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 are quite astonishing. Normally at the end of the presentation, you saw, "Thank everybody." 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. Right. Sore throat. I'm Leo Quinn, Balfour Beatty's Group Chief Executive, and I'd like to talk about our first half results. 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. 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. 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. That underpins our dividend increase and also our share buyback. If you want to ask me later how orders underpin cash, I'll explain that to you as well. Fundamentally, a really, really good start to the year. This is only half the story. 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. Most importantly, it allows us to be selective.
That selectivity allows us to improve margins, not only at the pricing level, but at the delivery level. Let's just start with the fact that we've got GBP 19.5 billion of order book, which is a record order book. More importantly, that's underpinned by a pipeline, much of which is actually secured, of another GBP 20 billion. The biggest challenge we face in the market today is that demand in infrastructure far out exceeds supply. 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, our margin strategy, but also in the de-risking.
The de-risking is really important because what it means is that the booked margin actually gets delivered as the delivered margin, as opposed to when you deliver the booked margin, it's actually below the actual, when you deliver the booked margin, when you deliver the margin, it's below the booked margin. Let's have a look at some of this in detail. If I look at the GBP 20 billion, 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. That's really been driven by the fact of net zero, but more importantly, AI. Some of the demands for data centers and power connections are just phenomenal. We're engaged in early contractor involvement, which you might be more familiar with in terms of as a FEED study. That FEED study is actually paid for by the client.
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. What that allows us to do is significantly de-risk the business here. The amount of business that's going to derive from our early contractor involvement at this moment in time is GBP 6 billion - GBP 8 billion, which is about 1/3 of the GBP 20 billion 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 T-side, but also with Sizewell.
Sizewell 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. Further, Sizewell is, we've signed and we're engaged in a three-way alliance agreement with ourselves, Laing O’Rourke, Bouygues, to deliver GBP 14.5 billion of civils construction work. 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 12 months will actually have to appoint a partner to deliver the fissile. The fissile work across these sites is worth between GBP 2 billion and GBP 5 billion. We're actually on site delivering today and in a very good position to secure some of that.
In the case of Lower Thames Crossing, we see that Lower Thames Crossing, where the contract has been awarded to us, will probably start about 2028. It's all part of our growth pipeline. Within our buildings business, what we're looking at is a run rate business for another GBP 3 billion, which is already being secured but not awarded at this moment in time. This strong backlog of enhanced margin and de-risked contracts, coupled with a GBP 20 billion pipeline, leaves me very confident that we'll be exceeding what effectively is the average cash going forward in the future. That underpins what effectively is an accretive dividend and an increasing share buyback. 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. On that note, I'm going to hand to Phil in order to explain the reality.
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 U.K. construction and support services, more than offsetting a forecast reduction in profit from U.S. 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 GBP 5.2 billion, which was a 12% increase when excluding FX movements, largely due to growth in U.S. buildings and support services. Profit from the earnings-based businesses increased by 7% with strong profit growth in U.K. construction and support services, largely offset by a loss in U.S. civils.
When including higher costs in the investments business, group profit from operations was flat at GBP 77 million. Profit for the period decreased by 10% to GBP 73 million, 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 GBP 0.144, and our order book at GBP 19.5 billion has increased by 6% in the period. The director's valuation of the infrastructure investments portfolio reduced by 8% to GBP 1.2 billion. Period end cash increased to GBP 1.2 billion, driven by a large working capital inflow, which also resulted in average net cash increasing to GBP 1.1 billion. 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 GBP 0.042 per share.
Moving on to the business units, let me start with construction services. U.K. 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 GBP 10 million relating to an ongoing project. 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 middle of 2026.
As you would expect, the group will seek to recover these cost 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. construction to deliver a profit of around GBP 20 million. At Gammon, the first half largely outturned 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 GBP 17 million, 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 GBP 52 million in respect of a jury verdict given against the group and its JV partner regarding a U.S. highways project completed in 2012. 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 U.K.'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 GBP 46 million. For the full year, we expect PFO margin to be towards the top of the targeted 6% - 8% range, with further profitable revenue growth from the power business and consistent performance from road and rail maintenance. Let's now look at the group's order book, which is now at GBP 19.5 billion, with an increase in each of the four divisions. U.K. construction increased slightly to GBP 6.3 billion, 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 civils added the new road project I spoke to earlier.
