Good morning, everybody. I'm Leo Quinn, Balfour Beatty's Group Chief Executive, and I'm joined by Phil Harrison today. So I think you know both of us very, very well. We will explain the relevance of the video in my presentation in the second half, but we are becoming more of a tech company, I think, these days than concrete and reinforcement, but all very, very interesting. So today, I'm going to bring you up to speed on the results for 2023. You know, an interesting year. Balfour Beatty remains a strong, well-positioned, de-risked group. Strong in the, if you look at our underlying earnings businesses, we've turned in a really solid performance in 2023.
Well-positioned, that if you actually look at those areas where we have our core expertise and our market leading position, we're well placed to capitalize on the next 10 years of infrastructure growth within the U.K., which is a, which is a fabulous place to be. And then thirdly, our ability to generate cash is just outstanding. And as somebody pointed out to me, that we've generated all this cash, and we still haven't adjusted our forecast for next year. That gives me confidence in terms of our ability to return cash to shareholders. And you'll have noticed this morning that we've increased the dividend by double digit, and we're returning GBP 160 million to shareholders. So, a fabulous performance.
For those of you who want to look at my first slide, you'll then see that including this year and over the last three years, we've returned effectively GBP 750 million. If I look at 2025 and, and my optimism, I think our return will be almost 50% of our market capitalization. It's very interesting, I always talk about the industry very enthusiastically in that I've got the, the best job on the planet. We do extraordinary things. We paint skylines, we connect communities, but we don't often articulate very, very clearly the benefits for shareholders. So our value proposition really is around, this is a fabulous cash machine which keeps spinning off cash, which actually, results in double-digit return to shareholders over the last four years. So there's two things.
First and foremost, if I talk to our existing shareholders who've been with us for the last five or 10 years, you can see that they've actually achieved a, a very, very good return with GBP 750 million return via dividend and buyback. If I think about it, what's in it for them to stay for the future? But also, what's in it for new shareholders coming and buy our shares? So as I start to look to 2025 and beyond, we've really got to look at what's the growth and what's gonna keep people in Balfour Beatty stock, but also get more people in. And the first thing is, is we have a, a strong balance sheet. We had an average of GBP 700 million of net cash or average net cash over the last 12 months.
We have an active investment portfolio, which in itself is GBP 1.2 billion, but it actually gives us the ability to dial up and dial down what we put into it, but also what we sell off at the peak. So we've got a strong cash engine sitting there. This is the area I'm most excited about and what's changed in the last 12 months. And it talks a little bit to our digital video capability and capacity to deliver what's ahead of us is becoming very, very challenging. So for the first time, I'm seeing that demand is outstripping supply. This has resulted in what I would call sort of adult conversations with our customers around what risks we're prepared to take on and what risks we will leave with our customer.
In a supply and demand mismatch, prices do start to rise. So I'm encouraged by the fact that we're de-risking the portfolio further, and our returns are actually improving. If I look at the fourth area, which I think is very encouraging and is the most exciting area, and that is revenue growth. And there's four areas where we see very strong revenue growth, capitalizing on our expertise. And these are energy security, transportation, U.K. defense and security, and then U.S. buildings. So let's start with energy security. Obviously, everything's driving towards a greener, cleaner supply of energy, and that's all very well and good, whether it be nuclear, whether it be wind, whether it be solar. Those are all coming on stream, and I'll show you a bit more about that in the second half of my presentation.
But unless we upgrade and de-risk the grid, none of it is actually gonna have any benefit, because what's happening today is people can't get connections. So we're very well placed with the likes of the National Grid, the SSE, through multiple frameworks, to actually respond to the GBP 20 billion ASTI framework. And what we're seeing is that's actually starting now. And I'll talk about it later, but we've seen that accelerate and come forward, and that's very, very exciting. In terms of U.K. transport, we're seeing around zero net carbon, a lot of electrification, and I'll touch on some of the upgrades that we're seeing in the next two to three years. But also in terms of the roads, road schemes, the A66, the A57, they're all coming online as well.
In terms of U.K. defense, we're already well-placed in terms of the Atomic Weapons Establishment, our footprint in terms of commercial or civil nuclear, which is actually giving us a read across into defense. Also, Devonport, we're seeing work. The U.K. defense industry is gonna benefit from the likes of the Astute-class submarine coming in for its refit, and also the AUKUS program that's coming downstream. So that's coming on strong. And then in the U.S. area of U.S. buildings, we're seeing the anticipation of a lower interest rate, giving rise to a very strong pipeline that we've got in terms of awarded but not contracted. But now, they're now starting to turn into contracts. So for us, you know, the ASTI program in energy security is going to be a big deal.
Transport, electrification, and decarbonization, nuclear defense in a more unstable world, and then lower interest rates in buildings. All four of those talk to our strength. And on that note, I'll talk to Phil, who can actually bring you up to speed on the numbers, and then I'll come back and talk to you about an optimistic future.
Oh, thank you. Tidying up behind the CEO as usual. Thanks, Leo, and good morning, everyone. As you've heard, we've had a solid year of delivery, which we're pleased about. Going to the numbers, revenue grew by 7% in 2023 to GBP 9.6 billion, with higher construction services volumes in the U.K. and Gammon. Profit from the group's earnings-based businesses, which comprise construction services and support services, grew by 2% to GBP 236 million. As expected, gains on investment disposals reduced, and the tax charge normalized, with no repeat of the additional U.K. tax losses recognized in 2022. These items more than offset the benefits of the group's net finance income of higher interest rates. Profit for the year reduced to GBP 205 million, with earnings per share of GBP 0.373 .
