REG - Balfour Beatty PLC - BALFOUR BEATTY 2023 FULL YEAR RESULTS
13/03/2024 07:00
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RNS Number : 5959G Balfour Beatty PLC 13 March 2024
BALFOUR BEATTY PLC RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2023
13 March 2024
Solid performance with expectations delivered
Operational momentum with immediate and mid-term opportunities
Leo Quinn, Balfour Beatty Group Chief Executive, said: "The Group's
reliability and resilience has again delivered a solid performance, with
increased revenue and profit from our earnings-based businesses and strong
operating cash flow. This success against a challenging economic backdrop is
driven by our disciplined contract risk management across a geographically and
operationally diversified portfolio.
"The Board remains confident in Balfour Beatty's ongoing ability to deliver
sustainable cash generation for significant shareholder returns, with growth
from our earnings-based businesses in 2024 underpinned by the strength of the
Group's order book. Looking to 2025 and beyond, we expect our unique
capabilities and complex infrastructure project experience to drive further
earnings growth, with attractive opportunities being pursued in the UK energy,
transport and defence markets and in the US."
Solid performance with continuing momentum from earnings-based businesses
· Revenue up 7% to £9.6 billion (2022: £8.9 billion)
· Underlying profit from operations (PFO) from earnings-based
businesses up 2% to £236 million (2022: £232 million)
· Underlying profit before tax down 10%, due
predominantly to lower gains on investment disposals as guided
· Underlying EPS of 37.3p down 21%: £55 million increase
in tax charge, following £56 million credit recognised in 2022
Resilience against economic challenges, with diversified portfolio providing
stability
· Construction Services: PFO up 5% to £156 million
(2022: £149 million)
· Support Services: PFO margin of 8.0% (2022: 8.4%) at
top of 6-8% targeted range
· Infrastructure Investments: £1.2 billion Directors'
valuation (2022: £1.3billion) impacted by exchange and discount rates
· Sixth consecutive year of improved employee engagement
Continued shareholder returns supported by consistent cash generation and
balance sheet strength
· 10% increase in recommended full year dividend at 11.5
pence per share (2022: 10.5 pence per share)
· £100 million share buyback commenced for 2024, with
total expected cash returns of c.£160 million (2023: £208 million)
· Average net cash of £700 million (2022: £804 million)
as forecast
Strategic focus on strong delivery of order book and significant medium-term
growth opportunity
· Earnings growth in current year underpinned by £16.5
billion order book (2022: £17.4 billion)
· Unique Group capabilities aligned to significant future
opportunities
· Earnings growth accelerating in 2025, driven by energy,
transport and defence in UK and buildings in US
(£ million unless otherwise specified) 2023 2022
Underlying(2) Total Underlying(2) Total
Revenue(1) 9,595 9,595 8,931 8,931
Profit from earnings-based businesses 236(#) 223 232(#) 233
Profit from operations 228(#) 211 279(#) 275
Pre-tax profit 261 244 291 287
Profit for the year 205 194 290 287
Basic earnings per share 37.3p 35.3p 47.5p 46.9p
Dividends per share 11.5p 10.5p
2023 2022
Order book(1) £16.5bn £17.4bn
Directors' valuation of Investments portfolio £1.2bn £1.3bn
Net cash - recourse(3) 842 815
Average net cash - recourse(3) 700 804
Segment analysis 2023 2022
Revenue(1) PFO(2,#) PFO Revenue(1) PFO(2,#) PFO
margin(2) margin(2)
£m £m % £m £m %
UK Construction 3,027 69 2.3% 2,763 59 2.1%
US Construction 3,697 51 1.4% 3,651 58 1.6%
Gammon 1,357 36 2.7% 1,068 32 3.0%
Construction Services 8,081 156 1.9% 7,482 149 2.0%
Support Services 1,006 80 8.0% 989 83 8.4%
Earnings-based businesses 9,087 236 2.6% 8.471 232 2.7%
Infrastructure Investments 508 31 460 81
Corporate activities - (39) - (34)
Total 9,595 228 8,931 279
Notes:
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 9)
(3) Excluding non-recourse net borrowings, which comprise cash and debt
ringfenced within certain infrastructure investments project companies, and
lease liabilities
(#) Underlying profit from operations, or PFO, as defined in the Measuring our
financial performance section
A reconciliation of the Group's performance measures to its statutory results
is provided in the Measuring our financial performance section
Investor and analyst enquiries:
Jim Ryan
Tel. +44 (0)7858 368527
jim.ryan@balfourbeatty.com (mailto:jim.ryan@balfourbeatty.com)
Media enquiries:
Antonia Walton
Tel. +44 (0)203 810 2345
Antonia.walton@balfourbeatty.com (mailto:)
Investor and analyst presentation:
A presentation to investors and analysts will be made at Numis, 45 Gresham
Street, London, EC2V 7BF at 09:00 (GMT) on 13 March 2024. There will be a live
webcast of this on: www.balfourbeatty.com/webcast
(https://eur02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.balfourbeatty.com%2Fwebcast&data=05%7C01%7CJim.Ryan%40balfourbeatty.com%7C25665b1cf76942e13aeb08db98b7909e%7Ca04222fe0c5c40bb842097a219ba514e%7C0%7C0%7C638271686390333218%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=OTXWdtcSRw138kobSP1OBWwmUVHSSY7cejEYWZEsrvs%3D&reserved=0)
. (http://www.balfourbeatty.com/webcast) The webcast will be recorded and
subsequently available at Results, reports and presentations - Investors -
Balfour Beatty plc
(https://www.balfourbeatty.com/investors/results-reports-and-presentations/) .
2023 FULL YEAR RESULTS ANNOUNCEMENT
· GROUP CHIEF EXECUTIVE'S OVERVIEW
· RESULTS OVERVIEW
· DIVISIONAL REVIEWS
· MEASURING OUR FINANCIAL PERFORMANCE
GROUP CHIEF EXECUTIVE'S OVERVIEW
Full year Group expectations achieved
Balfour Beatty's solid performance in 2023 resulted in the Group delivering
underlying profit from operations (PFO) from the earnings-based businesses
(Construction Services and Support Services) of £236 million, incrementally
ahead of the prior year (2022: £232 million). As expected, the Group's
underlying profit for the year reduced to £205 million (2022: £290 million)
as gains on investment disposals reduced as planned and the £56 million tax
credit relating to the recognition of additional UK tax losses in 2022 did not
repeat. Capital expenditure doubled in the year as the Group invested to
support growth, and £208 million of cash was returned to shareholders (2022:
£208 million) through a combination of dividends and share buybacks. Average
net cash reduced as expected to £700 million compared to £804 million in
2022.
Resilient portfolio delivering stability
Balfour Beatty demonstrated the importance of its geographical and operational
diversity in 2023, by delivering an overall improvement in underlying
financial results from its earnings-based businesses during challenging
economic conditions. The results were a further proof point in the strategy to
reduce Balfour Beatty's risk profile, with the Group focusing on opportunities
which utilise its end-to-end capabilities and large-infrastructure project
experience, as well as only contracting on terms consistent with our
disciplined risk framework
The underlying PFO from Construction Services increased in 2023 by 5%. UK
Construction continued to improve project delivery, making further progress
with its ambition to move towards the top of the 2-3% UK industry standard
margin target range, Gammon achieved strong margins while growing revenue and
US Construction profitability reduced due to the cost of delays at a small
number of civils projects. Support Services had another successful year,
delivering at the top of its 6-8% margin target range, and Infrastructure
Investments achieved its disposal targets. The Directors' valuation of the
Investments portfolio decreased by 6% due to foreign exchange movements and an
increase in discount rates.
Orders continue with improved second half
The Group's 2023 year end order book remains significant at £16.5 billion,
which is 5% lower than 2022 or 2% lower at constant exchange rates. Both the
UK Construction and US Construction order books have remained flat on a local
currency basis, which is encouraging given the high interest rate environment
faced by customers throughout 2023. The second half of the year showed a clear
improvement in orders compared to the first half as interest rates in both
markets stabilised. In the UK, the proportion of the order book signed on
lower risk target-cost or cost-plus contracts compared to higher risk
fixed-price contracts remained high at 82%. In the US, where work is
predominantly contracted on a fixed-price basis, the Group ensures early
issuing of subcontracts for buildings jobs and insurance of the supply chain
in order to protect its margin.
The order book for Gammon has reduced in the year, driven by the acceleration
of major airport project activity in Hong Kong and lower order intake, and
Support Services backlog has grown following the addition of significant road
maintenance contracts. Beyond the reported order book, Balfour Beatty has been
selected as one of ten preferred bidders on SSEN Transmission's c.£10 billion
Accelerated Strategic Transmission Investment (ASTI) framework, with early
works for nine projects underway, and the Group's awarded but not contracted
position remains high, having added notable airport and major road awards in
2023.
Infrastructure disposals completed above Directors' valuation
The Directors' valuation of the Infrastructure Investments portfolio has
reduced to £1.2 billion in 2023 (2022: £1.3 billion), due equally to a
weakening of the US dollar against sterling and an increase in discount rates
given the interest rate environment and market data. The other usual changes
to the valuation, including the equity invested, cash yield received, unwind
of discounting, asset disposals and operational performance all largely
offset.