Gammon has had a good period for order intake, particularly in the buildings sector, and their order book grew 12% in local currency, 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.S. military housing relating to the monitor's work. This month, we have agreed in principle to extend the monitorship to the 6th of June 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 U.K. PFI assets, which required remedial works ahead of handback in 2026. A small gain on disposal was recorded in the first half, with GBP 2 million of contingent consideration received in relation to a 2024 disposal. 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 GBP 12 million reported today. It is important to say that investments remain profitable when excluding the ongoing cost of the monitor's work.
Finally, we expect gain on disposals for the full year in the range of GBP 30 million- GBP 40 million, with a number of transactions ongoing. Moving to the director's valuation. The valuation of the investments portfolio decreased by 8% in the first half of the year to GBP 1.2 billion, largely due to two main changes. Firstly, we have increased discount rates in both the U.K. 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 GBP 61 million. Secondly, with over half of the portfolio being U.S.-based, the strengthening of sterling versus the U.S. dollar during the first half also had a large impact, reducing the valuation by GBP 65 million. 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. Operating cash flows improved, and we're up 26% compared to the first half last year. The major driver of the larger cash balance was a GBP 290 million working capital inflow. This was driven by advanced receipts on several new projects in U.S. construction and by working capital timing in U.K. 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 GBP 26 million of FX movements in the first half, given the weakening of the U.S. dollar. 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 U.K. 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. We expect U.S. construction to have a much better second half and finish the year with PFO of around GBP 20 million. We expect a gain on investment disposals for the year to be in the range of GBP 30 million- GBP 40 million as we continue to realize value from the portfolio. Net finance income is expected to be around GBP 30 million, 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 GBP 1.1 billion- GBP 1.2 billion now, and for capital expenditure to be in the range of GBP 40 million- GBP 50 million.
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 Leo.
Right. Thank you, Phil. I'd start off by saying that we've been talking now for at least 18 months, two years, really about the growth engines behind the business. In summary, these represent about 70% or cover about 70% of our revenue. I have to say, you know, where we sit today, I've never known the business be in such a good position for the future. As I leave the business, the strength of our order book and our pipeline is truly quite phenomenal.
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 Bellfruits on a one-armed bandit. You know, it's a jackpot. We at this moment in time have got five. Our biggest challenge is really how do you cope with that level of demand with a limited supply? You know, there's only 27,000 of us to actually deliver. It demands that we become selective and we become more and more selective. I'll take you through each one of these for a few seconds.
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, between 2024 and 2026, the power transmission business is actually doubling. If that isn't interesting enough, between 2026 and 2028, it has the potential to double again. There aren't enough people and resources to deliver all of that. Our number one message is actually really around selectivity. Just a little bit of history, we've been in this business for about 114 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 100 years. We're well ingrained in this industry. We have about 20% - 30% market share. We have about 2,300 blue-collar workers in this market.
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. We do 400 kV and 132, which is rather specialist. 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 de-risk the grid? Also, the demand for AI-related demand and data centers is now booming and getting connections onto the grid. All of this caters to that. We not only do the 400 kV and 132, we do substations, and we're now doing converter stations. Converter stations, I was up in Scotland recently and visited one. They're 300 m sq.
If you can just imagine a field where we're going to actually plant a 300 m by 300 m converter station to take wind power off into the grid. Truly phenomenal stuff. 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. We're delivering on the likes of BTNO, Eagle, and we've got the Rio frameworks we're delivering against. We're working on early contractor involvement into for SD, which is the SSE's power plan. The other thing about selectivity, which I've said before, which is really important, 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.
One of the things that's remarkable, in the last 18 months we recruited 850 people into this business to cope with the growth. That in itself is a challenge. I'm very, very confident that our future is extraordinarily bright in this area. If I look at power generation, interestingly enough, Sizewell B, which preceded Sizewell C on here, we actually did the diaphragm wall and the foundations for that 40 years ago. It's very interesting how these things come back time and time again. Hinkley Marine will be tailing off over the next 8 to 10 years as we do all the mechanical work. The civils work for us is largely finished. We'll be then morphing into a Sizewell C. As I said earlier, Sizewell C has come along like a bullet train.
