Balfour Beatty H1 2025 Earnings Report

Balfour Beatty EPS Results

• Actual EPS: GBX 14.40
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Balfour Beatty Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Balfour Beatty Announcement Details

• Quarter: H1 2025
• Date: 8/13/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 13, 2025
• Conference Call Time: 4:00AM ET

Balfour Beatty (LON:BBY) is a leading international infrastructure group. With 26,000 employees across the UK, US and Hong Kong, we’re leading the transformation of our industry to meet the challenges of the future. Trusted by our customers to deliver sustainable solutions and strengthen communities, we finance, develop, build, maintain and operate the increasingly complex and critical infrastructure that supports national economies and deliver projects at the heart of local communities. Collaborating with governments, our customers and partners, we deliver powerful new solutions, shape thinking, create skylines and inspire a new generation of talent to be the change-makers of tomorrow.

Balfour Beatty H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record £19.5 billion order book and a further £20 billion secured pipeline of de-risked projects underpin strong future revenue.
• Positive Sentiment: Robust cash flow (26% operating cash increase) has funded an 11% interim dividend rise to 4.2 pence and ongoing share buybacks.
• Positive Sentiment: UK Construction hit its 3% PFO margin target a year early, driving a 35% profit increase (ex-insurance recoveries).
• Positive Sentiment: Support Services grew revenue by 19% and profit by 35%, with margins expected at the top of the 6–8% target range.
• Negative Sentiment: U.S. Civils posted a first-half loss from cost overruns on a Texas highways project, though the group expects to recover these costs and finish the year with around £20 million PFO.

Presentation

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So welcome to our half year results. It's incredible looking at the video, which I think is our best one yet. The sort of extraordinary things that we actually do and deliver on a day to day basis, quite astonishing. And normally, at the end of the presentation, you sort of thank everybody. But what I would say is that for our 27,000 employees who do this day in, day out, it's an incredible achievement, and we'll always remain grateful.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Right, right. So Is that a tear? Sore throat. So I'm Leo Quinn, Balfour Beatty's Group Chief Executive. And I'd like to talk about our first half results.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And the most important thing is, look, we're on track to achieve our full year earnings and expectations. I want to make three points here, and I think they're really, really important. First and foremost is the strength of our underlying earnings business and the fact that we've actually achieved our 3% margin in U. K. Construction proving Phil wrong is an accomplishment in itself.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And of course, the astonishing growth that we got within Support Services. I'd also like to point out our record order book. And this is on the back of a rising infrastructure tide. And as you know, Balfour Beatty is the market leader in infrastructure. What's quite unique about the company is our ability to turn earnings and actually order book into cash.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And that underpins our dividend increase and also our share buyback. And if you want to ask me later how does orders underpin cash, I'll explain that to you as well. So fundamentally, a really, really good start to the year. But this is only half the story. And this next slide is very, very important because what it actually does is it underlines effectively the quality of the backlog and the pipeline that we've got.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And most importantly, it allows us to be selective, and that selectivity allows us to improve margins, not only at the pricing level but at the delivery level. So let's just start with the fact that we've got CHF nineteen point five billion of order book, which is a record order book. But more importantly, that's underpinned by a pipeline, much of which is actually secured of another CHF 20,000,000,000. The biggest challenge we face in the market today is that demand in infrastructure far exceeds supply. And for over the last two years, we've been actually looking at that and looking to capitalize on it in terms of our pricing strategy and margin strategy, but also in the derisking.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And the derisking is really important because what it means is that the book margin actually gets delivered as the delivered margin as opposed to when you deliver the book margin, it's actually below the actual when you deliver the book margin when you deliver the margin, it's below the booked margin. So let's have a look at some of this in detail. If I look at the GBP 20,000,000,000, we've got five growth engines within the business. The number one and the most important at this moment in time is the power transmission business. And that's really been driven by the fact of net zero, but more importantly, AI.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Some of the demands for data centers and power connections is just phenomenal. We're engaged in early contractor involvement, which you might be more familiar in terms of as a FEED study. That FEED study is actually paid for by the client. So historically, in that market, we would actually be hard bidding work whereby we'd put three bids in, we'd win one in three, and then we'd deliver it with all of the risk. Now what happens is that we go in early, we'll actually survey the site for planning conditions, for soil conditions, early design, in some cases, early procurement.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And what that allows us to do is significantly derisk the business here. The amount of business that's going to derive from our early contractor involvement at this moment in time is EUR 6,000,000,000 to 8,000,000,000, which is about onethree of the EUR 20,000,000,000 market that sits out there. In Power Generation, within Power Generation, in the last six months, we've seen what effectively was an acceleration of orders into the first half of the year with net zero Teeside but also with Sizwell. Sizwell has now passed FID, which is the government's financial investment case, and work is proceeding on-site as if it's to be built in full. And further, Sizwell is we've signed and we're engaged in a three way alliance agreement with ourselves, Langer, Rourke, Bouygues to deliver GBP 14,500,000,000.0 of civils construction work.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And that is actually a signed commitment. I'll explain more in the second half. In the area of defense, we're engaged in three or four defense sites, which over the next twelve months, we'll actually have to appoint a partner to deliver the fissile. The fissile work across these sites is worth between CHF 2,000,000,000 and CHF 5,000,000,000. And we're actually on-site delivering today and in a very good position to secure some of that.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