Our total order book, at GBP 16.5 billion, was down 5% or 2% in constant currency, while the Directors' valuation reduced to GBP 1.2 billion, due equally to a weakening of the U.S. dollar against sterling and an increase in discount rates. Average net cash of GBP 700 million came in at the top end of our forecasted range, and as the group's working capital reduced on average throughout the year, and year-end net cash was GBP 842 million. As a result of the solid performance delivered in 2023, and with expectations achieved, the board today is announcing a final dividend of GBP 0.08 , giving a total dividend for the year of GBP 0.115 , a growth of 10% over prior year.
Moving on to the business units, and let me start with construction services, which delivered profit of 5% in the year or profit growth of 5% in the year. In the U.K., revenue grew by 10%, driven by higher volumes in major highways and rail projects, and PFO margin rose from 2.1%- 2.3%, with improved delivery across the portfolio. This demonstrates the business making progress in its ambition to move to a 3% PFO margin, with further progress expected in 2024. In the U.S., revenue of GBP 3.7 billion was flat with 2022 and included a higher proportion of revenue from the buildings business, which continues to perform well.
However, in civils, delays at a small number of projects resulted in an increase of costs, which reduced the U.S. construction profitability with PFO down by 12%. We expect the majority of these delays, delayed projects to complete this year and for profit to remain flat in 2024, followed by a growth in 2025, with higher volumes in buildings and a change to the mix of civils projects being delivered. At Gammon, revenue increased by 27%, driven by a full year of work on the major Hong Kong airport projects, and PFO increased by 13% to GBP 36 million. PFO margin reduced slightly in the year due to a timing of profit recognition on new contracts and is expected to just return to around 3% in 2024.
I'm going to cover the order book in a bit more detail, and I'd like to start with the U.S., to highlight a significant shift in the mix of work we've pursued and won in the last few years. As we've said, the risk profile of civils work in the U.S. is higher than that, than that in buildings, and although both are contracted, on fixed price terms, for buildings, we ensure early issuance of subcontracts and insurance of the supply chain, which protects our margin. Given the self-performed nature of civils, this is impossible, and as we've seen this year, the cost of overruns sit with us. In order to de-risk the U.S. business, we took the decision to reduce our exposure to civils, and therefore, our civils building bidding has been focused on a narrower scope of projects in Texas, the Carolinas, and California.
We are focusing on those projects which closely align to our core capabilities and we believe can deliver attractive returns, and as a result, the civils share of our order book has reduced. Within the buildings business, we are now less exposed to the commercial office sector, which has been affected by interest rates and inflation in the last two years, and have moved more towards the federal market, which continues to expand. Our commercial office expertise remains strong, and the recovery of that market will bring opportunities to the group. However, the diversity of our other building specialties, including education, hospitality, airports, and residential, protects the U.S. buildings business when demand in single industries change.
Moving on to the construction services order book as a whole, and we've been encouraged by the order books in the U.K. and the U.S. remaining flat on a local currency basis, particularly given the interest rate environment and the late cycle nature of our industry. The U.K. order book remains heavily weighted to lower risk contract types. Looking at Gammon, where there's been a drop, and that is really driven by two main factors. Firstly, part of that reduction is the order book returning to a more normalized level as construction activity on the major airport jobs is now being delivered at scale, having sat in the order book since 2020. Secondly, orders did slow during 2023, with interest rate uncertainty, uncertainty impacting demand in the buildings market.
Despite this, Gammon was around 85% sold for 2024 at the turn of the year, with construction services as a whole being a few percentage points ahead of where it was a year ago. I'm pleased to say we've seen some progress with orders in the year to date. Moving on to our support services business, which focuses on power, road, and rail maintenance and has had another good year. Revenue was up 2%, as the contribution of two new major road maintenance contracts was partially offset by lower power revenue. Profit from operations of GBP 80 million was GBP 3 million lower than 2022, largely due to the new road maintenance contracts.
As we said, at half year, additional costs are required upfront to align the new contracts to our systems and processes, which will drive higher profits over the life of the contracts. This resulted in PFO margin of 8%, which is right at the top of the targeted 6%-8% range. Support services also delivers strong growth in its order book, driven by the addition of the new East Sussex road maintenance contract and the extensions of similar contracts for Lincolnshire and Hertfordshire county councils. Moving on to investments, we were pleased to complete two disposals in the second half of the year and deliver gains of GBP 26 million. This was towards the top of the range we had guided to, and both disposals were transacted ahead of the directors' valuation.
Pre-disposal operating profit reduced to GBP 5 million from GBP 11 million in 2022, as there has been an increase in military housing costs relating to the independent compliance monitor's first year of work. Moving on to financing, the net position reduced by GBP 8 million- GBP 16 million, largely due to a faulty cable at one of the group's OFTO assets. We're currently pursuing contractual cost recoveries and have been successful in such pursuits in the past, but have provided for the cost for now until we're certain of the outcome. Now, let me take you through our valuation of the investments portfolio. Having started the year at GBP 1.3 billion, the portfolio declined by 6% to GBP 1.2 billion.
If we go through the bridge, we invested GBP 31 million in new and existing projects, including the addition of a student accommodation project in Florida. Cash dividend distributions were GBP 48 million, and the disposals of Gloucestershire Waste and the Moretti multifamily housing project contributed proceeds of GBP 61 million. The discount unwind increased our valuation by GBP 87 million, and there was a slight decrease from operational performance as a higher rental increase on student accommodation project in the U.K. was offset by increased insurance and monitor costs in the U.S. military housing portfolio. The foreign exchange movement was a GBP 43 million decrease, as sterling appreciated against the U.S. dollar.