In the last six months, we've signed the alliancing agreement between ourselves, Bouygues, and Laing O’Rourke to deliver the civils. The government has given approval to the financial investment case. At a minimum level, we will end up sharing GBP 14.5 billion of civils delivery in that program over the next 8 - 10 years. Really, really, really encouraging. The other order that's come in in the last six months is Net Zero Teesside, published at, I think it's GBP 880 million. This is a situation whereby this is a negotiated contract as Sizewell was a negotiated contract. What's really key about how these projects are de-risked? 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.
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. Not only is this very visible in the short term, but in the long term, we've got even more growth coming through. I think you saw things on Rolls-Royce this morning about the value of their SMRs for power supply to data centers for AI use. Fundamentally, our generation business is growing as well. I'll point out that between 2024 and 2026 is doubling, and there's also the potential for that to double again. If I look at defense, defense is really one of our smaller businesses.
The challenge we're going to have here is, again, we're circa GBP 250 million here or GBP 200 million. Again, between 2026 is doubling, 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 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. We're working with the Atomic Weapons Establishment in Aldermaston, 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. 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. That will be worth something between GBP 2 billion and GBP 6 billion in total. Obviously, we work with the DIO, who have, in the light of defense spending, a growing backlog. Also, a lot of the projects we're doing are in the area of cybersecurity. Those secure projects will actually roll one into the other. They're not actually tendered. They're sort of negotiated because of the nature of them. If I look back at power, our power business has been de-risked by something called early contractor involvement or feasibility studies. These orders have actually been negotiated with the client directly. 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, 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. We've won the Tampa contract, which is a 10-year commitment to Tampa hire. We've also, within that, won another contract, which is also the plant hire for rail for the next 10 years as well. 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. The fact that we've got a secure pipeline for rail is very good, underpinned by our ongoing maintenance that we do. We see rail as flat for us over the next four to five years.
When I get to roads, roads break into two parts. It breaks into local authority roads, which is our Living Places business and is in our service business. 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. Every 12 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 on all. 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 are obviously finishing off the M25 A3 at Wisley.
Just for the people in the room and on the call, the M25 will open at the end of September. Those who've sat in traffic for a long time will be pleased at that relief. The A3 will take a little bit longer. We've recently won the M3 Junction 9, which is a hundred-odd million highways job. We're working on such things as the A66 and the A57. 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. 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 20 years. It's really one of the foundations. We see a lot of prosperity in the likes of the growth at Heathrow.
We're more interested in the T2C terminal and probably coming up in the next two to three years. I think the runway will be out past 2032 and the likes of that. Aviation is very big for us. Given this business is an expert in raw material and haulage, we cluster reservoirs in here. There's going to be a lot of building of new big reservoirs around the U.K. On the right terms and conditions, we'll engage in that sort of work. 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 US, about 2023, we embarked on what effectively was a growth initiative in the US. That was actually to expand our territories beyond the main branches.
The role of the US for us is it diversifies our risk away from the U.K. and gives us a second string to our bow. Within the US, 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. You can see that the benefits of that is we've gone from an order book of $5.7 billion to $7.1 billion. The model for us is a much lower risk type of 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 Sacramento, is that we've been able to cross-fertilize customers across the U.S.
For example, Disney, where we have a very big presence in Florida, we've now started doing work with them in California. Universal, similar, we're now starting to do work in Texas. We've seen huge demand for data centers, and we're one of the largest suppliers to one of the tech companies in Portland, Oregon. That actually is now spread to Washington, DC, where we've just secured a $200 million data center order, and we're also looking at similar in Phoenix. For us, the U.S. geographically is actually going very, very well. It's growing, and actually, the specializations that we have, whether it be hospitals, education, and the likes of that, is putting us in very good stead to actually expand that beyond where our concentrated centers are today.
Finally, really summing up, it's very interesting to have, I think, a really strong order book with rising margins and a de-risked order book. That's just one part of it. The other part is, you know, what have we got in place to give us confidence that that can be delivered in the future? Ten years ago, we launched our Build to Last program around lean, expert, trusted, and safe. Where do we stand today? First and foremost today, we've got strong governance and controls across the business. 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. 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. We have a group of employees who actually care about the environment and are committed to their local communities. That's the foundation on which the future of the company will be built. What has Trust Built to Last actually delivered for us? 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 billion to shareholders via buyback and dividends, and we've actually bought back 28% of the company at an average price of about GBP 3.30, which, judging by today's price, was a good deal. We've got a highly de-risked GBP 19.5 billion backlog, strong margins, and as I say, highly de-risked.