The two asset disposals completed in the year were sold at above the
Directors' valuation and contributed proceeds of £61 million and a gain on
disposals of £26 million. The Group continues to invest in new opportunities
(targeting a minimum 2x end-to-end multiple) whilst optimising value through
the disposal of further operational assets.
Growth opportunities in chosen markets
The principal markets in which Balfour Beatty operates are showing signs of
continued growth backed by government supported spending that prioritises
modern and reliable infrastructure to support economic growth and help tackle
climate change. In the UK, the requirement for clean and domestically
generated energy is a priority for both the incumbent Conservative party and
Labour opposition and Balfour Beatty is targeting opportunities on both the
supply and demand sides of the energy equation. On supply, steep growth in the
volume of UK power transmission and distribution projects will begin in 2025,
with an acceleration of work to strengthen and stabilise the power networks,
while nuclear, wind, carbon capture and hydrogen projects continue to develop.
On the demand side, given the Group's involvement in HS2, construction of
greener railways is a large part of the Group's UK operations today and the
importance of continued investment in the transport sector is evident for both
political parties. Balfour Beatty has also identified the UK defence and
security infrastructure industry as a growth area, as the Group's capabilities
align well to market opportunities, including projects with close adjacencies
to the work delivered by the Group for civil nuclear.
In the US, the Group's buildings operations are focused primarily on specific,
high growth regions. These areas are population hubs with growth and migration
projected to continue driving increased investment, particularly in
transportation and social infrastructure. The stabilisation of interest rates
and reduced inflation have released some pressure on the commercial office
sector, while other market segments targeted by the Group, such as aviation,
leisure, education and federal, remain strong. In Hong Kong, the Government's
pipeline of infrastructure projects continues to grow, with further major
works announced to increase connectivity within the Greater Bay Area, aligned
to plans to develop the Northern Metropolis.
Retention and investment in capability vital for meeting future demand
Now more than ever, Balfour Beatty is focused on making sure the right people,
culture, policies and procedures are in place to enable sustainable business
performance; prioritising attention on developing an environment where all
employees can perform, grow personally and enjoy coming to work. The Group
operates in markets where there can be tough competition for the best people;
therefore, this is critical to enable the retention and development of
talented experts and attract and recruit the diverse skills and experiences
that the business needs to deliver today and for the future.
The annual employee engagement survey remains the key tool for the Group to
gauge how well it is performing in this space and the 2023 results showed an
improvement for the sixth consecutive year. Overall employee engagement
increased to 81% (2022: 80%). Compared to peers, Balfour Beatty was 7
percentage points above an industry average and 8 percentage points above
companies of a similar size. Aligned to the strong survey results, the Group's
retention rates improved in 2023.
The challenge of attracting talent into construction is industry-wide and
Balfour Beatty, with its size and prominence, can lead the market with its
innovation. The Group has diversified its hiring channels in 2023, with
increased recruitment from talent pools including military talent,
ex-offenders and those from underprivileged backgrounds, while it also
continues with its commitment to train the next generation of employees. At
year-end, 7.4% of the UK workforce were apprentices, graduates and sponsored
students in 'earn and learn' positions, exceeding both The 5% Club's base
target and overall average.
Further work required in journey to Zero Harm
It is a matter of deep regret that two colleagues have tragically lost their
lives in 2023. The Company offers its deepest sympathy and support to their
family, friends and co-workers. To ensure that lessons are learnt from these
events, and with both fatalities being caused in part by stored energy,
Balfour Beatty has established a new Stored Energy Fatal Risk Working Group
and is designing digitally-assured processes to improve controls over such
safety-critical activities.
The Group remains determined that all colleagues who walk onto a Balfour
Beatty site should return home safe and well. While the Group's lagging
indicators of lost time injury rate and accident frequency rate have improved
in 2023, the two fatalities make evident to all the importance of maintaining
focus on health and safety. As such, it is encouraging to see voluntary safety
observations increasing to nearly 400,000 in 2023 and proactive programmes
having an impact on site. In 2023 these included a Slips, Trips and Falls
focus in the UK, which reduced these types of incidents by 33%, and the second
year of the What3Things? conversations, which have focused on a back to basics
approach.
Balfour Beatty is committed to being an innovative leader in the world of
health and safety and launched a programme of digital safety initiatives in
2023, which target improvements in not only the safety of the Group's
construction sites, but also productivity and assurance.
Next steps in sustainability journey
Balfour Beatty's sustainability strategy, Building New Futures, was launched
in 2020 to improve the Group's approach to environment, materials and
communities by setting firm 2030 targets and longer-term ambitions for 2040.
The 2030 targets set were the achievement of a science-based carbon reduction
target, a 40% reduction in waste generated and the delivery of £3 billion in
social value. It also outlines the Group's 2040 ambitions to go Beyond Net
Zero Carbon, to Generate Zero Waste and to Positively Impact More than 1
Million People. In the year, the UK business delivered £936 million of social
value and achieved a 40% reduction in tonnes of waste generated per £million
revenue compared to the restated 2021 baseline. The Group also achieved a 2%
absolute reduction and a 7% intensity reduction in Scope 1 & 2 greenhouse
gas (GHG) emissions.
In 2023, the Group launched its Bridging the Gap action plan, which is
designed to help colleagues focus their efforts on initiatives that will have
the biggest impact in delivering Balfour Beatty's targets and ambitions. By
adopting a uniform approach, Bridging the Gap will also support best practice
and encourage greater collaboration across the organisation whilst setting out
minimum expectations of sustainable leadership, carbon, materials, communities
and biodiversity.
In late 2023, Balfour Beatty formally submitted Science-Based Targets and a
related carbon abatement plan, aligned with the 1.5°C global warming limit.
The Group's submission is awaiting validation by the Science Based Targets
initiative in 2024.
Dividend growth and further share buybacks
The Group's capital allocation framework has been in place since 2021,
facilitating the delivery of attractive shareholder returns, while ensuring
the appropriate balance between investment in the business, and a strong
capital position. When considering the strength of the Group's order book and
balance sheet with the depth of opportunities in its chosen markets, Balfour
Beatty is confident of continuing to deliver significant future shareholder
returns. As such, the Board is today recommending a final dividend of 8.0
pence per share (2022: 7.0 pence), giving a total recommended dividend for the
year of 11.5 pence per share (2022: 10.5 pence). Additionally, the Company
intends to repurchase £100 million of shares during the 2024 phase of its
multi-year share buyback programme, bringing the cumulative return to
shareholders since the introduction in 2021 of the multi-year capital
allocation framework to over £750 million.
The total cash return to shareholders in 2024 (including the final 2023
dividend and 2024 interim dividend) is therefore expected to be c.£160
million.
Outlook
The Board expects an increase in PFO from its earnings-based businesses in
2024, with growth accelerating in 2025.
Infrastructure Investments is expected to continue to deliver attractive
end-to-end returns from its recurring income, by divesting assets and making
new investments in line with the Group's capital allocation framework. For
2024, gains on investment disposals are expected in the range of £20 - £30
million.
The Board expects net finance income of around £30 million for 2024 and for
the effective tax rates in each of the three geographies to remain close to
statutory rates, albeit with cash tax payments in the UK remaining below
statutory levels in the medium term as losses are utilised. Capital
expenditure in 2024 is expected to return closer to pre-2023 levels of around
£35 million and the Group's average cash in 2024 is expected to be roughly in
line with 2023.
The Group's longer-term outlook remains positive and the growth forecast in
2025 and beyond is driven by the opportunities in the energy, transport and
defence sectors in the UK and the Group's chosen buildings sectors in the US.
This gives the Board confidence in Balfour Beatty's continued ability to
deliver profitable managed growth and sustainable cash generation, and in turn
significant ongoing shareholder returns.
RESULTS OVERVIEW
Unless otherwise stated, all commentary in this section and the Divisional
financial reviews is on an underlying basis.
Throughout this report, the Group has presented financial performance measures
which are considered most relevant to Balfour Beatty and are used to manage
the Group's performance. These financial performance measures are chosen to
provide a balanced view of the Group's operations and are considered useful to
investors as these measures provide relevant information on the Group's past
or future performance, position or cash flows. These financial performance
measures are also aligned to measures used internally to assess business
performance in the Group's budgeting process and when determining
compensation. An explanation of the Group's financial performance measures and
appropriate reconciliations to its statutory measures are provided in the
Measuring Our Financial Performance section. Non-underlying items are the
cause of the differences between underlying and statutory profitability.
Additionally, revenue includes the Group's share of revenue of joint ventures
and associates.
Group financial summary
The Group's results for 2023 show a solid performance against a backdrop of
challenging economic conditions. Revenue increased by 7% (8% at constant
exchange rates (CER)) to £9,595 million (2022: £8,931 million) driven by an
increase in Construction Services. Statutory revenue, which excludes joint
ventures and associates, was £7,993 million (2022: £7,629 million).
The underlying profit from operations for the year reduced to £228 million
(2022: £279 million) despite an incremental increase in PFO from the
earnings-based businesses, as gains on investment disposals reduced by £44
million. Corporate activity costs rose in 2023, due largely to higher salaries
following inflationary increases, audit fees and share-based remuneration.
Statutory profit from operations was £211 million (2022: £275 million).
