusion of the monitorship. The predisposal loss which was in line with the prior year was once again primarily due to costs incurred in relation to that monitorship. We also disclosed the two US assets in the first half, both of which were completed at or above the director's valuation. And now moving to that director's valuation of the investments portfolio and taking the bridge from left to right, we invested £15 million in the period in new and existing projects. Sales proceeds from the two disposals totaled £12 million and we received £15 million in distributions from the portfolio. The unwind of the discount increased the valuation by £36 million and the foreign exchange movement was a £12 million benefit as the US dollar strengthened. After those movements, the Drexel's valuation of portfolio is maintained at around £1.1 billion.

Okay, looking at cash now.