We've got a GBP 20 billion pipeline of additional work, which actually will be delivered over the next 10 years. Our backlog will be delivered over the next two to three, but our pipeline will be over the next 10. 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. Finally, in summary, you know, I think we started out Build to Last. I think Balfour Beatty has already Built to Last. On that note, I'm going to hand over for questions.
Hi, Robert Chantry at Berenberg. Thanks very much for the presentation, guys. Three questions from me. Firstly, on the U.S. order backlog, another strong increase. Could you 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, kind of what, $40 million- $50 million level, but obviously a bit of a step back in the first half. Talk about the confidence you have in the margin in that backlog. Secondly, on U.S. civils as well, could you just talk about what exactly went wrong? I know you've announced this year several more contracts in Texas on the roadside. 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 the amount of exposure you have to Texas. Thirdly, just some comments around the infrastructure investments piece on the U.S. military housing monitorship. I know there's news in the first half that's been extended, I think, to the 6th of June next year. Just some thoughts on how that impacts your attitude to that asset, some of the background to it, and your thoughts around that ongoing process. Thank you.
I have a few, Phil. I thought you could do all those, giving it your last go to see if you can get them right.
Join me too.
You want me to do it.
Yeah, do it. You usually do them.
Listen, we'll share. I'll do the... First and foremost, the growth of buildings is underpinned by what effectively is quite diversified across the U.S. continent. That's quite strong. On the building 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. The thing I would say more importantly is that the risk in that business does go down to the supply chain.
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. It's a low risk and a low return. I'm very comfortable in that particular business and business model growing for us. 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. 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.
Going forward, for the last 18 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, 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. We are going to look to recover that in full back from the company.
The problem with our business model always is when you recognize the fact that the job is going to run longer, therefore prices are going to rise and you have the potential of liquidated damages, you have to recognize it in the period. You might not actually get the money back for two years on whatever, and it's usually a long negotiating process. That's the ifs and buts of that. Anything you'd like to add?
No, we're only that we are, you know, pursuing the third parties. You know, we're confident that we'll get a good outcome from it.
The one thing I would build on, Phil said it very well, was on 161, where we had the insurance case recently, we took a GBP 50 million reserve against that liability at the end of the year. That actually got resolved and settled, and we've written back the full amount bar the legal costs. That is extraordinarily unusual to settle something in that timeframe. It is interesting when I analyze it. You know, we took a GBP 50 million reserve, and it's been written back. We've now taken another reserve, 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.
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, and you don't want any potholes. 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. You know, it's part of the reality.
On US military housing monitorship, we will be through the bulk of our work by year-end, and then the monitor will do their work. I 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.
Next question.
Thanks very much, Graham Hunt from Jefferies. I've got three, if that's all right. Just going back to the U.S. 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 subsegments there. Second, on the U.K. construction business, you've now hit your 3% margin target ahead of schedule. When you talk about those big projects 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? 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. 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.
Yeah.
I better do these because they're all going to be fact-based, aren't they?
I can't wait to answer you.
You asked for a moment of weakness. We're a low profile as a company. We don't really like to put out there in terms of a lot of the things we're working on for various reasons, some good and bad and publicity. I think you asked the question as to maybe low lights and whatever, but recently Trump's visit to the Federal Reserve, which we're building, was not necessarily the publicity you garner. 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. 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. 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. There's one here on my shoulder. If you look at, sometimes they spend over $200 million on a school. You don't hear of that in the U.K. I don't know if Phil wants to add. In terms of the 3% margin, look, I've always said that our U.K. construction businesses operate at five. Always said it. If it wasn't for the cock-ups that we've had in the past, we would be moving in that direction. Phil likes to keep me firmly grounded and get me to understand that three is a virtual reality. 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. Effectively, we will deliver our ground engineering as best in class.
Whether we deliver it or someone else, we would get a fee on that as well. There is absolutely a pathway to exceeding the 3%. 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. I can't remember the third one now, but.
