Dive Brief:

• London-based Balfour Beatty reported a dip in pre-tax profit to 244 million pounds ($312 million) for the full year of 2023, down from 287 million pounds the year prior, a nearly 15% decrease. 
• CFO Phil Harrison noted in a call with investors on March 13 that the hit came largely in the firm’s investment portfolio, and pointed primarily to lower gains on investment disposals than anticipated.
• Despite the drop, revenue grew to 9.6 billion pounds in 2023, up from 8.9 billion in 2022. Backlog, on the other hand, dipped slightly to 16.5 billion pounds, less than the 17.4 billion the prior year. Harrison characterized the figure as encouraging in the face of rising interest rates.

Dive Insight:

Even as profits dipped on the investment portfolio’s struggles, Balfour Beatty’s construction division had a solid year. The segment reported revenue of 8.1 billion pounds in 2023, up from 7.5 billion pounds in 2022.

With a message that looked to the future more than it lingered on the present, CEO Leo Quinn detailed the firm’s success in the construction field in its three key locales — the U.S., the U.K. and in Asia with its Hong Kong-based construction firm Gammon. 

Revenue increased in all three regions, and while the U.K. and Gammon’s profits grew, the U.S. segment remained flat — an improvement from the hit it took six months ago on weak office and tech sectors across the country.

Quinn told investors on the call that both of those segments were seeing signs of recovery. Going further, the U.S. building market was one of the four areas that Quinn identified as key to the company’s growth through 2025 — he pointed to its $800 million worth of orders in Texas during the fourth quarter of 2023 as a potential sign of future strength. Dallas, for instance, has been bucking gloomy office trends that plague most of the country.

“Six to 12 months ago, the U.S. was very challenging for a number of reasons. We’re now seeing that market free up on the anticipation of lower interest rates,” Quinn said.

However, the construction giant is still grappling with macroeconomic challenges. Quinn warned that, for the first time, he is seeing demand outstrip supply, which is forcing the builder to have what he called “adult conversations” with its customers about how much risk the builder is willing to take on jobs versus how much the owner has to hold.

Amid these challenges, the builder is continuing to de-risk its portfolio of work. Around 24% of Balfour Beatty’s U.S. construction backlog was in civil jobs in 2023, compared to 42% in 2020. It is also growing its presence in federal and state contracts, hot on the heels of the $1.2 trillion Infrastructure Investment and Jobs Act.

“Capability and capacity to deliver what’s ahead of us is becoming very challenging,” Quinn said.