Underlying profit / (loss) from operations(2) 2023 2022
£m £m
UK Construction 69 59
US Construction 51 58
Gammon 36 32
Construction Services 156 149
Support Services 80 83
Earnings-based businesses 236 232
Infrastructure Investments pre-disposals operating profit 5 11
Infrastructure Investments gain on disposals 26 70
Corporate activities (39) (34)
Total underlying profit from operations 228 279
(2) Before non-underlying items (Note 9)
Net finance income of £33 million (2022: £12 million) improved as a result
of higher interest rates. Underlying pre-tax profit was £261 million (2022:
£291 million). The taxation charge on underlying profits increased to £56
million (2022: £1 million) as there were no tax credits relating to the
recognition of additional UK tax losses (2022: £56 million). This resulted in
underlying profit after tax of £205 million (2022: £290 million). Total
statutory profit after tax for the year was £194 million (2022: £287
million), as a result of the net effect of non-underlying items.
Underlying basic earnings per share was 37.3 pence (2022: 47.5 pence), which,
along with a non-underlying loss per share of 2.0 pence (2022: 0.6 pence),
gave a total basic earnings per share of 35.3 pence (2022: 46.9 pence). This
included the benefit from the basic weighted average number of ordinary shares
reducing to 558 million (2022: 612 million) as a result of the Group's share
buyback programme.
Non-underlying items
The Board believes non-underlying items should be separately identified on the
face of the income statement to assist in understanding the underlying
financial performance achieved by the Group.
Non-underlying items after taxation were a net charge of £11 million for the
period (2022: £3 million). Items included a £9 million post-tax charge in
relation to an increase to a provision, which was recognised in 2021 for stone
cladding rectification works, updated to current price expectations, and a £2
million post-tax charge relating to the amortisation of acquired intangible
assets. Further detail is provided in Note 9.
Cash flow performance
The Group's net cash increased by £27 million in the year (2022: £25
million), resulting in a year end net cash position of £842 million (2022:
£815 million), excluding non-recourse net borrowings and lease liabilities.
Operating cash flows were ahead of profit from operations. Cash from
operations, which included a working capital inflow, was largely offset by
shareholder returns and a higher than normal programme of capital expenditure.
2023 was a peak year for capital expenditure, with increased levels of
investment in Support Services to aid the Group's medium-term growth plans.
2024 capital expenditure is expected to be close to 2022 levels.
Cash flow performance 2023 2022
£m £m
Operating cash flows before working capital movements and pension deficit 258 282
payments
Working capital inflow / (outflow) 63 (54)
Pension deficit payments(+) (28) (43)
Cash from operations 293 185
Lease payments (including interest paid) (63) (58)
Dividends from joint ventures and associates(∞) 59 89
Capital expenditure (66) (31)
Share buybacks (151) (151)
Dividends paid (58) (58)
Infrastructure Investments
- disposal proceeds 61 93
- new investments (31) (30)
Other (17) (14)
Net cash movement 27 25
Opening net cash* 815 790
Closing net cash* 842 815
(*)( ) Excluding infrastructure investments (non-recourse) net borrowings and
lease liabilities
(+) Including £3 million (2022: £2 million) of regular funding
(∞) Excluding £1 million (2022: £59 million) dividends received in
relation to Investments asset disposals within joint ventures and associates
Working capital
A working capital inflow of £63 million (2022: £54 million outflow) was
favourable to the outflow previously expected for the year, driven by a spike
in the negative working capital position during the final weeks of December.
The inflow reported for 2023 is not reflective of the trend observed
throughout the year of average negative working capital reducing.
Working capital flows^ 2023 2022
£m £m
Inventories (11) (6)
Net contract assets (48) (137)
Trade and other receivables (73) 34
Trade and other payables 177 57
Provisions 18 (2)
Working capital inflow / (outflow)^ 63 (54)
(^) Excluding impact of foreign exchange and disposals
Including the impact of foreign exchange and non-operating items, negative
(i.e. favourable) current working capital increased to £1,230 million (2022:
£1,167 million). In the medium term, the Group expects negative working
capital as a percentage of revenue to be around the top of its historical long
term average of 11-13% (2023: 15.4%; 2022: 15.3%) with the range continuing to
be dependent on contract mix and the timing of project starts and
completions.
Net cash/borrowings
The Group's average net cash reduced to £700 million in 2023 (2022: £804
million). The Group's year end net cash position, excluding non-recourse net
borrowings and lease liabilities, was £842 million (2022: £815 million).
Non-recourse net borrowings, held in Infrastructure Investments entities
consolidated by the Group, were £264 million (2022: £242 million). The
balance sheet also included £143 million for lease liabilities (2022: £132
million). Statutory net cash at 31 December 2023 was £435 million (2022:
£441 million).
Share buyback
On 3 January 2023, Balfour Beatty commenced an initial £50 million tranche of
its 2023 share buyback programme, which was subsequently increased, following
the release of its 2022 full year results, to £150 million on 20 March 2023.
The Group completed the 2023 share buyback programme on 15 December 2023,
having purchased 43.3 million shares, which were held in treasury. These
shares were subsequently cancelled on 20 December 2023. The Group commenced
the initial £50 million tranche of its 2024 share buyback programme on 2
January 2024.
Banking facilities
In June 2023, the Group completed the refinancing of its core £375 million
revolving credit facility, which was set to expire in October 2024, replacing
it with a new £475 million facility that will expire in June 2027 (the RCF).
The RCF has an extension option for a further year to June 2028, with the
agreement of the lending banks, and its terms and conditions are materially
the same as the prior facility. The RCF is a Sustainability Linked Loan,
retaining the KPIs that featured in the prior facility. The RCF ensures the
Group will retain strong liquidity support from a diverse banking group.
In March 2023, the Group repaid US$209 million of US Private Placement (USPP)
notes as they fell due. The repayment was funded primarily from the proceeds
of debt issuance arranged in 2022, specifically US$158 million of new USPP
notes issued in June 2022 (US$35 million 6.31% notes maturing in June 2027,
US$80 million 6.39% notes maturing in June 2029 and US$43 million 6.45% notes
maturing in June 2032) and a new bilateral committed facility, which expires
in December 2024 and was fully utilised through a US$36 million drawdown in
March 2023. The US$36 million drawdown was repaid in September 2023. This £30
million bilateral facility has an extension option for a further three years
subject to certain specific conditions that were met on the completion of the
refinancing of the Group's core facility in June 2023. As at the end of the
year the Group had not triggered the bilateral facility's extension option.
Going concern
The Directors have considered the Group's medium term cash forecasts and
conducted stress-test analysis on these projections in order to assess the
Group's ability to continue as a going concern. Having also made appropriate
enquiries, the Directors consider it reasonable to assume that the Group has
adequate resources to continue for the period of at least 12 months from the
date of approval of the financial statements and, for this reason, have
continued to adopt the going concern basis in preparing the full year Group
financial statements. Further detail is provided in Note 1.3 Going Concern.
Pensions
Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have
reconfirmed their commitment to a journey plan approach to managing the BBPF
whereby the BBPF is aiming to reach self-sufficiency by 2027. The Company and
the trustees have agreed the 31 March 2022 formal valuation, and as a result
Balfour Beatty paid deficit contributions to the BBPF of £19 million in 2023
and will pay deficit contributions of £24 million in 2024 and £6 million in
2025. The Company and the trustees are making good progress with plans to
reduce the overall risk in the scheme and the Company has agreed that
additional amounts will become payable at £2 million per month from March
2025 if the BBPF's performance is materially different from that expected. The
next formal triennial funding valuation of the BBPF is due with effect from 31
March 2025.
Following the formal triennial funding valuation of the Railways Pension
Scheme (RPS) as at 31 December 2019, the Group agreed to continue to make
deficit contributions of £6 million per annum which should reduce the funding
deficit to zero by 2025. A formal triennial funding valuation of the RPS as at
31 December 2022 is currently ongoing. The trustee and Balfour Beatty have
reached agreement in principle as to the financial and demographic assumptions
to be adopted for the purpose of this valuation, which would include the Group
continuing to make deficit contributions of £6 million per annum until
February 2025.
The Group's balance sheet includes net retirement benefit assets of £69
million (2022: £223 million) as measured on an IAS 19 basis, with the
surpluses on the BBPF (£101 million) and RPS (£3 million) partially offset
by deficits on other schemes (£35 million).
Dividend
The Board is committed to a sustainable ordinary dividend which is expected to
grow over time, targeted at a pay-out ratio of 40% of underlying profit after
tax excluding gains on disposal of Investments assets.
Following the 3.5 pence per ordinary share interim dividend declared at the
half year, the Board is recommending a final dividend of 8.0 pence per share,
giving a total recommended dividend for the year of 11.5 pence per share
(2022: 10.5 pence per share).
DIVISIONAL REVIEWS
CONSTRUCTION SERVICES
Financial review
Revenue at £8,081 million was up 8% (2022: £7,482 million), an 8% increase
at CER, with higher volumes in the UK and Gammon. Underlying profit from
operations increased to £156 million (2022: £149 million) due to improved
profitability in UK Construction and higher volumes at Gammon, partially
offset by reduced profitability in US Construction. Statutory profit for the
year was £143 million (2022: £150 million). The order book reduced by 9% (6%
at CER) in the year to £13.7 billion (2022: £15.0 billion), due to a
reduction at Gammon and foreign exchange movements.