In the case of Lower Thames Crossing, we see that Lower Thames Crossing, the contract has been awarded to us, will probably start about 2028, but it's all part of our growth pipeline. And then within our Buildings business, what we're looking at is a run rate business for another GBP 3,000,000,000, which has already been secured but not awarded at this moment in time. So this strong backlog of enhanced margin and derisk, coupled with a GBP 20,000,000,000 pipeline, leaves me very confident that we'll be exceeding what effectively is the average cash going forward in the future. That then underpins what effectively is an accretive dividend and an increasing share buyback. So I'm very confident with the momentum in the business on the rising tide of infrastructure that we'll be actually delivering significant shareholder returns into the future.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So on that note, I'm going to hand to Phil in order to explain the reality.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Thanks, Leo. Good morning, everyone. In the first half, we made really good progress in our growth markets and remain on track to achieve our full year expectations. That includes our ongoing expectation of increased profits from the earnings based businesses with very strong contributions from UK construction and support services, more than offsetting a forecast reduction in profit from U. S.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Construction, where we've had a frustrating write down in U. S. Civils in the year to date, for which we are confident we will ultimately get cost recoveries. Looking into the first half in more detail. Revenue grew by 10% to £5,200,000,000 which was a 12% increase when excluding foreign exchange movements, largely due to growth in U.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

S. Buildings and support services. Profit from the earnings based businesses increased by 7%, with strong profit growth in UK construction and support services, largely offset by a loss in U. S. Civils.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

And when including higher costs in the investments business, group profit from operations was flat at £77,000,000 Profit for the period decreased by 10% to £73,000,000 which included lower net finance income as last year's first half benefited from an impairment write back. Earnings per share decreased by 6% to 14.4p. And our order book at nineteen point five billion pounds has increased by 6% in the period. And the directors' valuation of the infrastructure portfolio reduced by 8% to £1,200,000,000 Period end cash increased to £1,200,000,000 driven by a large working capital inflow, which also resulted in average net cash increasing to £1,100,000,000 As I said, we remain on track to meet full year expectations, albeit with a change in profit mix, and this gives the Board confidence in significant ongoing shareholder returns. Aligned to this, the interim dividend has been increased by 11% to 4.2p per share.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Moving on to the business units. Let me start with Construction Services. UK construction had an excellent first half. Excluding insurance recoveries, profits grew by 35% and we achieved our long standing 3% PFO margin target, a year earlier than forecast, with the improvement driven by better operational performance and the lower risk nature of the contracts being undertaken. We also benefited from an insurance recovery of £10,000,000 relating to an ongoing project.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Looking to full year, we expect the business to achieve a 3% margin prior to including the insurance recovery. U. S. Construction made a loss in the first half with good performance from the buildings business, offset by cost overruns and scheduled delays at a civil highways project in Texas. The project, which we're delivering in joint venture, is due to end in the 2026.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

And as you would expect, the group will seek to recover these costs overruns from subcontractors. Prior to this year, Highways activities in the Southeast and Texas had been profitable for the group, and we expect this to be the case again following the conclusion of this project. Aligned to this view, in the first half, we signed a further highways contract with the same clients, which we will deliver independently over the next six years. For the full year, we now expect U. S.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Construction to deliver a profit of around £20,000,000 At Gammon, the first half largely out turned as expected. Revenue was 23% lower driven by reduced activity at Hong Kong Airport, where our two major projects progressed towards completion. PFO increased by 13% to £17,000,000 and the PFO margin percentage increased to 3.1 driven by the mix of work delivered. I'll also touch on non underlying items here. You'll remember that at year end, we provided £52,000,000 in respect of a jury verdict given against the group and its JV partner regarding a U. S. Highways project completed in 2012.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

We're pleased to say that in the first half, a settlement was reached with all parties, including our subcontractors, and the group share of the settlement was fully funded by its insurers. As such, the group has released this provision in full after taking into account legal costs incurred. Moving on to support services, which comprises our Power Transmission, Road and Rail Maintenance businesses, all of which performed well in the first half. As you know, the large scale investment in The UK's power transmission network is beginning to ramp up and this can be seen in the first half numbers with a 19% increase in support services revenue being driven by higher volumes in the power business. As a result, profit for the period increased 35% to £46,000,000 For the full year, we expect PFO margin to be towards the top of the targeted 6% to 8% range, with further profitable revenue growth from the Power business and consistent performance from Road and Rail Maintenance.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Let's now look at the group's order book, which is now at £19,500,000,000 with an increase in each of the four divisions. UK construction increased slightly to £6,300,000,000 and 82% of orders are now either on target cost or cost plus contractual terms. In The U. S, in dollar terms, the Buildings business grew their order book by 6% in the first half, and Civil's added the new road project I spoke to earlier. Gaminer has had a good period for order intake, particularly in the building sector, and their order book grew 12% in local currency.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

And support services grew by 16%, largely due to new rail orders, including a long term fleet supply contract with Network Rail, a place on Network Rail's CP7 Western reactive framework and further track renewal work with the Central Rail Systems Alliance. The power order book within Support Services grew modestly in the first half compared to revenue as many of the large schemes which the business are working on are being contracted in phases. We are currently underway on early contractor activities and the contracts for the later phases where the majority of the value sits will be added to the order book in the coming years. Moving on to infrastructure investments, which made a loss in the period. The key driver of the division's losses continues to be the costs in U.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

S. Military housing relating to the Monitor's work. This month, we have agreed in principle to extend the monitorship to the 06/06/2026, which we believe gives the military housing business sufficient time to remediate the outstanding work. In the first half, the group also recognized costs relating to three UK PFI assets, which required remedial works ahead of hand back in 2026. A small gain on disposal was recorded in the first half with £2,000,000 of contingent consideration received in relation to a 2024 disposal.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Looking ahead, we expect to make a small loss in the second half prior to disposals, resulting in a full year operating loss marginally larger than the £12,000,000 reported today. It is important to say that investments remains profitable when excluding the ongoing cost of the Monitors work. Finally, we expect gain on disposals for the full year in the range of 30,000,000 to £40,000,000 with a number of transactions ongoing. Moving to the directors' valuation. The valuation of the investments portfolio decreased by 8% in the first half of the year to £1,200,000,000 largely due to two main changes.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Firstly, we have increased discount rates in both The UK and U. S. Portfolios to reflect changes in long term interest rates and to align to the secondary market. This has resulted in a reduction in value of £61,000,000 Secondly, with over half of the portfolio being U. S.-based, the strengthening of sterling versus the U.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