Big picture on U.S. and U.K. governments.
Look, U.K. government is in a bind. It's trying to create growth. If it can't get growth in the property market and things like that through natural macroeconomics and the likes, it's doing it via fiscal expansion. It's pumping money into infrastructure, money it doesn't really have in reality. Once these projects start, they don't stop. 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. I think they're very, very different. In the U.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 U.K., we really do dominate the industry in a very positive way. I don't know if you want to add to that, Phil?
No, no, no.
What about 5%?
I think the great news is that we have hit 3%. We've hit it earlier than we thought. I think that does come down to the kind of operational discipline that we've had in the business. There has been less cock-ups. I think if we continue that trajectory, then, you know, we can probably dream of five. More sensibly, how do we go from three to three and a half, and how do we go from three and a half to four? That's how we need to approach it. I think we've got the opportunity to do better than three.
Obviously, he's been taking the blue pill, isn't he? From The Matrix. Yeah.
Thanks very much.
Nice. Jonny Coubrough from Deutsche Numis. Could I ask firstly on power? You've previously spoken about it being a 10% - 12% operating margin business. Is that still the right level? You previously spoke about getting to GBP 800 million of revenues there next year. Leo, you mentioned the potential is still a lot more, but you're constrained by resource. What do you think realistically that revenue line can be? Another question would just be on transportation. You set out the pipeline out to 2030, excluding HS2. What would that chart look like with HS2 included and if that continues to 2030? Thanks.
Let me do the HS2 one quickly. I think we're at virtually a 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 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 end of 2029 and then with a clean sheet handed over for the track systems and the power to be delivered. 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 Sizewell and some of the power jobs. The resource is a critical part.
There's no reduction in revenue overall for the group. We'll still get growth overall because of the growth in the likes of Sizewell and power. In terms of the 10% - 12% for power systems, we're still targeting them on double digits. 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. We're looking at severely de-risked. Our ability to deliver the book margin is severely enhanced. On the $800 million target, I wouldn't pin that in for next year. I'd actually look probably over the next 18 - 24 months to get to that level. 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. We don't want to force growth because then you start making mistakes.
I'd rather have a reliable, smaller business that guarantees my return and my cash than a big business that goes wrong on you. 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. The fact that we've got the ability to de-risk it and we're being paid to de-risk it means that what historically was selling cost is now revenue for us.
Great, thanks. 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 10 years? I think numbers speak for themselves under Build to Last. I think the share price was GBP 1.50 when you came in, now for GBP 5.50. We're wishing you all the best for the future.
I'd say thank you for that. Of course, you know, no man's an island. It can't be done without 27,000 employees and a very painful Finance Director. 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. All credit to you.
I am actually surprised, Leo, that you ended the power thing by not actually saying 20% margins. I thought you were constrained by, you know, actually 10 %- 12%.
there any more questions?
I don't think we've got any questions on the phone. We do have some people listening in. Let's just give it 10 seconds and maybe some of the guys on the phone put their hand up if they do want to ask anything, but nothing registered right now.
I think it's worth saying, look, the underlying strength of the business and the balance sheet is phenomenal, absolutely phenomenal. 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, GBP 2 to GBP 5 and 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 GBP 10 share price, just mathematically. 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 de-risked, probably some of the highest margins we've seen in the backlog. I've never known the business to be in such good shape.
I would like to recognize and give my best wishes to Phil Hall, who takes over from me on the 8th of September. First of all, he's a fabulous guy. He's a really nice guy. He's been in the industry 30-odd years, extremely competent, knows more about the bloody industry than I do. I'd have to say, I think the board has done a fantastic job in choosing him. I'll be staying around to the end of the year to help out where I can. I think it's a great business. Oh, we've got a question, have we?
We have, yeah. I think we've got two on the line. I'll hand over to the operator to introduce.
Thank you. We'll now take our first question on the conference line from Joe Brent from Panmure Liberum. Your line is now open. Please go ahead.
Morning, Leo. Just when you thought you'd got away, can I just ask three quick questions, please? Firstly, on the monitorship on U.S. military housing, am I right in thinking that we did hope that that would have been sorted by the end of this year? There's only sort of financial impact to 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 talk about. Thirdly, interested in your view on the sustainable level of negative working capital and the potential of sales for the group.