Construction Services 2023 2022
Revenue(1) PFO Order book(1) Revenue(1) PFO Order book(1)
£m £m £bn £m £m £bn
UK Construction 3,027 69 6.1 2,763 59 6.1
US Construction 3,697 51 5.6 3,651 58 6.0
Gammon 1,357 36 2.0 1,068 32 2.9
Underlying(2) 8,081 156 13.7 7,482 149 15.0
Non-underlying - (13) - - 1 -
Total 8,081 143 13.7 7,482 150 15.0
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 9)
A reconciliation of the Group's performance measures to its statutory results
is provided in the Measuring our financial performance section
UK Construction: Revenue in UK Construction increased by 10% to £3,027
million (2022: £2,763 million) driven primarily by higher transport volumes.
UK Construction underlying profit from operations increased to £69 million
(2022: £59 million), driven by higher revenue and improved project delivery.
This represents a 2.3% PFO margin (2022: 2.1%) and demonstrates progress in
the Group's medium term ambition to achieve a 3% PFO margin in UK
Construction, with further improvement expected in 2024.
The UK Construction order book remained flat at £6.1 billion, with 91% of
those orders from public sector and regulated industry clients.
US Construction: Revenue in US Construction increased by 1% (1% at CER) to
£3,697 million (2022: £3,651 million). Underlying profit from operations for
US Construction reduced by 12% to £51 million (2022: £58 million) as a small
number of civils projects have taken longer than initially scheduled. Due to
the fixed-price nature of the contracts, the cost of these delays has impacted
profitability in 2023 and we now expect PFO to be flat in 2024.
The US Construction order book decreased by 7% to £5.6 billion (2022: £6.0
billion) due to foreign exchange movements and was flat at CER. Following a
difficult period for orders in the first half of 2023, the stabilisation of
interest rates has contributed to an improvement in market conditions,
particularly in the commercial office sector, resulting in a stronger period
of order intake in the second half.
Gammon: The Group's share of Gammon's revenue increased by 27% (27% at CER) to
£1,357 million (2022: £1,068 million) driven by an increase in major civils
volumes, including the Terminal 2 expansion at Hong Kong Airport. Underlying
profit increased to £36 million (2022: £32 million) representing a 2.7%
profit margin (2022: 3.0%).
The Group's share of Gammon's order book decreased by 31% (29% at CER) to
£2.0 billion (2022: £2.9 billion) with the accelerated utilisation of the
order book only partially offset by new orders, which included a HK$3.7
billion contract to construct a new development at Cyberport, which is the
largest Fintech community in Hong Kong, from a wholly owned company of the
Hong Kong Special Administrative Region Government.
Operational review
UK Construction
Breadth of opportunities in chosen markets
The next UK general election is expected in the second half of 2024 and both
the incumbent Government and the Opposition have set out their plans to help
accelerate the delivery of critical infrastructure in the UK, which address
industry challenges such as slow decision making, planning delays and the
uncertainty which has hindered private investment. With both the Conservative
and Labour parties recognising the importance of infrastructure development to
economic growth, the outlook for Balfour Beatty in the UK remains positive.
The Group's chosen focus areas in the UK of energy and transportation
infrastructure are high on the priority list for both parties and represented
81% of the Infrastructure and Project Authority's £775 billion National
Infrastructure and Construction Pipeline published in February 2024. In the
same month, the Labour party revised down its previous green investment policy
due to economic pressures, however the new commitment represents an increase
to current levels of spending and does not impact Balfour Beatty's view of the
broad opportunity in the medium term.
Balfour Beatty's end-to-end capabilities position it well to capitalise on the
market opportunities in UK energy security and transition infrastructure.
During 2023, the number of conversations with potential customers and the
volume of work being pursued in this space has grown significantly, aided in
part by favourable fundamentals and Government support. Recent developments
include:
· As part of the 2023 Spring Budget, the UK Government allocated
£20 billion of funding to the development of carbon capture and hydrogen
production technologies. Opportunities include Net Zero Teesside, a
first-of-a-kind integrated power and carbon capture project, for which Balfour
Beatty was involved in the front-end engineering and design study;
· In July, the UK Government stated that up to £20 billion could
be spent on the development and construction of small nuclear reactors (SMR),
and in October, Holtec's SMR-160 pressurised light-water nuclear reactor, for
which Balfour Beatty is the main construction partner, was selected as one of
six designs to progress to the next stage of a government competition for the
development of innovative technology to boost Britain's energy security and
sustainability;
· In January 2024, the Development Consent Order (DCO) for Sizewell
C was triggered and the UK Government made an additional £1.3 billion
available for the new nuclear power station, specifically to support ongoing
preparatory works such as improvements to roads and rail lines around the
Suffolk site.
The Group also continues to pursue opportunities in offshore wind and
hydrogen, and from 2025 onwards, the UK Construction division's civil
engineering expertise is expected to be drawn on further as a result of the
forecast expansion of power transmission and distribution volumes within
Support Services.
In the UK transport sector, the Group's order book was unaffected by the
Government's decision in October 2023 to cancel HS2 Phase 2, as this stage of
the project had yet to be contracted. The Group continues to expect to deliver
material volumes of HS2 work across the balance of the decade and is awaiting
results for its bids submitted in November on four new packages of HS2 work
covering overhead catenary and track installation. Aligned to the cancellation
of HS2 Phase 2, the Government announced Network North, a £36 billion plan to
improve the roads, buses and railways that people use every day. With Balfour
Beatty holding material market positions with both Network Rail and National
Highways, Network North could introduce new opportunities for the Group.
Balfour Beatty was awarded a £1.2 billion contract by National Highways in
January 2023 to deliver the 'Roads North of the Thames' package of works for
the proposed Lower Thames Crossing. As part of the announcement by the UK
transport secretary on 9 March 2023 regarding a £40 billion investment in
transport schemes across 2023-2025, Lower Thames Crossing was delayed by two
years, with the notice to proceed from the Department for Transport now not
expected prior to 2026.
In the UK defence and security sector, in which Balfour Beatty has been a long
term participant, the Group have identified opportunities to grow its market
share at a time when funding is also increasing. The Group's experiences in
civil nuclear construction hold close adjacencies with some of the projects
being tendered, while its end-to-end capabilities can simplify high security
project delivery by reducing complex interfaces. The Ministry of Defence has
£110 billion of funding ringfenced for the Defence Nuclear Enterprise (DNE)
for the ten years to 2033, which will in part be used to upgrade defence
infrastructure, and during 2023, the Group started work at two of the sites
funded by the DNE.
Improved delivery driving margin momentum
Balfour Beatty's market-leading position in the UK infrastructure market is
built on its unmatched scale and vertically integrated capability for
delivering major and regional projects. In 2023, 95% of UK Construction
revenue was from public sector and regulated industry clients (2022: 91%).
Balfour Beatty will continue to be selective in the work that it bids, through
increased bid margin thresholds and utilisation of risk frameworks and
contract governance. To this end, the Group's involvement in the Central
London high-end private sector property market concluded in 2023. Alongside
the Group's focus on reducing the risk within the order book is its
determination to provide industry leading project delivery across the UK
Construction portfolio.
At HS2, the scale and complexity of construction activity continued to grow in
2023. At Area North, the 2,000 tonne tunnel boring machine completed its
second one mile journey underneath an ancient Warwickshire wood, marking the
culmination of a three-year operation, from site set-up to the completion of
the second breakthrough. The team also completed the first Birmingham viaduct
pier in the city centre and three major bridge slides. At Old Oak Common, the
HS2 station in West London, the diaphragm walls and piling to the HS2 Box have
been completed, with over 660,000 tonnes of London clay removed from site
during the year and transported 1.7 miles via conveyor to Willesden
Euroterminal.
At Hinkley Point C, good progress continues to be made on the marine works for
the new nuclear power station. During the year the six vertical liners that
will ultimately connect the previously bored tunnels with the concrete tunnel
heads, which were placed on the seabed in 2022, were safely installed using
specialist marine vessels and equipment. In addition, the side walls of the
bored outfall tunnel were expertly broken through to allow underground mining
works to progress. When all the connections in both the outfall and intake
tunnels are completed, the cooling water system will have the capacity to
circulate 120,000 litres of water per second directly from the sea to the
nuclear power station through the tunnels and underground caverns.
At the Thames Tideway Tunnel project, the Balfour Beatty joint venture's
construction work at Putney has been substantially completed and the new
riverside area created has been opened to the public, and at its main site,
Carnwath Road in Fulham, the team has reached the major milestone of
completing the shafts and tunnel works.
Major Highways is a year into the major improvement scheme at the interchange
between Junction 10 of the M25 and the A3, which is expected to complete in
the summer of 2025. In October, the team enforced a full closure of part of
the A3 over one weekend for the installation of ten 33-metre pre-cast concrete
beams to form a new bridge, which will provide a safer route for walkers,
cyclists, horse-riders, and drivers. This work was completed safely, with the
A3 reopened for traffic four and a half hours earlier than anticipated. The
Major Highways team also completed concrete safety barrier work on the M3 and
M1/A1 in the year and made progress on the A63.
UK Construction currently has around 700 live projects in the portfolio, which
is slightly higher than recent years. During 2023, work was completed on a
wide range of projects including the Mayfield Retirement Village in Watford,
the Forder Valley link road and bridge in Plymouth, the National Treatment
Centre Highland Hospital in Inverness and the Institute for Regeneration and
Repair at the University of Edinburgh. New projects which started in the year
included a new building at the AWE Aldermaston site near Reading, civils work
at Devonport Dockyard in Plymouth, the Central Rhyl Coastal Defence scheme in
North Wales and the Dunfermline Learning Campus for Fife College.