S. Dollar during the first half also had a large impact, reducing the valuation by £65,000,000 We continue to invest in and recycle capital from the portfolio with two new multifamily housing assets acquired in The U. S. During the first half and disposals planned in the balance of the year. Looking at cash now, which has been particularly strong for us in the first half.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Operating cash flows improved and were up 26% compared to the first half last year, but the major driver of the larger cash balance was a £290,000,000 working capital inflow. This was driven by advance receipts on several new projects in U. S. Construction and by working capital timing in U. K.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Construction. The remaining items on the bridge were largely as expected, including around half of this year's share buyback being completed. The one other item I'll mention is our other category, which is normally a much smaller number, but included £26,000,000 of foreign exchange movements in the first half, given the weakening of the U. S. Dollar.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

I'll finish with a summary of our full year guidance for 2025. We continue to expect an increase in PFO from the earnings based businesses. Within this, we now see UK construction operating at a 3% PFO margin as it continues its upward trajectory and further progress in Support Services, which is maintaining margins while growing revenue. S.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Construction to have a much better second half and finish the year with PFO of around £20,000,000 We expect the gain on investment disposals for the year to be in the range of 30,000,000 to £40,000,000 as we continue to realize value from the portfolio. Net finance income is expected to be around £30,000,000 and the effective tax rate will be close to statutory rates again. Looking at cash, we expect average net cash to be in the range of 1,100,000,000.0 to £1,200,000,000 now and for capital expenditure to be in the range of 40,000,000 to £50,000,000 In summary, we remain on track for the full year and continue to be well positioned to capitalize on improving operational performance and the momentum in our growth markets in 2026 and beyond. This will continue to underpin our long term commitment to grow shareholder returns. I'll now hand you back to Leah.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Right. Thank you, Phil.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I'd start off by saying that we've been talking now for at least eighteen months, two years, really about the growth engines behind the business. And in summary, these represent about 70% or cover about 70% of our revenue. But I have to say, where we sit today, I've never known the business be in such a good position for the future. So as I leave the business, the strength of our order book and our pipeline is truly quite phenomenal.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I always think in any business, if you've got a portfolio and you've got one or two sort of growth engines, that leads to a good overall outcome because the growth engines cover all of the misdemeanors elsewhere. If you've got three growth engines, it's a little bit like three bell fruits on a one armed bandit. It's a jackpot. We, at this moment in time, have got five. And our biggest challenge is really how do you cope with that level of demand with a limited supply.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

There's only 27,000 of us to actually deliver. So it demands that we become selective and we become more and more selective. So I'll take you through each one of these for a few seconds. And the thing I'll point out to you here is if you look at this graph, which is sort of our backlog going forward and our revenue projections, from between 2024 and 2026, the Power Transmission business is actually doubling. Well, if that isn't interesting enough, between 2026 and 2028, it has the potential to double again.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

