Balfour Beatty's full year underlying revenues rose 7.8% to £8.9bn. This was driven by 4% underlying growth in Construction Services revenue to £7.5bn. Alongside a boost from currency translation, this more than offset a decline in Support Services as Balfour withdrew from the gas and water sector.
The order book increased 8% to £17.4bn, largely due to growth in the UK Construction order book.
Underlying operating profit grew from £140m to £174m as a result of higher revenues.
Free cash flow fell from £316m to £136m as the group's cash from operations was lower this year. Underlying net cash position increased from £790m to £815m.
In 2023, profits from operations are expected to remain broadly in line with 2022 levels.
Balfour's recommended a final dividend of 7p per share taking the total for 2022 to 10.5p, representing a 17% increase. The group also intends to spend £150m on share buybacks this year.
The shares rose 2.3% following the announcement.
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Our view
Balfour Beatty finished 2022 in decent shape. The UK Construction segment returned to profitability this year and now looks to be back on solid ground - of course there are no guarantees.
Even in the good times margins in the construction sector are pitifully thin. That's why we're pleased to see the operating profit margin begin to creep back up towards 2% this year. Such low margins leave little room for error.
Some of the group's private sector property projects, which went wrong due to the pandemic, were a drag on profits. No one saw the shutdowns coming, but Balfour's now become a little choosier about its private-sector work. That's particularly true in the UK, where the public sector makes up more than 90% future orders - meaning revenues are more likely to hold up in an economic downturn.
Selecting contracts where the group has expert knowledge along with longer contracts reduces risk and increases earnings visibility. Infrastructure spend is a key priority in the US and UK, and there was some positive news out of the UK back in November. The government renewed its commitment to infrastructure investment, which should provide demand for large construction groups like Balfour for years to come.
Low margins mean inflation has the potential to upset progress moving forward. But while construction and support services need to mitigate the impacts, the investment portfolio is a benefactor. Both the UK and US portfolios are positively linked to inflation, which helps the wider group offset the challenges in other areas.
Looking back, the pandemic didn't leave behind much scarring on the balance sheet. And the higher profits this year helped the group again improve its net cash position, helping to fund the pledge to continue buying back shares into 2023. But with cash generation coming in lower last year, there's plenty of competition for the group's cash resources. We'd like to see cash generation improve from current levels to help underpin the buybacks. Remember, there's no guarantee of investor returns.
Investors should remember Balfour Beatty's fortunes will wax and wane with the wider economy. If a government-led infrastructure boom fails to make it through to the bottom line, then shareholder returns will be back on the chopping block. This uncertainty is reflected in Balfour still trading below its longer-term average.
Balfour Beatty key facts
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