In addition to projects started in the year, work added to the order book in
2023 included the £300 million West Slope student accommodation development a
Sussex University, which is a Balfour Beatty Infrastructure Investments
project, and a £67 million contract for a replacement Liberton High School in
Edinburgh.
US Construction
Interest rate stability aids progress in commercial office sector
Balfour Beatty's US Buildings business accounted for 85% of US Construction
revenues in 2023 (2022: 78%). With most of the projects undertaken by US
Construction contracted on fixed-price terms, Buildings remains the lower risk
business within the division, as the early issuing of subcontracts for works
packages and insurance of the supply chain protects the Group's US margin. The
Buildings business operates in five geographies, each with a different mix of
customers, and therefore the macroeconomic conditions seen throughout the year
have had more of an influence on some areas than others. As a result of this
diversification, the result of the upcoming US election is not expected to
have a material impact on the US Construction business.
During 2023, the education market in California remained strong, while the
federal market in the Mid-Atlantic, and hospitality and aviation markets in
the Southeast, have shown growth. In the Northwest, the technology market has
started to show early signs of recovery, while the business is also servicing
new end-markets. In Texas, where the Group has the majority of its commercial
office exposure, there have been positive signs towards the end of the year
that the impact of inflationary pressures and high interest rates is reducing.
The Group converted US$800 million of commercial office projects from awarded
to contracted in the fourth quarter and with the awarded but not contracted
position remaining significant, an easing of economic pressures should lead to
another strong year of order intake in 2024.
Early successes in US Buildings growth strategy
The US Buildings business has adopted a growth strategy to add further
diversification to its regional businesses. By targeting additional cities in
states with existing Balfour Beatty offices, and broader end-markets in some
regions where the business is already active, new opportunities are being
identified. The new locations were chosen based on market fundamentals and
adjacency to established offices, and include Sacramento in California,
Savannah in Georgia, Charleston in South Carolina, Richmond in Virginia, and
Tampa in Florida. These offices will take time to reach scale, but there are
early signs of promise such as the construction of a three-storey building at
Sierra College in Rocklin, California, an elementary school in Savannah, a
senior living facility in Charleston, a student housing project at The College
of William and Mary near Richmond, and a multifamily housing project in Tampa.
By broadening the regions in which it serves certain end-markets, the US
Buildings business can further utilise its inhouse expertise and customer
relationships held locally to drive organic growth. This has helped secure the
award of over US $1 billion of combined airport work at Raleigh-Durham
International Airport in North Carolina, Jacksonville International Airport in
Florida and Sacramento International Airport in California, which is expected
to be added to the order book in phases when contracted. The Buildings
business is also working on a theme park in Texas and renovations at a theme
park in California, which follow many years of successful construction at
theme parks in Florida, as well as a data centre project in Seattle,
continuing on the successes in Oregon.
Strong delivery and work winning in 2023
During the year, progress has been made on significant Buildings projects
including:
· Substantial completion of Block 216, the fourth tallest building
in Portland, Oregon;
· Topping out of the Broward County Convention Center's East
Expansion and Hotel in Florida;
· Completion of the Icon Marina Village, a group of luxury
apartments in West Palm Beach, Florida;
· Substantial completion of the Del Sol High School in Oxnard,
California;
· Completion of the ilani Casino Hotel in Ridgefield, Washington.
In the year, the Buildings business booked material new phases of existing
contracts and standalone new contract awards including:
· US$350 million of data centres in the US Northwest;
· Two commercial office projects in Texas totalling US$800 million;
· US$480 million of additional Federal work in Washington D.C.
Progress made on major US Civils jobs
The US Civils business focuses on highways projects in Texas and the Southeast
and mass transit rail in major US cities. Order intake improved compared to
the prior year, with additions including a US$242 million design-build
highways contract in North Carolina, however the volume of civils jobs coming
to market and aligned to the Group's capabilities has not increased notably
since the passing of the Inflation Reduction Act in 2022.
Balfour Beatty remains cautious in its approach to complex civils contracts in
the US, as the combination of fixed-price contractual terms and the
self-perform nature of the work gives limited scope to mitigate inflation and
schedule risk. As a result, the Group's civils bidding is focused on those
projects which closely align to its core capabilities.
Progress at the major US Civils projects in 2023 included:
· As part of the LINXS Constructors joint venture at Los Angeles
International Airport, Balfour Beatty achieved energisation of the two
Intermodal Transportation Facilities and the traction power substations;
· At the Caltrain rail project in California, testing of the
electric trains, operated under power from the overhead contact system, has
begun;
· At the Oak Hill Parkway highways project in Texas, the team
completed key traffic switches and opened the new William Cannon Bridge;
· Completion of the US$300 million Tertiary Treatment Facilities
project at the EchoWater Project in California;
· Completion of the US$60 million Harkers Island bridge in North
Carolina a year ahead of schedule. The bridge is the first structure in the
state to utilise non-corroding, carbon fibre reinforced polymer strand and
glass fibre reinforced polymer rebar to combat corrosion in coastal
environments.
Gammon
Strong position in buoyant Hong Kong construction market
Gammon, Balfour Beatty's 50:50 joint venture with Jardine Matheson based in
Hong Kong, has forged a reputation for delivering high quality projects in
Southeast Asia. The business is well placed to capitalise on the high level of
major infrastructure investment in the region, which will bring the
development of additional land, creating significant development opportunities
for both the public and private sectors. The current pipeline of
infrastructure projects is driven by the Hong Kong Government's drive to
increase connectivity within the Greater Bay Area, as it announced three new
strategic railways and three new major roads. It has identified the Northern
Metropolis as a new engine for future development and is exploring the
benefits of developing the Kau Yi Chau Artificial Islands as a third central
business district.
Gammon continues to have a strong share of both the buildings and civils
markets in Hong Kong. In buildings, the focus is on the use of Design for
Manufacture and Assembly (DfMA) and modular construction to improve
productivity and efficiency and expanding the customer base on a selective
basis. In civils, the strategy is to lever engineering excellence, with a key
area of future work likely to be from significant infrastructure programmes in
Hong Kong and in Singapore.
During 2023, Gammon completed a project at Hong Kong International Airport,
which included the construction of a bridge to connect the two islands which
accommodate the airport and the boundary crossing facilities for the Hong
Kong-Zhuhai-Macao bridge. Work continued on two other major projects at the
airport, with completion of the concrete structure for the new Terminal 2
facility and its roof fabrication largely complete, and steady progress on the
tunnel construction and the electrical and mechanical works for the automated
people mover.
At the student hostel project for City University of Hong Kong, which will be
the world's largest student hostel to be constructed using modular integrated
construction (MiC), the final MiC module out of a total of 1,344 was
successfully installed. It resulted in the safe and efficient installation of
all the units in less than eight months.
As part of the Central Kowloon Route project, a 4.7km dual three-lane trunk
road that will enhance connectivity between the east and west Kowloon
districts, Gammon continued to deliver the Kai Tak West tunnelling contract
and the route wide buildings, electrical and mechanical works contract. During
the year, excavation of the second stage of underwater tunnelling was
completed, with work beginning on the construction of the tunnel structure.
New orders in the year included a HK$3.7 billion contract to construct a new
development at Cyberport, which is the largest fintech community in Hong Kong,
from a wholly owned company of the Hong Kong Special Administrative Region
Government.
SUPPORT SERVICES
Financial review
The Support Services business provides power, plant, road and rail maintenance
and is characterised by profitable recurring revenues underpinned by long term
frameworks targeting a PFO margin of 6-8%.
Support Services revenue increased by 2% to £1,006 million (2022: £989
million), mainly due to the commencement of two new major road maintenance
contracts. Underlying profit from operations at £80 million (2022: £83
million) was lower than the prior year, partially due to the new road
contracts incurring additional costs in the start-up phase, as expected. This
resulted in PFO margin of 8.0% in the year (2022: 8.4%), which is at the top
of the targeted 6-8% PFO margin range and represents a further strong year for
the power, road and rail maintenance businesses.
The Support Services order book increased by 17% to £2.8 billion (2022: £2.4
billion) driven by the addition of the £297 million East Sussex road
maintenance contract and the £330 million six-year extension to the
Lincolnshire road maintenance contract.
Support Services 2023 2022
Order book(1) (£bn) 2.8 2.4
Revenue(1) (£m) 1,006 989
Profit from operations(2) (£m) 80 83
Non-underlying items (£m) - -
Statutory profit from operations (£m) 80 83
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 9)
A reconciliation of the Group's performance measures to its statutory results
is provided in the Measuring our financial performance section
Operational review
Market leading position in rapidly growing Power T&D industry
The UK power transmission and distribution construction industry, in which
Balfour Beatty holds a market leading position, is expanding sharply. Due to
the necessity of upgrading the UK's electricity network, Ofgem introduced the
Accelerated Strategic Transmission Investment (ASTI) regulatory framework to
fund the large strategic onshore transmission projects required to deliver the
Government's net zero targets. The £20 billion ASTI fund supports the
accelerated delivery of network upgrades, with an ambition to cut delivery
times in half. This is in addition to the RIIO-T2 spend period (2021-2026)
investment, which includes £30 billion for energy networks and potential for
a further £10 billion on green energy projects.