There aren't enough people and resources to deliver all of that. So our number one message is actually really around selectivity. Just a little bit of history, we've been in this business for about one hundred and fourteen years. It's where Balfour Beatty actually started. National Grid, which is one of our major customers, is actually we've been doing business with them for one hundred years.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So we're well ingrained in this industry. We have about 20% to 30% market share. We have about 2,300 blue collar workers in this market. And a couple of other things, it's not only National Grid and SSE, but it's also now Scottish Power as well. We're very focused in what we do.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We do 400 kV and 132, which is rather specialist. And again, there's not a lot of competition in that market. I said earlier that demand is actually being driven by consumption. It's about net zero and how do we connect wind farms into the grid, how do we derisk the grid. But also, the demand for AI and data centers is now booming and getting connections onto the grid.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So all of this caters to that. We not only do the 134 the 400 kV and 132, do substations and we're now doing converter stations. Converter stations, I was up in Scotland recently and visited one, they're 300 meters square. If you can just imagine a field where we're going to actually plant a 300 meter 300 meters by 300 meter converter station to take wind power off into the grid. So truly phenomenal stuff.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We're actually it's not growth in the future. We're delivering this now. This business will probably nigh on double this year if I look at it. But we're delivering on the likes of BTNO, Eagle, and we've got the RIIO frameworks we're delivering against. And we're working on ECIs into Ferasti, which is the SSEs power plant.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The other thing about selectivity, which I've said before, which is really important, and that is that we've chosen the schemes we want to deliver. There's a whole portfolio out there, and some of them are extraordinarily difficult in very remote places. All of our picks are actually where we've got good urban conurbations and we can actually get people and talent. I think one of the things that's remarkable in the first 18 or the last eighteen months, we recruited eight fifty people into this business to cope with the growth. That in itself is a challenge.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I'm very, very confident that our future is extraordinarily bright in this area. If I look at power generation, interestingly enough, Seizwell B, which is the which preceded Seizwell C on here, we actually did the diaphragm wall and the foundations for that forty years ago. So it's very interesting how these things come back time and time again. Hinkley Marine will be tailing off over the next eight to ten years as we do all the mechanical work. The civils work for us is largely finished.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We'll be then morphing into Sizwell C. And as I said earlier, Sizwell C has come along like a a bullet train. In the last six months, we've signed the alliance agreement between ourselves, Bouygues and Langerhock, to deliver the civils. The government has given approval to the financial investment case. And at a minimum level, we will end up sharing CHF 14,500,000,000.0 of civils delivery in that program over the next eight to ten years.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So really, really encouraging. The other order that's come in, in the last six months is NetZero's Teeside published, I think, is $880,000,000. This is a situation whereby this is a negotiated contract, as Seizwell was a negotiated contract. And what's really key about how these projects are derisked, in the past, we would invariably have some sort of penalty associated with retentions or liquidated damages. In the case of all these contracts, we are bonused and incentivized on actually performing.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So there's only upside, and our downside risk is actually minimized in terms of there's a minimum level of margin that we can earn come hell or high water. Also, as I look forward to the future, you've got SMRs, you've got more carbon capture. We're working on fusion and the like. So not only is this very visible in the short term, but in the long term, we've got even more growth coming through. And I think you saw things on Rolls Royce this morning about the value of their SMRs for small for power supply to data centers for AI use.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So fundamentally, our generation business is growing as well. Again, I'll point out that between 2024 and 2026 is doubling, and then there's also the potential for that to double again. If I look at Defense, Defense is really one of our smaller businesses. But again, the challenge we're going to have here is, again, we're circa CHF $250,000,000 here or CHF 200,000,000. But again, between CHF 26,000,000 is doubling.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And as you look out, it has the potential to double again. In the case of defense, we're working with three primary customers. All our work is around submarines and nuclear. The one part of the defense budget was that was protected was actually the nuclear element of it. We work with the likes of Babcock on Devonport, which is for the Astute class submarine, where we're building out the dock.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We're working with the Atomic Weapons Establishment in Alder Marston, where we're in there building the hub, and they've yet to appoint their fissile partner. We're working with Rolls Royce in Derby, where we're building out the AUKUS facilities. And again, they've yet to appoint their fissile partner. We feel fairly confident given our background knowledge and experience and the fact that we're actually on these sites that we're in a favored position to actually secure an awful lot of that work. And that will be worth between something between GBP 2,000,000,000 and GBP 6,000,000,000 in total.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Obviously, we work with the DIO, who have, in the light of defense spending, a growing backlog. And also, a lot of the projects we're doing are with in the area of cybersecurity. And those secure projects will actually roll one into the other. Again, they're not actually tendered. They're sort of negotiated because of the nature of them.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So if I look back at Power, our Power business has been derisked by something called early contractor involvement or feasibility studies. These orders have actually been negotiated with the client directly. And there's only upside for performance, and the downside risk is capped. If I look at our Transportation business, this is a mix of a number of businesses. Firstly, in Rail.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We've been very fortunate in the first half of the year to secure a number of rail maintenance contracts, but also in the area of plant hire and plant equipment. So we've won the Tampa contract, which is a ten year commitment to Tampa hire. And then we've also, within that, won another contract, which is also the plant higher for rail for the next ten years as well. So with HS2 absorbing a lot of the transport budget at this moment in time, the rest of the budgets are getting rather tight in terms of highways, local roads and rail. So the fact that we've got a secure pipeline for rail is very good, underpinned by our ongoing maintenance that we do.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So we see rail as flat for us over the next four to five years. When I get to roads, roads breaks into two parts. It breaks into local authority roads, which is our living places business and is in our service business. And we've got highways, which is our national highways, motorways and the likes of that. In terms of living places and local authority roads, we've got a very solid business going forward.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Every twelve months, one to two major councils will come out with major tenders. We're working on a couple at the moment, which are in the hundreds of millions, and they're invariably one or no. You either win them or you lose them. We're very encouraged by the outlook in this market, but at the moment, we're not forecasting any growth to come out of this. If I go to Highways, our two major projects at the moment is obviously finishing off the M25A3 at Whistley.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Just for the people in the room and on the call, the M25 will open at the September. So those who sat in traffic for a long time will be pleased with that relief. The A3 will take a little bit longer. We've recently won the M3 Junction 9, which is 100 million highways job. We're working on such things as the A66 and the A57.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

None of those we're forecasting as growth, but the growth that we do see is in the Lower Thames Crossing, which has already been secured, which will kick in about 2028. And that will give us a nice fill up. This is a very, very solid business, has produced good profits and good cash flow for the last twenty years. So it's really one of the foundations. We see a lot of prosperity in the likes of the growth at Heathrow.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We're more interested in the T2C Terminal and probably coming up in next two to three years. I think the runway will be out past 2032 and the likes of that. So aviation is very big for us. And given this business as an expert in raw material and haulage, we cluster reservoirs in here. There's going be a lot of building of new big reservoirs around The U.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

K. And on the right terms and conditions, we'll engage in that sort of work. So again, there's a lot of opportunity in front of us in this business built on a very solid rail, local roads and highways business. If I look at The U. S, about 2023, we embarked on what effectively was a growth initiative in The U.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

S, and that was actually to expand our territories beyond the main branches. So the role of The U. S. For us is it diversifies our risk away from The U. K.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And gives us a second string to our bow. Within The U. S, we're very well diversified all the way from Seattle to California, across to Texas, Florida and back up to Washington DC. What we did is so geographically, we look to expand the business. And you can see that the benefits of that is we've gone from an order book of GBP 5,700,000,000.0 to GBP 7,100,000,000.0.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The model for us is a much lower risk type model. It's a low return in terms of its fee, but the risk is passed down to the subcontractor chain. The initiatives that are working for us very, very well is apart from the new branches that we've opened in places like San Diego sorry, not San Diego, Sacramento, is that we've been able to cross fertilize customers across The U. S. So for example, Disney, where we have a very big presence in Florida, we've now started doing work with them in California.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Universal, similar, we're now starting to do work in Texas. We've seen a huge demand for data centers, and we're one of the largest suppliers to one of the tech companies in Portland, Oregon. That actually has now spread to Washington, D. C, where we've just secured a €200,000,000 data center order, and we're also looking at similar in Phoenix. So for us, The U.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

S. Geographically is actually going very, very well. It's growing. And we're actually with the specializations that we have, whether it be hospitals, education, the likes of that, is putting us in very good stead to actually expand that beyond where our concentrated centers are today. So look, finally, really summing up, it's very interesting to have, I think, a really strong order book with rising margins and a derisked order book.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