Finally, finally, an increase in discount rates reduced the valuation by GBP 44 million, with average weighted discount rates increasing by 0.4% for the U.K. portfolio and 0.2% for the U.S. portfolio. Our decision to increase discount rates is prudent at this time and reflects changes in secondary market discount rates, which have progressively responded to increases in long-term interest rates. Moving back to the overall group, with cash, we had been guiding average net cash for 2023 in the range of GBP 650 million-GBP 700 million , and we came in right at the top end. This represented a reduction of GBP 104 million compared to 2022, with average working capital lower throughout the year by roughly GBP 70 million .
For the year end, the net, net cash position increased by GBP 27 million, which went against the trend we had seen throughout 2023, as an increase in payments from customers in the final weeks of December drove a temporary spike in working capital. Looking to the bridge, most other items outturned as expected, but I'd like to cover capital expenditure quickly, as it increased from GBP 31 million in 2022 to GBP 66 million in 2023, with further spend in support services to aid our medium growth plan, medium-term growth plans, and is a good example of of the group prioritizing investment into the business when opportunities arise. Looking to 2024, following the increase in expenditure in 2023, we expect CapEx to be in the range of GBP 30 million-GBP 40 million .
The group's net average cash position in 2024 is expected to remain close to the GBP 700 million average in 2023, while we expect average working capital to outflow by a similar amount to 2023 and move towards 13% of revenue over time. Turning to our multi-year capital allocation framework, which we've been following since 2021, we've increased our investment in 2023 to support growth in our earnings-based businesses and plan to increase the end equity put into infrastructure investment projects in 2024. We completed our 2023 disposal program, achieving strong valuations, and expect a similar level of disposal gains in 2024.
As mentioned in August, we refinanced our revolving credit facility in 2023, replacing the old GBP 375 million facility, which was due to expire in 2024, with a new GBP 475 million facility, which runs initially to 2027, with a further one-year extension option. The board is recommending a final dividend of GBP 0.08, giving a total dividend for 2023 of GBP 0.115, which represents a 10% increase per share. And once again, we are delivering additional returns to shareholders this year, funded by the excess cash generated in 2023. Given the increased investment into the business, we're confirming today that this year's share buyback program, which commenced at the start of January, is for GBP 100 million. I'll finish by summarizing our guidance.
We expect PFO growth from the earnings-based business in businesses in 2024, with improved margins from U.K. construction and Gammon. U.S. construction is expected to be flat in 2024 as we close out a number of civils jobs. We anticipate another year of good, consistent performance from support services, prior to power transmission growth in 2025 and 2026. Profit on investment disposal for the year is expected to be in the range of GBP 20 million-GBP 30 million as we continue to realize value from the portfolio. Moving below PFO, we expect net finance income of around GBP 30 million, and for the effective tax rate to be close to statutory rates again, which are now 25% in the U.K. and 26% in the U.S.
As a result, we expect EPS growth in 2024 to be roughly in line with market expectations, and we expect average net cash to remain close to GBP 700 million posted last year. Finally, touching on 2025, we see earnings growth accelerating given the market opportunities ahead of us. With that, I'll pass you back to Leo.
All right. Good job. Oh, have you got the clicker?
It's on there.
That's great. Great. Phil, thanks for taking us through the past and where we are to date. I'm now gonna explain why I'm optimistic, excited, super excited about the future. And it starts with this chart here. This is an extract from the Infrastructure and Projects Authority report, which is a summary, really, of all of the infrastructure that will be spent by U.K. government over the next decade. I draw your attention to two numbers. The first one in the middle of 775, which is three quarters of a trillion, that's going to be spent on infrastructure. And then, I'd point you to the 41, 10, and 30, which is effectively nearly 80% of the portfolio is in energy and transportation, where we have a leading market share in the U.K.
So, I'm really optimistic that the areas that we're seeing growth are where we have the strongest capability, and the best people. I've shown you this, slide three times before. It's not a lack of creativity, it's just that it's always relevant. And, what's interesting about it this time is that when I looked at it last year and the year before, yeah, it was an interesting vision of where things were going. But what's happened in the last six to nine months is the actual momentum that has built up in this is becoming very real tangible, and I will, I will talk about real orders. But if I, give you a quick flyby on all of this, is that, you know, transmission through the ASTI program is now, starting to, to move forward.
Small modular reactors, the contest, the gun has fired, and the six contestants are now pitting their wares against one another. In the case of Hinkley, it's progressing well, but when I look at Sizewell, we'll be breaking ground on the rail hub, the rail head, sorry, in the next six to eight weeks, and then the road will go in, and nothing can really happen at Sizewell until the transportation is in order to remove all the earthworks. So that's a critical factor. In the case of sort of the likes of Urban Fox, which is EV chargers, we're now seeing that the local authorities are having to put in more chargers, so there's an unprecedented number of tenders starting to come out in the next 12 months, we're anticipating.
In terms of carbon capture, we are anticipating an announcement in the next two or three days around one of the major carbon capture programs, for which I'm optimistic. And offshore is still moving ahead. So, this is also very relevant when you move to this next slide. None of what you've seen there really has any value in terms of green, clean energy into the grid until the grid is upgraded and de-risked. And this actually is one of our sweet spots where we probably have a 40% market share. It might be a narrow market in overhead lines and substations and converters, and underground cables in remote places, where we actually erect pylons and string cables. But until that's actually done, all these clean sources of energy can't get to the grid, and people can't get connections.