This has led to Balfour Beatty's power transmission and distribution team
bidding for record levels of work and being selected in August as one of ten
preferred bidders on SSEN Transmission's c.£10 billion ASTI framework. The
Power business has now commenced early contractor involvement works on nine
electricity transmission projects across the north of Scotland under the
framework, which are expected to convert to full awards at a later date, and
has submitted a bid to be included in National Grid's Great Grid Upgrade ASTI
framework. As a result, the Group expects volumes in the Power business to
grow steeply across 2025 and 2026.
Operational highlights delivered by the Power business in 2023 include:
· Completion of SSEN Transmission's first major project under the
RIIO T2 framework, which was energised after Balfour Beatty installed 148 new
steel-lattice towers across a 45km stretch from Port Ann substation near
Lochgilphead to the substation at Crossaig.
· Completion of 116 T-pylon structures for National Grid's Hinkley
Connection Project. The 8.5km underground cable section under the Mendip Hills
Area of Outstanding Natural Beauty (AONB) is now connected to the new line of
T-pylons and also energised and transporting electricity.
· Completion of National Grid and Energinet's record-breaking new
'Viking Link' interconnector, for which Balfour Beatty was responsible for the
onshore cable installation stretching for 67km between Bicker Fen and
Sutton-on-Sea. The link between the UK and Denmark will be able to transport
enough green electricity to power up to 2.5 million UK homes.
In November, Balfour Beatty was awarded a significant scheme by National Grid
to remove 4.6km of overhead high voltage electricity line and replace it with
underground cables in the North Wessex Downs AONB. This is part of National
Grid's Visual Impact Provision (VIP) project to reduce the visual impact of
high voltage power lines in protected areas.
Further opportunities in rail
The rail maintenance market also has a positive trajectory, with the UK
Government's commitment to invest £43 billion (as set out in the Statement of
Funds Available (SoFA)) in operations, maintenance and renewal for the period
2024-2029 as part of Network Rail's Control Period 7 (CP7) strategic business
plan. The cancellation of HS2 Phase 2 may also bring further funding forward
for other rail projects, as pressure grows on the UK Government to direct
investment into the North and Midlands. The Group is particularly focused on
electrification schemes, as part of its ambition to deliver more net zero
infrastructure in the UK.
The Rail business has had a successful year with good work volumes arising on
the Core Valley Lines upgrade project in South Wales and the technically
challenging emergency repairs of Nuneham Viaduct over the River Thames just
south of Oxford, which were completed at pace and ahead of schedule.
Growing market share in road maintenance
The addressable road maintenance market remained positive in 2023. In addition
to local council budgets increasing by around 50% in 2022 following the start
of a five-year £2.7 billion scheme for road patching, the Government
announced in December that £8.3 billion previously allocated to HS2 Phase 2
would be redirected to highway maintenance over the next 11 years. Balfour
Beatty's market share also increased in 2023 as the £176 million eight-year
contract for highways services for Buckinghamshire County Council started in
April and the £297 million seven-year contract for the maintenance of
highways assets and the delivery of infrastructure services across East Sussex
started in May. In the second half of the year, the Group secured a £330
million six-year contract extension with Lincolnshire County Council and a
£54 million two-year extension with Herefordshire County Council.
Looking to the future, there are several Local Authority contracts, like those
won by Balfour Beatty for Buckinghamshire and East Sussex in 2022, coming to
market in the next year for which the Group is well positioned.
INFRASTRUCTURE INVESTMENTS
Financial review
Underlying pre-disposals profit from operations in the year decreased to £5
million (2022: £11 million) due largely to increased costs relating to the
independent compliance monitor's work across the US military housing
portfolio. The sale of two assets delivered a gain on disposal of £26 million
(2022: £70 million) and resulted in underlying profit from operations of £31
million (2022: £81 million).
Balfour Beatty continues to invest in attractive new opportunities, each
expected to meet its investment hurdle rates. In the year, the Group invested
£31 million in new and existing projects with one new student accommodation
project added to the portfolio. Balfour Beatty also continues to sell assets,
timed to maximise benefit to shareholders. Two assets were disposed of in the
second half of the year and delivered £26 million gains on disposal, within
the Group's targeted range of £15 - £30 million. Both transactions were
above the Directors' valuation and total proceeds of £61 million comprised
£56 million from the disposal of the Group's 49.5% interest in UBB Waste
(Gloucestershire) Holdings Limited, the owner of the energy from waste
facility at Javelin Park near Gloucester, and £5 million for its interest in
the Moretti Apartments multifamily housing project in Birmingham, Alabama.
Net investment income of £16 million was £8 million lower than the prior
year (2022: £24 million) due largely to a net £8 million impairment of joint
ventures and associates subordinated debt and accrued interest receivable
(2022: £2 million) as the cost to repair a faulty OFTO cable was provided for
whilst contractual cost recoveries are being pursued. Underlying profit before
tax was £47 million (2022: £105 million) and statutory profit before tax was
£43 million (2022: £100 million).
Infrastructure Investments 2023 2022
£m £m
Pre-disposals operating profit(2) 5 11
Gain on disposals(2) 26 70
Profit from operations(2) 31 81
Net investment income(~) 16 24
Profit before tax(2) 47 105
Non-underlying items (4) (5)
Statutory profit before tax 43 100
(2) Before non-underlying items (Note 9)
(~) Subordinated debt interest receivable, net interest receivable on PPP
financial assets and non-recourse borrowings, fair value (loss)/gain on
investment asset and impairment to subordinated debt receivable and accrued
interest
A reconciliation of the Group's performance measures to its statutory results
is provided in the Measuring our financial performance section
Operational review
Balfour Beatty's competitive expertise to finance, develop, build and maintain
infrastructure puts the Group in a strong position to capitalise on new
investment opportunities, however in challenging market conditions, the
Group's focus must remain on its disciplined approach to investments and
disposals with each expected to meet its investment hurdle rates. The Group is
currently assessing investment opportunities in:
· Student accommodation: Across the UK and US, demand for student
accommodation remains strong as universities continue to improve their
facilities to attract students;
· Residential: Balfour Beatty continues to see attractive US
multifamily housing come to market, providing opportunity to invest profitably
in the regeneration of these properties;
· US P3: The US has become an increasingly exciting market for
public-private partnerships, and, to date, 41 states (plus DC) have passed
legislation allowing P3 projects;
· Energy transition: As the UK's energy mix transitions to more
renewable sources, and the UK adopts more sustainable transport such as
electric vehicles, there are opportunities for private sector investment.
In the UK, the Group has commenced construction of a new student accommodation
project - the 1,899 bedroom West Slope development - on behalf of the
University of Sussex. In addition to £171 million of wrapped bond financing
raised through a private placement, Balfour Beatty will invest equity of £32
million, 81% of the project equity, with the University of Sussex as a
co-investor providing the remaining 19%. The first new student accommodation
and the health and wellbeing centre are expected to be open in time for the
2026/27 academic year, with more accommodation, catering and retail facilities
opening over the following two years. The Group also remains preferred bidder
on a further UK student accommodation project and is investigating
opportunities to invest in off-campus student accommodation.
In the US, the Group added a student accommodation project in Tallahassee,
Florida to the portfolio and started construction on the William & Mary
University project in Virginia, having completed the construction of the
Vanderbilt University student accommodation project for which rentals started
in the Fall 2023 semester.
In US military housing, the Group completed demolition works at Fort Carson as
part of a proposed multi-phase project for the construction of new homes at
the base, with the preparation phase of work underway. This project is an
example of similar upgrade work opportunities likely to be required across the
Group's military housing portfolio. The Group continues to work with the
independent compliance monitor, who was appointed by the Department of Justice
in 2021 and commenced work in 2022.
The Group continued its investment in the UK energy transition with entry into
the on-street Electric Vehicle (EV) charging market, partnering with EV
chargepoint company Urban Electric Networks to form Urban Fox. The partnership
combines Urban Electric Networks' innovative and entrepreneurial spirit with
Balfour Beatty's scale, while building on the Group's experience and
longstanding relationships with local authorities. Urban Fox's innovative 7kW
on-street chargepoint, which is installed into the pavement and fully
retractable underground, is the first of its kind to the market.
Directors' valuation
The Directors' valuation decreased by 6% to £1,212 million (2022: £1,291
million) due equally to a weakening of the US dollar against sterling and an
increase in discount rates. The portfolio is 58% weighted towards the US
(2022: 58%). The number of projects in the portfolio remained at 59 (2022:
59).
Movement in value 2022 to 2023
£m 2022 Equity invested Distributions received Sales proceeds Unwind of discount Operational performance FX 2023
Changes to discount rates
UK 548 9 (20) (56) 38 15 - (25) 509
US 743 22 (28) (5) 49 (16) (43) (19) 703
Total 1,291 31 (48) (61) 87 (1) (43) (44) 1,212
Balfour Beatty invested £31 million (2022: £30 million) in new and existing
projects, with UK investment focused on the Eastwick and Sweetwater
redevelopment and US investment predominantly relating to the addition of a
student accommodation project in Tallahassee, Florida. The West Slope student
accommodation project at the University of Sussex, which reached financial
close in December 2023, has now been included as a separate project.
Cash yield from distributions amounted to £48 million (2022: £89 million).
Balfour Beatty continued disposals in the year with proceeds of £61 million
(2022: £93 million). This comprised £56 million from the sale of its stake
in Gloucestershire Waste PFI, and £5 million from the sale of the Moretti
Apartments multifamily housing project in Birmingham, Alabama.