That's just one part of it. But the other part is, is, you know, what have we got in place to give us confidence that that can be delivered in the future? And ten years ago, we launched our Build to Last program around lean, expert, trusted and safe. But where do we stand today? First and foremost today, we've got strong governance and controls across the business.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We've got a dedicated and committed workforce across the country, across the globe. In terms of trusted, we are by far and away the market leader in infrastructure, and we're trusted to do what we say we will do. So if someone's thinking about an infrastructure project, you cannot work without having Balfour Beatty on the list. We have what I think is some of the best in class safety practices where we're leading the industry in digital and the application of AI. And we have a group of employees who actually care about the environment and are committed to their local communities.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So that's the foundation on which the future of the company will be built. What has Trust built what has Built to Last actually delivered for us? Well, a 47% increase in earnings. But more importantly, that's underpinned by a level of cash generation with the likes of which I've never actually seen before. We've returned just under GBP 1,000,000,000 to shareholders via buyback and dividends.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And we've actually bought back 28% of the company at an average price of about GBP 3.3, which, judging by today's price, was a good deal. We've got a highly derisked 19,500,000,000.0 backlog, strong margins and, as I say, highly derisked. And we've got a CHF 20,000,000,000 pipeline of additional work, which actually will be delivered over the next ten years. Our backlog will be delivered over the next two to three, but our pipeline will be over the next ten. So if you're thinking about confidence in the ability to continue over the long term to return cash to shareholders, I'm personally very, very confident that all the right things are in place.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So finally, in summary, I think we started out built to last. I think Balfour Beatty is already built to last. And on that note, I'm going to hand over for questions.

[Robert Chantry, Head - UK Company Research at Berenberg]

Rob Chantry at Berenberg. Thanks very much for the presentation guys. So yes, three questions for me. Firstly, I guess, on The U. S.

[Robert Chantry, Head - UK Company Research at Berenberg]

Order backlog, another strong increase. Could just talk a bit more about the level of confidence you have on The U. S. Margin and EBIT generation in that backlog over the coming years? I know historically, you've maybe talked about a normalized level of EBIT in the kind of, what, pounds 40,000,000, 50,000,000 level, but obviously, a bit of a step back in the first half.

[Robert Chantry, Head - UK Company Research at Berenberg]

So just talk about the confidence you have in the margin in that backlog. Secondly, I guess, on U. S. Civils as well. Can you just talk about what exactly went wrong?

[Robert Chantry, Head - UK Company Research at Berenberg]

I know you've announced this year several more contracts in Texas on the road side. Is it the same risk profile or the challenges? I know you commented on lower return and lower risk, but some more clarity on that given your the amount of exposure you have to Texas. And then thirdly, just some comments around the infrastructure investment piece on The U. S.

[Robert Chantry, Head - UK Company Research at Berenberg]

Monitorship. I know there's kind of news in the first half that's been extended, I think, to the June 6 next year. Just some thoughts on how that impacts your attitude to that assets on the background to it and your kind of your thoughts around that the ongoing process? Thank you.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Over to you Phil.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

I thought you could do all those, given it to you last go and see if you can get them right.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Do you want me do Yes, you You want me usually do numbers. Look, let's say, we'll share. I'll do Buildings. First and foremost, the growth of Buildings is underpinned by what effectively is quite diversified across The U. S.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Continent. So that's quite strong. On the Buildings side, we continue we had an excellent first half with Buildings, and we see that being the same in the second half. The first half result was set back by the civils project, which is delivered in joint venture in Texas in the first half. I'd have to say we've really had an outstanding first half for Buildings, and we have a lot of confidence in that business.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The thing I would say more importantly is that the risk in that business does go down to the supply chain. So when something goes wrong, it doesn't necessarily go to our account. But that actually is reflected in the fact that we only make like a 2% margin return on the fee. So it's a low risk and a low return. So I'm very comfortable in that particular business and business model growing for us.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The downside risk obviously happens is that if a subcontractor does go bankrupt and that delays the overall schedule, then it will go to liquidated damages to our account. But in the event, the scope of work and the cost of completing any subcontractor default goes back to either bonding or the insurance. In the case of Texas, and Phil should fill this in as well, the contract that we have in place is in joint venture. And going forward, for the last eighteen months, we have not done any joint ventures in Texas with the particular partner in question, primarily around the fact that we don't see the value add in that relationship for us going forward. The contracts, in this particular case, the issue that's arisen is that it relates to subcontractors, it relates to design.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And as a result of it, workers had to actually be redone. When things are designed and in the wrong place, invariably, there's a liability that falls back to the likes of the designer. And we're going to look to recover that in full back from the company. Probably that business model always is, is when you recognize the fact the job is going to run longer, therefore, prices are going to rise and you have the potential to liquidate the damages, you have to recognize it in the period. But you might not actually get the money back for two years or whatever, and it's usually a long negotiating process.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So that's the ifs and buts of that. Anything you'd like to add?

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

No, we're only that. Are pursuing the third parties. We're confident that we'll get a good outcome from it.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The one thing I would build on, Phil said it very well, was on 01/1961 where we had the insurance case recently, we took a £50,000,000,000 reserve against that liability at the end of the year. That actually got resolved and settled, and we've written back the full amount by the legal costs. That is extraordinarily unusual to settle something in that time frame. But it does it is interesting when I analyze it, we took a £50,000,000 reserve and it's been written back. We've now taken another reserve.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So net net, there's no impact on cash. It doesn't matter whether it's middle column or underlying, the cash of the two net each other out. So it has no impact on our ability to continue our share buyback and return of capital to shareholders. So it's and I think the thing I would say is that we've got such a resilient balance sheet that you can take those bumps in the road in your stride. By the way, you don't want to be taking any bumps in the road, you don't want any potholes, but the fact of the matter is the strength of our balance sheet, the cash on it, just means that it's bloody annoying when these things happen. But it's part of the reality.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

On U. S. Monitor ship, we will beef through the bulk of our work by year end, and then the monitor will do their work. Think in our discussions with the Department of Justice, we set it to be a date that everybody was comfortable we can bring this thing to a conclusion. Question.