This is effectively the ASTI program, which is about GBP 20 billion. Just as a matter of interest, is that if we deliver a billion pounds in this top area of transmission, it pulls through from the group expertise, probably another 25%. And we, in these areas, we're doing design. These remote access places, they need roads put into them in order to get there, to do the piling, and then the major civil engineering work. And then, of course, the, the towers need to be erected, and, our business, Painter Brothers, actually makes the towers, and, we've made them for probably 50-odd years. So it's a, it's a lovely business, and, it's a growth business for us. The scheme we're looking at, at the moment, this is, with SSE in Scotland.
This is the Beauly to Peterhead line transmission, and then the line south. This represents something in the order of GBP 1-2 billion. And these particular schemes, we've worked with the client closely to look at where our expertise can add the most value and give the best chance of success, and these are why these schemes have been picked out and allocated to us. That's probably 50% of the work that will go on in Scotland in this particular area, so we're not even talking about the grid at this moment in time. The interesting thing is, is this is going to run over, like, seven to 10 years, so it's not like a couple of GBP 2 billion in the next two to three years.
It's about a business which is going to run at a revenue rate of about GBP 300 million a year for 10 years. So this is really, really exciting stuff. And again, we have the dominant share in this part of the market, and we have a very intelligent, sensible customer. Very demanding, but actually recognizes and works with us to get the jobs done. So we're really, really excited about this. And again, I'd look at National Grid the same way. A very capable customer, a good partner, working with us to deliver successful outcomes for the grid. The other areas that we see growth in is in the transportation, in terms of rail, major highways, and road maintenance. In the area of rail, the Net Zero Carbon is driving more electrification.
There's the main line, Midland Main Line, Midlands Hub. There's a TransPennine route. We're working on all of those at this moment in time, and hopefully we'll be successful. We'll be rebidding. We're one of the major suppliers on the CP contract, and we'll be rebidding CP6, sorry. We're rebidding CP7, which is valued at GBP 43 billion. In terms of major highways, significant progress has been made in some of the judicial reviews that have been taking place, which are delaying road schemes by anything up to 18 months. And National Highways was successful recently on the A47. That will have bearing on the A66 and the A57 that we're on. So hopefully, those projects will go through faster because of this very latest final ruling by the judges.
Also, we're looking at the Lower Thames Crossing, and although that's actually not due to be fully funded for a few years, we're hoping that via a private finance route, we'll be able to bring that forward. And for those of you who actually remember, we actually privately financed part of the M25 about 15 years ago. So it's an area where we do have some expertise, and we're quite excited about that. And then, in the key areas of road maintenance, our Living Places business, we have a number of local authority contracts. The money from HS2, the northern section, the GBP 8 billion, was going to be transferred to local authorities for road maintenance, potholes, and the like. And so, in effect, we'll start to see some of that money come through sooner rather than later.
So all in all, rail, major highways, and roads, we're very optimistic about the outlook, and again, it's where we have, actually have the largest market share at this time. In the U.S., you know, six to 12 months ago, the U.S. was very challenging for a number of reasons. We're now seeing that market free up, really on the anticipation of lower interest rates. Texas, in the fourth quarter, delivered some $800 million, and that particular business had a pipeline of $2 billion-$3 billion, which actually hadn't moved in almost 12 months. So we're now seeing a little bit more optimism, and that commercial development is actually coming back again. In the areas of California, Southeast, which is Florida, and the Mid-Atlantic, which is Washington, D.C., these are solid businesses for us.
Mid-Atlantic, particularly with the federal market, we're seeing them performing well, so we see a good outcome for this year. And then, in the Northwest, the likes of Seattle and Portland, the tech sector was very challenged a year ago. We're now seeing the orders to coming back, and we're going to see a strong 25 in the Northwest. While the U.S. was actually in the doldrums for the last 12 months or so, we launched new branches in Sacramento, Charleston, Richmond, Tampa. They're all now bringing in orders. And of course, by sharing our group capabilities in terms of airports and theme parks, we're picking up additional work.
We've just won our first theme park in Texas with Universal, one of our Florida customers, and we're actually looking at a big theme park in California from another one of our Florida customers. So very positive outlook and an increasing footprint in the U.S . Infrastructure investments. This actually, for me, is actually one of the most exciting businesses at the moment, 'cause I think the next few years are gonna be interesting. The best business we have here is as our military housing.
Putting aside the monitors work that's going on within the business, if we look at where this is going to go and the growth that we see, we're largely looking at new military housing coming from, first and foremost, the President over the weekend signed the MILCON bill, which gives us another $100 million towards housing at Fort Leonard Wood and Fort Eisenhower. That comes on top of military housing, which is actually 450 units that are gonna be built at Fort Carson, and that's being funded through a 25-year extension of the lease, which means we get 25 years more rental income, which we can capitalize, and that will then fund the build. So what we're seeing is the first time in three to four years is new housing projects come to the fore.
We, of course, actually make a fee on the, the building of the housing, and new houses means the old ones are retired, and therefore, the maintenance burden lessens. So I'm quite optimistic about the next few years for military housing, because there's a desperate need for more of it. The other area we're seeing growth at the moment is, we just recently closed, in a very challenging environment, the, University of Sussex West Slope. I don't know if you remember, but, we've completed about 1,400 student accommodation build on the East Slopes about two, three years ago. This is now the West Slope. This will be 1,800+ units. It's a GBP 300 million build. It's a design build, finance and operate, and, we're, we're doing it all.