Unwind of discount at £87 million (2022: £85 million) is a function of
moving the valuation date forward by one year with the result that future cash
flows are discounted by twelve months less.
Operational performance movements resulted in a £1 million decrease (2022:
£139 million increase). The operational performance movements in the UK were
primarily due to a revaluation of a student accommodation project due to
higher than forecast rental increases, and an increase in short term interest
rates. In the US, the decrease arose in the US military housing portfolio due
to increased insurance and independent compliance monitor costs, partially
offset by higher annual rents.
The foreign exchange movement was a £43 million decrease, as sterling
appreciated against the US dollar (2022: £85 million increase).
Methodology and assumption changes
The methodology for valuing most investments in the portfolio remains the
discounted cash flow (DCF) method. Under this methodology cash flows for each
project are forecast based on historical and present performance, future risks
and macroeconomic forecasts. They also factor in secondary market assumptions.
These cash flows are then discounted using different discount rates, which are
based on the risk and maturity of individual projects and reflect secondary
market transaction experience. The main exception to the use of DCF is for US
multifamily housing projects which, due to the perpetual nature of the assets
and the depth and liquidity of the rental housing market, are valued based on
periodic broker reports for each property.
The valuation methodology used at the previous Directors' valuation is
unchanged. The discount rates used for the valuation at 31 December 2023 have
been increased to reflect changes in secondary market discount rates, which
have progressively responded to increases in long term interest rates. As a
result, the implied weighted average discount rate for the UK portfolio
increased by 0.4% to 8.3% (2022: 7.9%) and the implied weighted average
discount rate for the US portfolio increased by 0.2% to 8.1% (2022: 7.9%).
Discount rates applied to the UK portfolio range from 7.25% to 9.25% (2022:
6.75% to 8.75%) depending on the maturity and risk of each project. The
implied weighted average discount rate for the UK portfolio is 8.3% (2022:
7.9%) and a 1% change in the discount rate would change the value of the UK
portfolio by approximately £50 million.
Discount rates applied to the US portfolio range from 6.25% to 10.5% (2022:
6.0% to 10.5%). The implied weighted average discount rate for the US
portfolio is 8.1% (2022: 7.9%) and a 1% change in the discount rate would
change the value of the US portfolio by approximately £77 million.
The portfolio remains positively correlated to inflation. A 1% change in the
long term inflation rate in the UK portfolio would change the valuation by
approximately £26 million and a 1% change in the long term rental growth rate
in the US portfolio would change the valuation by approximately £75 million.
As in previous periods, the Directors' valuation may differ significantly from
the accounting book value of investments shown in the financial statements,
which are produced in accordance with UK-adopted international accounting
standards rather than using a discounted cash flow approach. A full
reconciliation is provided in section i) of the Measuring Our Financial
Performance section.
Sector 2023 2022 2023 2022
No. projects No. projects £m £m
Roads 12 12 168 171
Healthcare 2 2 129 126
Student accommodation 6 5 137 128
Energy transition 4 5 44 101
Other 2 2 31 22
UK total 26 26 509 548
US military housing 21 21 562 615
Student accommodation and other PPP 4 3 83 59
Residential housing 8 9 58 69
US total 33 33 703 743
Total 59 59 1,212 1,291
Value by phase
Phase 2023 2022 2023 2022
No. projects No. projects £m £m
Operations 55 55 1,164 1,239
Construction 3 3 46 47
Preferred bidder 1 1 2 5
Total 59 59 1,212 1,291
Value by income type
Income type 2023 2022 2023 2022
No. projects No. projects £m £m
Availability based 17 17 353 353
Demand - operationally proven (2+ years) 37 36 807 761
Demand - early stage (less than 2 years) 5 6 52 177
Total 59 59 1,212 1,291
MEASURING OUR FINANCIAL PERFORMANCE
Providing clarity on the Group's alternative performance measures
Following the issuance of the Guidelines on Alternative Performance Measures
(APMs) by the European Securities and Markets Authorities (ESMA) in June 2015,
the Group has included this section in this announcement with the aim of
providing transparency and clarity on the measures adopted internally to
assess performance.
Throughout this announcement, the Group has presented financial performance
measures which are considered most relevant to Balfour Beatty and are used to
manage the Group's performance. These financial performance measures are
chosen to provide a balanced view of the Group's operations and are considered
useful to investors as these measures provide relevant information on the
Group's past or future performance, position or cash flows.
The APMs adopted by the Group are also commonly used in the sectors it
operates in and therefore serve as a useful aid for investors to compare
Balfour Beatty's performance to its peers.
The Board believes that disclosing these performance measures enhances
investors' ability to evaluate and assess the underlying financial performance
of the Group's operations and the related key business drivers.
These financial performance measures are also aligned to measures used
internally to assess business performance in the Group's budgeting process and
when determining compensation.
Equivalent information cannot be presented by using financial measures defined
in the financial reporting framework alone.
Readers are encouraged to review this announcement in its entirety.
Performance measures used to assess the Group's operations
Underlying profit from operations (PFO)
Underlying PFO is presented before non-underlying items, finance costs and
investment income and is the key measure used to assess the Group's
performance in the Construction Services and Support Services segments. This
is also a common measure used by the Group's peers operating in
these sectors.
This measure reflects the returns to the Group from services provided in these
operations that are generated from activities that are not financing in
nature and therefore an underlying pre-finance cost measure is more suited to
assessing underlying performance.
Underlying profit before tax (PBT)
The Group assesses performance in its Infrastructure Investments segment using
an underlying PBT measure. This differs from the underlying PFO measure used
to measure the Group's Construction Services and Support Services segments
because in addition to margins generated from operations, there are returns
to the Investments business which are generated from the financing element of
its projects.
These returns take the form of subordinated debt interest receivable, interest
receivable on PPP financial assets and fair value gains
on certain investment assets, which are included in the Group's income
statement in investment income. These are then offset by the finance cost
incurred on the non-recourse debt associated with the underlying projects,
fair value losses on certain investment assets and any impairment of
subordinated debt and accrued interest receivable, which are included in the
Group's income statement in finance costs.
Operating cash flow (OCF)
The Group uses an internally defined measure of OCF to measure the performance
of its earnings-based businesses and subsequently to determine the amount of
incentive awarded to employees in these businesses under the Group's Annual
Incentive Plan (AIP). This measure also aligns to one of the vesting
conditions attributable to the Group's PSP awards.
Measuring the Group's performance
The following measures are referred to in this announcement when reporting
performance, both in absolute terms and also in comparison to earlier years:
Statutory measures
Statutory measures are derived from the Group's reported financial statements,
which have been prepared in accordance with UK-adopted international
accounting standards (IFRS) and in conformity with the requirements of the
Companies Act 2006.
Where a standard allows certain interpretations to be adopted, the Group has
applied its accounting policies consistently. These accounting policies can be
found on pages 190 to 195 of the Annual Report and Accounts 2023.
The Group's statutory measures take into account all of the factors, including
those that it cannot influence (principally foreign currency fluctuations)
and also non-recurring items which do not reflect the ongoing underlying
performance of the Group.
Performance measures
In assessing its performance, the Group has adopted certain non-statutory
measures because, unlike its statutory measures, these cannot be derived
directly from its financial statements.
The Group commonly uses the following measures to assess its performance:
a) Order book
The Group's disclosure of its order book is aimed to provide insight into its
pipeline of work and future performance. The Group's order book is not a
measure of past performance and therefore cannot be derived from its financial
statements.
The Group's order book comprises the unexecuted element of orders on contracts
that have been secured. Where contracts are subject to variations, only
secured contract variations are included in the reported order book.
Where contracts fall under framework agreements, an estimate is made of orders
to be secured under that framework agreement. This is based on historical
trends from similar framework agreements delivered in the past and the
estimate of orders included in the order book is that which is probable to
be secured.
In accordance with IFRS 15 Revenue from Contracts with Customers, the Group is
required to disclose the remaining transaction price allocated to performance
obligations not yet delivered. This can be found in Note 4.3 in the Annual
Report and Accounts 2023. This is similar to the Group's order book
disclosure, however it differs for the following reasons:
· The Group's order book includes its share of orders that are reported
within its joint ventures and associates. In line with section (e), the Board
believes that including orders that are within the pipeline of its joint
ventures and associates better reflects the size of the business and the
volume of work to be carried out in the future. This differs from the
statutory measure of transaction price to be allocated to remaining
performance obligations which is only inclusive of secured revenue from the
Group's subsidiaries.
· As stated above, for contracts that fall under framework agreements,
the Group includes in its order book an estimate of what the orders under
these agreements will be worth. Under IFRS 15, each instruction under the
framework agreement is viewed as a separate performance obligation and is
included in the statutory measure of the remaining transaction price when
received but estimates for future instructions are not.
The Group's order book does not include revenue to be earned in its
Infrastructure Investments segment as the value of this part of the business
is driven by the Directors' valuation of the Investments portfolio. Refer to
section (i).