[Graham Hunt, Vice President at Jefferies]

Very much. Graham Hunt from Jefferies. I've got three, if that's all right. Just going back to U. S.

[Graham Hunt, Vice President at Jefferies]

Buildings market, you called out a number of areas of strength. Just wondered if there are any pockets of weakness that are worth calling out or just generally how you're seeing the different sub segments there? Second, on The U. K. Construction business, you've now hit your 3% margin target ahead of schedule.

[Graham Hunt, Vice President at Jefferies]

When you talk about those big or the major projects that fill your pipeline going forward, are you confident you can maintain that 3% or even maybe go a little bit above? And then third question, just a bit of a bigger picture one on the two administrations that we have in The U. K. And The U. S.

[Graham Hunt, Vice President at Jefferies]

From the government side. Do you have any reflections on what they've been doing in terms of accelerating infrastructure build out, where that's been most impactful on your portfolio and what gives you confidence in terms of the policy they're putting through? Thanks.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Yes. I don't do these because, I mean, they're going to be

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

fact based, aren't they? I can't wait to hear You your

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

asked for a moment of weakness. We sort of we're a low profile as a company. We don't really like to sort of put out there in terms of a lot of the things we're working on for various reasons, some good and bad in publicity. But you say I think you asked the question as to maybe lowlights and whatever, but recently, Trump's visit to the Federal Reserve, which we're building, was not necessarily the publicity Uganda. However, saying that, the project, again, very low risk, phenomenal what we're doing, basically jacking up the entire building and putting a new building inside it.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So the things we do are quite extraordinary. The business continues to do very, very well. And as I said, the first half has been really one of the best first halves we've had in the business. And I'm very encouraged about the pipeline that we see. Our market leading position for schools in California is just going from strength to strength.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

There's one here on my shoulder. You look at sometimes they spend over $200,000,000 on a school. You don't hear of that in The UK. So I don't know if Phil wants to add. In terms of the 3% margin, look, I've always said that our UK construction businesses operate at 5%, always said it.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And if it wasn't for the cock ups that we've had in the past, we would sort of be moving in that direction. Phil likes to keep me firmly grounded and sort of get me to understand that three is a virtual reality. But I do think when I start to look at what's happening around what we're bidding, the growth rates, the fact that we have specialized services which deliver within our framework. So effectively, we will deliver our ground engineering as best in class. And then whether we deliver it or someone else, we would get a fee on that as well.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So there is absolutely a pathway to exceeding the 3%. So I don't think how long it's going to last. I think where does it go from here is the question you need to be asking. And I can't remember the third one now, but

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Big picture on U. S. And U. K. Governments.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Look, U. K. Governments is in a bind. It's trying to create growth. And if it can't get growth in sort of like the property market and things like that through natural macroeconomics and the likes, it's doing it through our fiscal expansion.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So it's pumping money into infrastructure, money it doesn't really have in reality. But once these projects start, they don't stop. But I have to say the projects that we're doing, when they deliver the benefits like Crossrail or the Elizabeth line now, are just truly phenomenal. So I think they're very, very different. In The U.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

S, we're not that exposed to fiscal expansion or whatever. We've got a few road projects. They're well funded. They're interesting, but we don't have a big footprint. In The UK, we really do dominate the industry in a very positive way.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I don't know if you want to sort of add to that, Phil?

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

No.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

How about 5%?

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Well, the I think the great news is that we have hit 3%. We've hit it a year earlier than we thought. I think that does come down to the kind of operational discipline that we've had in the business. So there has been less cock ups. I think if we continue that trajectory, then we can probably dream of five.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

But more sensibly, how do we go from three to 3.5 and how do we go from 3.5 to four, that's how we need to approach it. But I think we've got the opportunity to do better than three.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Obviously, he's been taking the blue pill, isn't he, from the matrix, yes.

[Graham Hunt, Vice President at Jefferies]

Thanks very much.

[Jonny Coubrough, Director - Building & Construction Research at Deutsche Numis]

Thanks. Jonny Huber from Deutsche Numis. Could I ask firstly on Power? I think you've previously spoken about it being at 10% to 12% operating margin business. Is that still the right level?

[Jonny Coubrough, Director - Building & Construction Research at Deutsche Numis]

And also, you previously spoke about getting to £800,000,000 of revenues there next year. Leo, you mentioned the potential is still a lot more, but you're constrained by resource. So what do you think realistically that revenue line can be? And then another question would just be on transportation. You set out the pipeline out to 2030 excluding HS2.

[Jonny Coubrough, Director - Building & Construction Research at Deutsche Numis]

What would that chart look like with HS2 included and if that continues 02/1930? Thanks.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Let me do the HS2 one quickly. We are I think we're at the virtually record level of revenue this year and last year. We'll see the revenue next year for HS2 fall off slightly. I do know that the funding has been set aside to get it to get all the civils completed and then to get the track systems up and ready. They're looking to complete all of the civils by the 2029 and then with a clean sheet handed over for the track systems and the power to be delivered.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So I would say revenue next year in HS2 will be off between 20%, something like that, I'd estimate, which, by the way, is fine because from us, the people working on that will then move to the likes of Seizwell and some of the power jobs. So the resource is the critical part. So there's no reduction in revenue overall for the group. We'll still get growth overall because of the growth in the likes of Seiswell and Power. In terms of the 10% to 12% for Power Systems, we're still targeting them on double digits.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I wouldn't want to limit them in any way at all. We're actually bidding at higher margins because we have to be more selective. And we're looking at severely de risked. So our ability to deliver the book margin is severely enhanced. And then on the £800,000,000 target, I wouldn't pin that in for next year.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I'd actually look probably over the next eighteen to twenty four months to get to that level because you do have to build to it. This year, we'll just be short of doubling the business. But the year after, we'll continue to grow. But we don't want to force growth because then you start making mistakes. So I'd rather have a reliable, smaller business that guarantees my return and my cash than sort of big business that goes wrong

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So keeping it under control is really, really important. I've worked in a lot of markets. I've seen a lot of growth, but the growth in Power at this moment in time is astonishing. And the fact that we've got the ability to derisk it and we're being paid to derisk it means that what has historically was selling cost is now revenue for us.