So that's a really successful win, and it's an incredibly impressive project when you go and look at it. So if any of you wanna go back to university, this is the one to go to. You've got good accommodation. Phil talked about we're gonna continue to invest in our investments business. LAX Equity will be going in. I talked about EV charging and local authorities. We'll be doing a lot of tendering in the next 12-24 months, and this will actually be a cost burden in the first instance, but hopefully, we're very optimistic about the outturn of that and future revenues. And then finally, all of these things add up to just reinforce this is a fantastic cash flow business. And although we're only showing for 20 years here, it does, in some cases, run out to 40 years.
This is a lovely asset to have in the portfolio. It's one of the things that when you think about the value of the company, this is worth $1.2 billion, with our $700 million net cash on the balance sheet and our market capitalization of GBP 1.8 billion, it explains why we buy back our own shares. Looking at sustainability, this is a year when we sort of blew the lights out on, not literally, metaphorically, on sustainability, and we had a 2% reduction in our carbon output, and we had an improvement of 7% in our carbon intensity. So that actually is really quite game-changing. We looked at a 40% reduction in our waste this year and achieved it, and our social value increased by 15%.
We actually invested or reinvested $936 million back into the local supply chain and local community. As we look at this, you know, we actually think of this as a business, because if I actually reduce carbon, I'm reducing energy, which means I'm saving money. If I'm recycling materials, I'm actually not having to haul things off-site, so I'm making money. And if I'm investing in the local community, I'm enriching everybody in that sector. So for me, the more of this we can do, the more cost we reduce, the more profit we make. So we look at this as a profit center, not a burden, and apart from the fact of doing the right thing, we're actually making money doing it, which is fabulous. And then right back to where we started, the video about tech. It's very interesting.
There's an old McKinsey report, but it talks about technology. If we could close the technology gap in our industry construction, there's a 15% productivity improvement, which lies on the table. And AI and the likes of that is now giving us an opportunity to capitalize on it. So we're doing some really innovative things, and I actually think we're leading the industry. Apart from doing stuff that keeps people safe, in terms of observations around safety and improving the working environment, which is essential, what we're doing, we're investing in access control and the tracking and the monitoring of people. We've moved away from the idea of paper in terms of permits and permissions to do work and move to a digital platform, which is leading the industry.
This is saving lives, improving productivity, and building better assurance for us, so we have better traceability and better track record of what goes on. And in the area of AI, we've worked with Microsoft to bring in an internal system of AI inside our firewall, so we can actually play with it. And last year, I attended the Microsoft CEO conference, and I'm going again this year. But the amount of innovation that actually is going on here is incredible. We're looking at bringing technology in and sensors around our machines to detect people so that we keep people safe and the likes of that, and then anything which actually drives non-productive cost out of the business. Why is this important?
If I look at all the work I've talked about, if we were to win 50% of what we're talking about, we don't actually, as an industry, have the people and the capacity to deliver it. So it's vitally important that what we do is remove all of the non-productive, mundane tasks that we employ people to do out of the business, utilize technology, and then put people to work productively. So we have a real skills challenge in the industry, and if we're to actually have any chance of actually delivering all the work that's out there, we've got to use technology to actually make people more productive. And at the same time, we make them safer and better assured in what they're doing. So fundamentally, in summary, you know, we've got good backlog cover for 2024.
We do have a de-risk portfolio, and if we can get that right, we'll see margins improve in the business. As I look towards 2025, and the next decade of infrastructure, we're really well positioned in energy security, transportation, U.K. defense, and the U.S. buildings business. So I see strong growth, which will actually see our top line improve as well as our margin improvement. And if we do all that, the cash forecast that Phil's given you will probably be conservative, and it'll give me confidence to actually increase dividends and buy back more shares. So in the round, I think, I don't think we've ever been better positioned as a business, and I think the next few years are gonna be very, very exciting for us. And on that note, I'm gonna hand over to Phil and myself to answer the questions.
Thank you very much for the presentation. It's Arnaud Lehmann from Bank of America. I have three questions on cash, if that's okay. Firstly, on the GBP 700 million average net cash, could we have an indication of what is working capital in construction and what is cash available to shareholders? Obviously, on the same topic, higher than expected, you didn't really get the working capital outflows that you—or maybe you did, but you got some offset. Firstly, on this basis, why didn't you keep the share buyback at GBP 150 million like last year? And also, would you consider acquisitions, small or mid-size acquisitions, in particular, support services, U.K. transport, infrastructure? Thank you.
Look, the first two questions are so easy, I'm gonna give those to my finance director, and I'll answer the third one.
You're starting with the third one then, eh?
Should I start?
Yeah.
Look, first and foremost, I'm not a lover of acquisitions in this sector. If you gave me a construction company, I'd give it back to you, 'cause I wouldn't want it. But there are niches, and there are pieces of technology which drive real competitive advantage. And in this instance, if those materialize at the right price, we'd give them very, very serious attention. But, you know, I don't ascribe to buying in someone else's backlog and the risks that they've apportioned to it when they bid for it. So I think we're safe on that one. Phil?