As you say, Joe, we thought we got away with it all. Yes. Phil, do you want to do the U.S. military housing monitorship? I'll touch on, you could do all three, actually.
I don't know what was number two.
The second one was about PPP. You know, what's the outlook for it in light of lowering interest rates?
Yeah, the monitorship was officially due to end on the first week of 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. 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 current cost budgets that we've got there. That's the first one. I didn't quite understand the PPP one, so I'd have to ask to say it again.
Interested in the secondary market valuations, given that discount rates have gone up?
Yeah, so when we did our analysis for valuation for the half year, clearly we look at interest rates, and then we look at what kind of we can see in market values and other people's secondary activities. What we concluded was that we needed to increase our discount rates in the U.K. by about 0.6% and in the U.S. by 0.5%. That's, I think, just the normal ebb and sway of the market at this point and where we are in the cycle. 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. That's number two. Number three, I'm always proven wrong.
I said that we'd be about 15% of working cap to revenue. We've just posted, I think, 18%. We do think we're going to come off that. We do think there's a bit of an unwind in the second half. 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%. If we've got it, we're reluctant to give it away. We will try very hard to keep that. Long-term sustainable, we probably think it's around the 15%.
Yeah, and on that, our working capital is actually helped by growth. As you start to increase your pipeline and your order book, you're actually getting mobilization payments and the like of that. 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 was one thing that you said, which I thought you asked a different question, which would have been a brilliant question. 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. 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 Sizewell C, they brought in equity in, and then also around the Lower Thames Crossing.
Remember, our infrastructure investments portfolio was founded around PPP. We were one of the leaders in that area. We still have that expertise. It may well be that 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, call it 15, 16 years ago. Yeah.
Thank you, Leo. A brilliant answer to the question that I did not ask, but thank you.
You're welcome. Anything else?
Our next question comes from Nicholas Mora from Morgan Stanley. Your line's now open. Please proceed.
Yes, good morning. I just have three quick follow-ups. The first one on the cash generation, which was very impressive. Even if we put aside all the cash needed to run construction, you may end up the year with an extra GBP 500 million, GBP 600 million sitting there. 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, if we put aside the Dallas contract going wrong, where do you think that business can go? 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 timeframe? 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%.
Yeah, let me answer that because I was worried. First of all, power in its own right is different to support services. It's a part of the portfolio, about 1/3 . The question I answered was double digits in power, not in support services. That's combined with a lower return in our living places, which is local authority roads, but the blended margin is about 8%. 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. On the GBP 500 million that you referred to, it doesn't matter where it came from. That money goes into our account. 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 infrastructure investments portfolio where we look to get a superior return. 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. It's actually arguably not our money. We do get the benefit of having it on the balance sheet, and it's a material benefit. On civils, I'll say tongue in cheek, if we could just turn in two years of consistent profit, whether it be 1%, I'd be happy, let alone 2% or 3%. 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. It is a lumpy business because these projects run five years plus. 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.
On U.S. civils, I think we continue to de-risk. We've never liked the nature of the contracts. We're focused on Texas highways, where we have had a long, long history of being profitable with that client and in the Carolinas. 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. Yeah, I don't see a reason why we can't get up there and match with peers. Jim.
Okay, we've got one more question from Andrew Nussey 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? How concerned are you regarding the abilities to secure resources in order to bank incentive components of margin?
Yeah. Look, let's face it. At this moment in time, infrastructure is booming, not only for us, but for everybody else. It is a battle to recruit, retain the best and the brightest. As I've said, we believe that we've de-risked the downside. In the past, we would hard bid something with the power businesses. 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. The downside risk is capped. The upside incentives become predicated on performance. That does rely on local supply chains as well as our in-house capability. The fact that we pre-selected 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 Spittal and John O'Groats because having sort of driven around there recently, there's just nobody there except sheep. 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. The pylon growth is eye-watering over the next three to five years, and actually over the next 10 years. We have a factory which is re-equipped. It's got all brand new CNC machines in. We'll be looking to double and treble the volume over the next five years. We've moved from single shift to double shift. We have another arrow in our quiver around power. That will allow us to enhance the returns in that area. I don't know if that answers the question.
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. What more could you ask for? Thank you. Appreciate it. Bye-bye.