[Jonny Coubrough, Director - Building & Construction Research at Deutsche Numis]

Great. And maybe just while I've got the mic, Leo, given it's your last outing, last set of results, can I congratulate you on your ten years? I think numbers speak for themselves and the build to last. I think the share price was 1.5 when you came in, now you've got £5.5 So we wish you all the best for the future.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

I'd say thank you for that. And of course, no man's an island. It can't be done without 27,000 employees and a very painful finance director. So it would be wholly inappropriate if I was to take all the credit. I don't mind taking most of the credit, but I have to give some to my wingman, who has done a fantastic job in sort of keeping the ship stable and has been a great partner and a friend throughout the entire period. So all credit to you.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

I am actually surprised, Leo, that you ended the power thing by not actually saying 20% margins. I thought you were constrained by 10 to 12.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So any more questions?

[Jim Ryan, Head - IR at Balfour Beatty]

Yeah. Let's just I don't think we've got any questions on the phone. We do have some people listening in. So let's just give it ten seconds. Maybe some guys on the phones put their hand up if they do want to ask anything, but nothing registered right now.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Well, just right, while you're just waiting, I think it's worth saying, look, the underlying strength of the business and the balance sheet is phenomenal, absolutely phenomenal. And it's strong enough to take shocks and still deliver those shareholder returns year in, year out. I did a bit of a calculation the other day over the last five years. We've gone from, I don't know, pounds 2 to £5 or whatever. If you just continue the strategy mathematically, returning the same amount of money year on year for the next five years with no change in multiple, you get to a 10 share price just mathematically.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

So if we actually don't change the strategy, do what we're doing today, you've got a chance to double the share price again. Record order book, record pipeline, highly derisked, probably some of the highest margins we've seen in the backlog. I've never known the business to be in such good shape. And I would like to recognize and give my best wishes to Phil Hall, who takes over for me on the September 8. First of he's a fabulous guy.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

He's a really nice guy. He's been in the industry thirty odd years, extremely competent, knows more about the bloody industry than I do. And I'd have to say, I think the Board has done a fantastic job in choosing him. So I'll be staying around to the end of the year to help out where I can. But I think it's a great business and we've got a question, have we?

[Jim Ryan, Head - IR at Balfour Beatty]

We have, yes. I think we've got two on the line. So I'll hand over to the operator to introduce.

[Operator]

You. We'll now take our first question on the conference line from Jay Brent from Panmure Liberum. Your line is now open. Please go ahead.

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

Good morning, Leo. Just when you thought you got away. Can I just ask three quick questions, please? Firstly, on the monitorship on U. S.

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

Military housing. Am I right in thinking that we did hope that, that would have been sorted by the end of this year and there's only sort of financial impact of that being sorted by the middle of next year? Secondly, just interested in your views on the secondary market for PPPs given the rising discount rates you talked about. And thirdly, interested in your view on the sustainable level of negative working capital as a percentage of sales for the group.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

As you say, Joe, we thought we got away with it all, yes. Phil, do you want to do the monoship? And I'll touch on you can do all three actually. I'll let

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

what was you the two.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The second one was about PPP. What's the outlook for it in light of lowering interest rates?

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Yes. So the monitorship was officially due to end on the September this year. I think our view was that we will be through the bulk of our work, as I said, by the end of the year. And then it's just a matter of the monitorship and the monitor process going forward to the final period in June. I think we anticipate that we should be able to deal with it within the kind of current cost budgets that we've got there.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

So that's the first one. I didn't quite understand the PPP one, so I'd have to Joe to say it again.

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

It's in the secondary market valuations given that discount rates have gone up?

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

Yes. So when we did our analysis for valuation for the half year, clearly, look at interest rates and then we look at what kind of we can see in market values and other people's secondary activities. And what we concluded was that we needed to increase our discount rates in The U. K. By about 0.6% and in The U.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

S. By 0.5%. So that's I think just the normal ebb and sway of the market at this point and where we are in the cycle. So I don't again, we'll keep our discipline about we have certain values that we want for our assets. If we don't achieve or we can't see us achieving those, then we won't necessarily sell them because we think we know the return that we want on those assets.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

So that's number two. And then number three on well, I'm always proven wrong. So I said that we'd be about 15 of working capital revenue. We've just posted I think 18%. We do think we're going to come off that.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

We do think there's a bit of an unwind in the second half. So I think we will I think our sustainable level is still 15%. I still think that's a very good point to be at 15%. We will try very hard though to maintain the 18 So if we've got it, we're reluctant to give it away. So we will try very hard to keep that.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

But long term sustainable, we probably think it's around the 15.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Yes. And on that, our working capital is actually helped by growth. As you start to increase your pipeline, your forward order book, you're actually getting mobilization payments and the like of that. And that's probably why we're at such a high level, or one of the reasons why we're at such a high level today. Joe, there's one thing that you said, which I thought you asked a different question, which would have been a brilliant question.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And that was the outlook for PPP in The U. K. There's no doubt the government doesn't have the money to do everything it wants to or, more importantly, needs to do. So I do think there's going to be some sort of change or resurgence in getting private money into infrastructure. As you're hearing around Sizwell, they brought in equity in and then also around the Lower Thames Crossing.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Remember, our investment portfolio was founded around PPP. We were one of the leaders in that area. We still have that expertise. So it may well be that, that's there's a bit of a renaissance in that area for the right type of capital structures, especially around highways and things like that, where we actually financed part of the M25 fifteen, sixteen years ago.

[Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited]

Thank you, Neil. Brilliant answers to the question that I did not ask, but thank you.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

You're welcome. Anything else?

[Operator]

Our next question comes from Nicolas Mora from Morgan Stanley. Your line is now open. Please proceed.

[Nicolas Mora, Executive Director at Morgan Stanley]

Yes. Good morning. I just have three quick follow ups. So the first one on the cash generation, was very impressive. I mean, if we put aside all the cash needed to run construction, I mean, you may end up the year with an extra £500,000,000 £600,000,000 sitting there.

[Nicolas Mora, Executive Director at Morgan Stanley]

You did not want to boost the share buyback pace in the second half considering where you're at right now? That's the first question. Second, on U. S. Civils, you I mean, if we put aside the Dallas contract going wrong, I mean, do you think that business can go?

[Nicolas Mora, Executive Director at Morgan Stanley]

We see peers anywhere between 2%, 3%, PFO margin to low teens now. Where do you think your business can get within basically a reasonable time frame? And last one on Support Services. You've highlighted you're still confident in low teens margin for the business. Considering the mix, you are not confident enough to raise the guidance for the margin above and beyond the 8%?

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Yes. So let me answer that because I was first of all, power in its own right is different to support services. It's a part of the portfolio, about onethree. So the question I answered was double digits in power, not in Support Services. We that's combined with a lower return in our living places, which is local authority roads.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

But the blended margin is about 8%. And I think that's where we've guided to the upper end of expectations there. You asked a question on cash, and I'll do this one and Phil could do the civils one. But on the GBP 500,000,000 that you referred to, it doesn't matter where it came from. That money goes into our account.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

It's really, really important that we continue to maximize cash for two reasons. One is we get income on it by virtue of interest, but it also allows us to invest in our investment portfolio where we look to get a superior return. So that's the benefit of the cash. You can't really return working capital via a share buyback or dividends because it's not sustainable. And it's actually arguably not our money.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

But we do get the benefit of having it on the balance sheet, and it's a material benefit. And then on civils, I'll say tongue in cheek is that if we could just turn in two years of consistent profit, whether it be 1%, I'd be happy, let alone 2% or three But you're right. If you look at Tutor Perini and some of these others, they have turned in double digit profits on their civil businesses. But it is a lumpy business because these projects run five years plus. And you it's really when you get very close to the end that you realize that you can actually recognize the full profit that you've made. I don't know if you want to comment, Phil.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

U. S. Civils, I think the we continue to derisk. We've never liked the nature of the contracts. So we again, we're focused on Texas highways where we have had a long, long history of being profitable with that client and in the Carolinas.

[Philip Harrison, CFO & Executive Director at Balfour Beatty]

And I think if we do that, we can match the peers. It's just a matter of we've got to work through, if you like, the old backlog to get into the new backlog. But yes, I see a reason why we can't get up there and match with peers.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Jim?

[Jim Ryan, Head - IR at Balfour Beatty]

Okay. We've got one more question from Andrew Nossi at Peel Hunt, which I'll read. Looking at the power growth engine, resource is a key theme. As projects move into delivery phases, how reliant will you become on local supply chains versus in house capability? And how concerned are you regarding the abilities to secure resources in order to bank incentive components of margin?

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Look, let's face it. At this moment in time, infrastructure is booming not only for us, but for everybody else. So it is a battle to recruit, retain the best and the brightest. As I've said, we believe that we've derisked the downside. So in the past, we would hard bid something with the power businesses.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

We'd be then liable for ground conditions, we'd be liable for retentions, we'd be liable for liquidated damages for late delivery. Those don't exist today in the contracts that we're bidding. So the downside risk is capped. The upside incentives becomes predicated on performance. And that does rely on local supply chains as well as our in house capability.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

The fact that we preselected all of these jobs to ensure we're in urban conurbation gives us the best chance. I wouldn't want to be delivering something up at Thurso and Spital and Jonah Grokes because having sort of driven around there recently, there's nobody there except sheep. So how you actually get anything delivered is a nightmare. One thing I didn't say about Power, which I should actually say, we're actually the market leader in delivering pylons. And the pylon growth is eye watering over next three to five years, naturally, over the next ten years.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

And we have a factory which is re equipped. It's got all brand new CNC machines in. And we'll be looking to double and treble the volume over the next five years. We've moved from single shift to double shift. So we have another arrow in our quiver around power, and that will allow us to enhance the returns in that area.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

Don't know that answers the question. Look, just in summary, as I said, I've never seen the business in such good shape. Balance sheet is very, very strong. The backlog and the pipeline are materially de risked and the returns are higher. I'm personally very confident about another five years or a decade of infrastructure growth underpinned by another five years of shareholder returns, both in increasing dividend and buyback.

[Leo Quinn, Group Chief Executive & Executive Director at Balfour Beatty]

What more could you ask for? Thank you. Appreciate it. Bye bye.

Participants

Executives

• Leo Quinn, Group Chief Executive & Executive Director
• Philip Harrison, CFO & Executive Director
• Jim Ryan, Head - IR

Analysts

• Robert Chantry, Head - UK Company Research at Berenberg
• Graham Hunt, Vice President at Jefferies
• Jonny Coubrough, Director - Building & Construction Research at Deutsche Numis
• Joe Brent, Equity Analyst - Business Services & Construction at Panmure Liberum Limited
• Nicolas Mora, Executive Director at Morgan Stanley