Yeah, on your first question, GBP 700 million average cash and the cash available, the kind of cash split. We don't give a specific one, because clearly it all depends on where working capital is going and how we're doing that. As I said in the presentation, we did see a very specific spike in December, which really outflowed pretty much by the end of February. So we have kind of normalized back to where we thought we would be on average cash. And we do see our average working capital outflowing in 2024 of a similar level that we saw in that average for 2023, which is between GBP 70 million-GBP 100 million.
On the buyback, when we look, and I've said this before, we don't look at the cash. We look at what is our earnings and what is the excess from those earnings. And if you think about it, we have made additional investments in 2023 in our CapEx, so that did reduce our ability in terms of what we could give back this year. And also, our disposal cash was down year- on- year. So those two elements made us consider what was our excess, and we thought GBP 100 million was appropriate for where we are in our journey.
Thank you very much.
Jonny Coubrough from Numis. Could I ask firstly, what the size of the opportunity is from the growth strategy in U.S. buildings and what the timeframe is to see that? Secondly, in power, you mentioned earlier that the ASTI onshore work in Scotland is a GBP 300 million run rate opportunity. Is that incremental? And could you remind us what the total power top line is today and where you think that can get to? And then thirdly, you also mentioned earlier that there's private finance opportunity from Lower Thames Crossing. Private finance in the U.K., you know, has been a very high-returning opportunity for you in the past. I think fair to say that dried up over the last 10 years. Do you see that growing again? And-
... yeah, what are your expectations there?
Got it. The size of the U.S. growth, I would say I'd still keep it at single digit growth at this time. I wouldn't get more optimistic than that. And I'd probably keep it about the 5% mark. But again, it's all subject to timing in the U.S. That's the key point. In terms of power, we don't actually give a number on power, but,
Yeah, we do.
Do we?
Mm-hmm.
All right. We do give a number on power.
Yeah.
It's about GBP 300 million in terms of the growth or revenue, and I would suggest that that will double by 2026.
Something.
Seven.
Something.
Or something.
Not '20.
So that's it. So we don't give the number, which we now do, and it will double by, say, 27-ish. Yeah. So it's. But there's a lot of work to deliver, and you don't just double a business overnight. You've got to man up. You've got to train. It takes six years to train a commissioning engineer, so there's a real skills capability challenge in making sure that these things get delivered. Anything else I shouldn't say?
I think you've said enough.
Okay. And then on the private finance, the first and foremost, the challenge the government's got is it doesn't actually have enough money to do all the things it wants to do, and I think they are going to look to new sources. And I think in the case of the Lower Thames Crossing, it's a very particular project where it does have a funding stream from tolls. So there may be an opportunity to rethink how they do that. So I think we are going to enter a new era, where the government's going to want to take in more private money to get schemes done. And you've seen sort of signs of it with Euston and HS2, and I think there will be more of that will come into play.
Any thoughts on that? No.
Good morning. Andrew Nussey from Peel Hunt. Again, sort of couple of questions. We start with U.S. construction and sort of the mix shift to buildings versus civils. Should we think of that as a permanent shift? Have you taken capacity out of civils? And secondly, the buildings has historically been sort of more of a project management type business. Is that going to be the case across that expanded buildings portfolio, and therefore we should think of that as a sort of slightly lower than average group margin, but obviously lower, lower risk? And in terms of the 3% U.K. construction margin target, on what mix is that based on?
Is that the sort of the current mix of business, sort of regional construction versus sort of infrastructure, or is there something else assumed in terms of that change? And how much of that 3% target is effectively visible from what's in the order book, at the moment? And thirdly, if not too greedy, on the military housing opportunities which you highlighted, you know, versus the current sort of GBP 560 million valuation, what could that mean in terms of that figure if, if those opportunities come through?
Right. I'm just trying to think. You better do them all.
Done the first one then.
Let's, let's do the one, well, the first one's a civil one. Let me do the third one first in terms of mix. I think by the nature of these projects and the size and scale, they start flipping into what is a major project area. And invariably, our overall return from delivery of major projects is higher than the U.K. construction business. So it's moving into a higher margin return in those areas. In terms of capacity, the civils business in the U.S. is actually a lumpy business. So, you know, in the past, we have pulled in some contracts of the order of $1.7 billion.
We don't see that size of project being something that we would, we would look to ever do again in the future, because it requires joint venture partners and the like. So what we'd like to do is, Balfour Beatty controlled projects, primarily where we're the lead contractor of a smaller nature, you know, sub $1 billion, $800 million down. So that actually, it's so the size of the revenue is really going to depend on the number of those. And our concentration is largely in the Carolinas, Texas, and then in, in California, where we have a strong footprint today. And then on the building one, you asked about, it was the lower risk and the mix, and I just can't remember what the final question was.
In terms of military housing or in terms of-
The building one, in terms of the lower risk building.
Yeah. So sorry, that was very much a sort of project management type business, where you sort of had the 1%-2% margin.
Correct.
Is on that new sort of buildings or the new end markets are still gonna be delivered on the same basis?
Exactly. Yeah, there'd be no difference. The business model won't change, and we're very happy with the returns of that business because it is effectively much lower risk. You know, effectively, the risk is passed down to the subcontractor. They're bonded or insured through Subguard, and therefore, provided we actually manage the overall project correctly, and everybody gets to the end without going bankrupt or the like, then you should almost be able to guarantee your returns. And then finally, the valuation on, on military housing... But you better answer that before I sort of-
You sure you don't want to have a go at that one?
Gives the game away.
Military housing, I think you have to look at it in two ways. Clearly, if, if we do the redevelopment, the first thing is that redevelopment will be done by our U.S. buildings business, so that will contribute to, if you like, some of the earnings growth then in that. And we'll probably get going on that in, hopefully, in 2025, but probably will peak up in 2026. So that's, that's the first thing we get, is we get, we'll get that, that part of it. And then the actual investments business will then earn, clearly, incentives or fees on, on the redevelopment, which are at a lower level, and then we'll gain through, through the valuation, if you like, over multiple years.
But if you like, the short-term impact or gain will actually be in U.S. buildings.
But I think what's important about it as well, is that hopefully, this will unlock, and you'll see more funds being released to build new houses and upgrade some of the old stock. You know, some of the stock is, is quite, quite old and aging and needs sort of replacing. Joe?
Good morning, Joe Brent at Liberum. I've got three questions, but maybe one at a time. In the appendix, you've got the order book phasing, which shows the order book relating to 13-24 months is actually down. How does that reconcile to your argument that actually growth accelerates in 2025?
Sure. Yep. The orders that we or that are gonna drive some of that growth is power. We it is a two-stage program, so at the moment, we only have the initial design phase, and the awards will come in, in 2025 and 2026. So there'll be progressive orders. So that's why they're not sitting on our order book.
Makes perfect sense. And you mentioned in the U.S., awarded but not contracted. In the past year, you've actually given that number. Could you give us some indication of what's happening to the ABNC?
The ABNC is kind of staying relatively flat. I actually haven't got that number off the top of my head, I'm afraid. But it's not declined, so it's staying up there. Now, some of the things around awarded but not contracted, as you saw in Texas, we had a great deal of awarded but not contracted. We put $800 million in, and we're expecting more to come out. So that, to some extent, the conversion of awarded but not contracted into orders will power our again, will power the U.S. buildings business in 2025. So I would say our awarded but not contracted number will stay, will convert and come down this year.
Thank you. And finally, on working capital, it feels to me like it's currently at around sort of 15%, 16%, and you've talked for a while now about it going down to 11%-13%. It never seems to happen. Could you just give us some of the detail of what, of what's happening on the working capital?
Could I just say one thing? It's a good thing it's high, because that means we've got the money in our bank, and we get interest on it. So I don't want you to persuade him to lower it.
It's not a matter of persuading me. It's, I think it's true. We, we anticipated, a decline down into, into our 11%-13% range, and as, as you heard on my comments, we're, we're probably talking about 13% now. So I don't actually see, in the medium term, as coming down into, you know, 11%. I can see us getting back down to 13%. Some of that is the, the nature of the contracts that we've got. We've got in, in, because we're doing more infrastructure, we've got longer contract lengths, so, we're holding on to, if you like, the, the negative working cap longer in terms of what we're doing. And so we haven't seen the kind of levels of what we anticipate was gonna be the, the outflows.
So I think there is a change in, if you like, the business model, in that regard. So, but I still think we'll come down to 13% at some point.
Thank you.
Hi, Rob Chantry, Berenberg. Thanks for the presentation. Just three questions from me. Firstly, could you just give a bit more detail on the breakdown of that U.S. margin at 1.4% in the year, i.e., how, you know, badly did specific projects go wrong? How material are they, et cetera? Secondly, in terms of the outlook for U.S. construction, you've effectively guided flat for full year 2024 on closing out the civils projects. Could you just comment on the spread and outcomes around that? As in how much kind of carry forward from the 2023 issues are there, and how does that offset against potentially somewhat more buoyant environment that you referred to on expectation of lower interest rates? And then thirdly, in the U.S.
Again, clearly, you have a very diverse portfolio of assets doing different things in different regions. I guess, a high-level strategic view, given your infrastructure expertise in the U.K., do you feel you're missing out on stuff, given the real buoyancy of the U.S. infrastructure markets and reshoring and the kind of general, remanufacturing or reshoring of the U.S.? Is there anything strategically you're thinking you're missing out on? Thanks.
They're so easy, I'll give those to you. While he's writing, I don't see us missing out on U.S. infrastructure. You know, I know you've got the Biden Inflation Act and things like that. We just don't see a lot of it. You know, we do see work in specific centers around data centers, fab plants for the likes of Intel and things like that, but we're not in those particular markets. We don't carry that capability and expertise. We're largely road infrastructure and some rail. So, no, I don't see us missing out, and in some cases, the risk assigned to some of those jobs is such that you wouldn't wanna win them, or you don't really wanna be in that market.
I think our U.K. business has much more capability in depth than what we have in the U.S. And so we're able to do things here which we can't do in the U.S. And in some cases, where we've moved teams from the U.K. in the last 24 months over to the U.S. to actually help complete and deliver programs in what are technically very challenging areas. I think where we're positioned today is about right, and it's a trade-off between risk and opportunity, and we certainly don't need those sorts of opportunities.
Yeah, on U.S. down, U.S. breakdown of projects, really the whole kind of number was generated by U.S. civils. So, we were down about, so from what we thought, about $7 million, so the impact was about $7 million. Going forward into 2023, 2024, again, the way to look at it is that clearly we're taking a lower profit recognition on those, 'cause we've had to reset those jobs, so that impacts us again in 2024. And then, as we clear that out, we'll come back up, back to our margin, our more normalized margin levels, which is gonna be predominantly in the U.S. buildings. That's how you should see it.
Thank you. Gregor Kuglitsch from UBS. I've got sort of three questions. So the first one is coming back to the monitor and the military housing. Can you just remind us how long that's for, what the costs are, and when that sort of, when we can put that behind us and perhaps any impact it has had? I think you flagged some additional costs. I guess, a supplementary to that is that sort of what you need to get concluded before you perhaps think about monetizing, at least partially, that asset? The second question is on services. So you're flagging, correct me if I'm wrong, like a $300 million step-up, which is sort of 30% growth over a few years. Not sure that's net, but I guess my question is, A, is that correct?
And, B, do you think you can, you can hold the margins at the upper end of that range, or do you think those are perhaps a mixed impact or something like that, that would get the margins to a lower level? And then, third and final question is, obviously, we've talked about the 3% threshold for U.K. construction for many years. You're, you're sort of moving there. You know, where's the level of confidence and perhaps some timescale to actually reach that, please? Thank you.
Just on the last of the 30% uplift, just explain that.
Well, on services revenues, right? So support services-
Oh, yeah.
GBP 1 billion.
If we do a trillion-
GBP 300 million.
Yeah, okay.
Incremental 30%, right, yeah.
The question is that-
Does the margin hold at eight?
Right, correct.
Or is that correct? I don't know even if the one-
Yeah.
Three is correct.
Yeah, no. Okay, great. I understand the question. So, why don't you answer the 3% one? Because if you leave it to me, I'll get it wrong.
Oh, the U.K.-
This one
... construction. Look, we're very confident that we're gonna make progress in 2024, moving up the range to the 3%. So, we've still got some way to go, but it's within the window that you guys are probably looking at the moment. So, we're gonna hit those numbers, we believe, in the midterm, so.
That's very optimistic of you. The monitor was an initial three-year period, but it could be extended. We hope we will have satisfied all the requirements in that period of time, but that's not our choice. So, we just have to continue to make sure that the monitor sees the progress being made and actually recognizes that, and that we don't need time over the three years. In terms of the military housing asset, fabulous asset, you talked about monetizing it. If we were to monetize it, it would obviously be worth more without a monitor than with a monitor. But, you know, at the end of the day, given the monitor period is some sort of defined, you know, it's, it'd be better not to have it.
But at the end of the day, it doesn't mean if we want to do something with the asset that we couldn't do it, so to speak. But I think there's some good years ahead of us on military housing, and I think we'd like to capitalize on that. And then in terms of your last question, I'm doing well here, aren't I?
Till this question, yeah.
Yeah. In terms of the idea, if we do GBP 1 billion in transmission and the pull-through, that would roughly be at the same sort of margin that we do within the services and construction business.
So can I clarify something?
Please.
So on services and how we see services, it's the whole schemes are a ramp, right? So you don't suddenly go from zero to 300. So we are going to ramp through. We'll peak, and then we'll come down. So you should see 2025 and 2026 as a ramp up. So we're not immediately gonna go from 2024 to 2025.
... at that maximum value. And clearly, we will operate, I think, within our 6%-8% range. I think it will be tough to stay at the 8% range, but we want to be top of that. We want to be in the top half of our range.
Thank you. That's clear.
Great. Any further questions?
We've just got one question from Steve Rawlinson, which is, "Can we get a bit more color on the CapEx spend increases? What were they spent on, and when do we think they will bring growth?
Yeah, I'll do that. Around about two-thirds of, well, over two-thirds of our CapEx expenditure, the addition, was on two areas, all both in support services, a particularly big investment in our power as we start to work on the additional work we'll get in 2025, 2026. So we're putting in place, additional equipment, to support that growth, and also in rail, where we anticipate, as Leo said, there's a number of opportunities and growth areas that we're positioning ourselves for that. So they're the two main areas, power and rail equipment.
Is there any further cash required to deliver the growth, which might impact future shareholder returns?
At the moment, we think that we'll deal with that in our normal capital budgets, which we're setting around GBP 30 million-GBP 40 million going forward. If we need to do that, of course, we get the returns, then we'll do higher investments.
Thank you. Sorry, just a last one from me. I'd love to hear your thoughts on potential outcomes of U.S. and U.K. elections, upside, downside for Balfour Beatty? Thank you.
Um-
That's definitely Leo.
Look, at the end of day, it's always, it's always difficult to assess, particularly in the cases of the U.S. But in the case of the U.K., I do think there's a lot of similarity and overlap between Conservatives and Labour, so we're not forecasting any real change. You know, we need the grid upgrade. We need cleaner sources of energy. So all of those programs are ahead of us, and we need infrastructure, and I think both parties are aligned to that economic commitment. If I might, just it's, it's worth sort of going back and summarizing for two seconds. You know, you know, a solid set of earnings, progress from the business. I'm particularly enamored by the, the cash generated from within the portfolio.
The fact is, we've returned GBP 750 million over the last four years, which is nearly half our market capitalization. I, I'm really optimistic about our ability to continue to do that. And why am I optimistic? You know, we've got a strong balance sheet. We've got an investment portfolio that we can see good growth in and opportunities to invest, but also to yield cash from. You know, from an earnings point of view, our customers see the fact that the capability that Balfour Beatty got is desperately needed. And so we're having sensible conversations around terms and conditions and long-term liabilities. And of course, you know, we are seeing improved margins coming through from the business.
And then finally, you know, even if that stayed flat, the top line growth that's gonna come through over the next decade, I mean, means that I have ever more confidence in our ability to drive and generate more cash, which ultimately then leads to surplus cash, to improve dividends, and actually buy back low price shares. So, on that note, I'm looking forward to 2024, 2025, 2026, and 2027, when we can see it materialize, aren't you?
Yes.
Thank you all very much.