Reconciliation of order book to transaction price to be allocated to remaining
performance obligations
2023 2022
£m
£m
Order book (performance measure) 16,532 17,390
Less: Share of orders included within the Group's joint ventures and associates (2,344) (3,275)
Less: Estimated orders under framework agreements included in the order book - (25)
disclosure
Add: Transaction price allocated to remaining performance obligations in 1,917 2,009
Infrastructure Investments(+)
Transaction price allocated to remaining performance obligations for the 16,105 16,099
Group(+) (statutory measure)
(+) Refer to Note 4.3 in the Annual Report and Accounts 2023.
b) Underlying performance
The Group adjusts for certain non-underlying items which the Board believes
assists in understanding the performance achieved by the Group. These items
include:
· gains and losses on the disposal of businesses and investments, unless
this is part of a programme of releasing value from the disposal of similar
businesses or investments such as infrastructure concessions;
· costs of major restructuring and reorganisation of existing businesses;
· costs of integrating newly acquired businesses;
· acquisition and similar costs related to business combinations such as
transaction costs;
· impairment and amortisation charges on intangible assets arising on
business combinations (amortisation of acquired intangible assets); and
· impairment of goodwill.
These are non-underlying costs as they do not relate to the underlying
performance of the Group.
From time to time, it may be appropriate to disclose further items as
non-underlying items in order to reflect the underlying performance of the
Group.
Further details of non-underlying items are provided in Note 9.
A reconciliation has been provided below to show how the Group's statutory
results are adjusted to exclude non-underlying items and their impact on its
statutory financial information, both as a whole and in respect of specific
line items.
Reconciliation of 2023 statutory results to performance measures
Non-underlying items
2023 Intangible Provision in relation to rectification works in London 2023 performance
statutory
amortisation
measures
results
£m
£m £m
£m
Revenue including share of joint ventures and associates (performance) 9,595 - - 9,595
Share of revenue of joint ventures and associates (1,602) - - (1,602)
Group revenue (statutory) 7,993 - - 7,993
Cost of sales (7,593) - 12 (7,581)
Gross profit 400 - 12 412
Gain on disposals of interests in investments 24 - - 24
Amortisation of acquired intangible assets (5) 5 - -
Other net operating expenses (261) - - (261)
Group operating profit 158 5 12 175
Share of results of joint ventures and associates 53 - - 53
Profit from operations 211 5 12 228
Investment income 82 - - 82
Finance costs (49) - - (49)
Profit before taxation 244 5 12 261
Taxation (50) (3) (3) (56)
Profit for the year 194 2 9 205
Reconciliation of 2023 statutory results to performance measures by segment
Non-underlying items
Profit/(loss) from operations 2023 Intangible Provision in relation to rectification works in London 2023 performance
statutory
amortisation
measures
results
£m
£m £m
£m
Segment
Construction Services 143 1 12 156
Support Services 80 - - 80
Infrastructure Investments 27 4 - 31
Corporate activities (39) - - (39)
Total 211 5 12 228
Reconciliation of 2022 statutory results to performance measures
Non-underlying items
2022 Intangible Release of Heery provision UK deferred tax assets revaluation 2022 performance
statutory
amortisation
measures
results
£m £m
£m £m
£m
Revenue including share of joint ventures and associates (performance) 8,931 - - - 8,931
Share of revenue of joint ventures and associates (1,302) - - - (1,302)
Group revenue (statutory) 7,629 - - - 7,629
Cost of sales (7,202) - - - (7,202)
Gross profit 427 - - - 427
Amortisation of acquired intangible assets (6) 6 - - -
Other net operating expenses (251) - (2) - (253)
Group operating profit 170 6 (2) - 174
Share of results of joint ventures and associates 105 - - - 105
Profit from operations 275 6 (2) - 279
Investment income 50 - - - 50
Finance costs (38) - - - (38)
Profit before taxation 287 6 (2) - 291
Taxation - 1 - (2) (1)
Profit for the year 287 7 (2) (2) 290
Reconciliation of 2022 statutory results to performance measures by segment
Non-underlying items
Profit/(loss) from operations 2022 Intangible Release of Heery provision 2022 performance
statutory
amortisation
measures
results
£m
£m £m
£m
Segment
Construction Services 150 1 (2) 149
Support Services 83 - - 83
Infrastructure Investments 76 5 - 81
Corporate activities (34) - - (34)
Total 275 6 (2) 279
c) Underlying profit before tax
As explained, the Group's Infrastructure Investments segment is assessed on an
underlying profit before tax (PBT) measure. This is calculated as follows:
2023 2022
£m £m
Underlying profit from operations (section (b) and Note 5) 31 81
Add: Subordinated debt interest receivable(+) 34 27
Add: Interest receivable on PPP financial assets(+) 2 2
Add: Fair value (loss)/gain on investment asset(+) (1) 6
Less: Non-recourse borrowings finance cost(+) (11) (9)
Less: Net impairment of subordinated debt and accrued interest receivable(+) (8) (2)
Underlying profit before tax (performance) 47 105
Non-underlying items (section (b) and Note 5) (4) (5)
Statutory profit before tax 43 100
(+) Refer to Note 7 and Note 8.
d) Underlying earnings per share
In line with the Group's measurement of underlying performance, the Group also
presents its earnings per share (EPS) on an underlying basis. The table below
reconciles this to the statutory earnings per share.
Reconciliation from statutory basic EPS to performance EPS
2023 2022
pence
pence
Statutory basic earnings per ordinary share 35.3 46.9
Amortisation of acquired intangible assets after tax 0.4 1.2
Other non-underlying items after tax 1.6 (0.6)
Underlying basic earnings per ordinary share (performance) 37.3 47.5
e) Revenue including share of joint ventures and associates (JVAs)
The Group uses a revenue measure which is inclusive of its share of revenue
generated from its JVAs. As the Group uses revenue as a measure of the level
of activity performed by the Group, the Board believes that including revenue
that is earned from its JVAs better reflects the size of the business and the
volume of work carried out and more appropriately compares to PFO.
This differs from the statutory measure of revenue which presents Group
revenue from its subsidiaries.
A reconciliation of the statutory measure of revenue to the Group's
performance measure is shown in the tables in section (b). A comparison
of the growth rates in statutory and performance revenue can be found in
section (j).
f) Operating cash flow (OCF)
The table below reconciles the Group's internal performance measure of OCF to
the statutory measure of cash generated from operating activities as reported
in the Group Statement of Cash Flows.
Reconciliation from statutory cash generated from operations to OCF
2023 2022
£m £m
Cash generated from operating activities (statutory) 285 168
Add back: Pension payments including deficit funding (Note 21) 28 43
Less: Repayment of lease liabilities (including lease interest payments) (63) (58)
Add: Operational dividends received from joint ventures and associates 59 89
Add back: Cash flow movements relating to non-operating items 9 (12)
Less: Operating cash flows relating to non-recourse activities (8) (11)
Operating cash flow (OCF) (performance) 310 219
The Group includes/excludes these items to reflect the true cash flows
generated from or used in the Group's operating activities:
Pension payments including deficit funding (£28 million): the Group has
excluded pension payments which are included in the Group's statutory measure
of cash flows from operating activities from its internal OCF measure as these
primarily relate to deficit funding of the Group's main pension fund, Balfour
Beatty Pension Fund (BBPF). The payments made for the deficit funding are in
accordance with an agreed journey plan with the trustees of the BBPF and are
not directly linked to the operational performance of the Group.
Repayment of lease liabilities (including lease interest payments) (£63
million outflow): the payments made for the Group's leasing arrangements are
included in the Group's OCF measure as these payments are made to third-party
suppliers for the lease of assets that are used to deliver services to the
Group's customers, and hence to generate revenue. Under IFRS, these payments
are excluded from the Group's statutory measure of cash flows from operating
activities as these are considered debt in nature under accounting standards.
Operational dividends received from joint ventures and associates (£59
million inflow): dividends received from joint ventures and associates which
are generated from non-disposal activities are included in the Group's OCF
measure as these are cash returns to the Group from cash flows generated from
operating activities within joint ventures and associates. Under IFRS, these
returns are classified as investing activities.
Cash flow movements relating to non-operating items (£9 million): the Group's
OCF measure excludes certain working capital movements that are not directly
attributable to the Group's operating activities.
Operating cash flows relating to non-recourse activities (£8 million): the
Group's OCF measure is specifically targeted to drive performance improvement
in the Group's earnings-based businesses and therefore any operating cash
flows relating to non-recourse activities are removed from this measure. Under
IFRS, there is no distinction between recourse and non-recourse cash flows.
g) Recourse net cash/borrowings
The Group also measures its performance based on its net cash/borrowings
position at the year end. This is analysed by excluding elements that are
non-recourse to the Group as well as lease liabilities.
Non-recourse elements are cash and debt that are ring-fenced within certain
infrastructure concession project companies and are excluded from the
definition of net debt set out in the Group's borrowing facilities. In
addition, lease liabilities which are deemed to be debt in nature under
statutory measures are also excluded from the Group's definition of net
cash/borrowings as these are viewed to be operational in nature reflecting
payments made in exchange for use of assets.
Net cash/borrowings reconciliation
2023 Adjustment 2023 2022 Adjustment 2022
statutory
£m
performance
statutory
£m
performance
£m
£m
£m
£m
Total cash within the Group 1,414 (306) 1,108 1,179 (19) 1,160
Cash and cash equivalents - infrastructure concessions 306 (306) - 19 (19) -
- other 1,108 - 1,108 1,160 - 1,160
Total debt within the Group (979) 713 (266) (738) 393 (345)
Borrowings - non-recourse loans (570) 570 - (261) 261 -
- other (266) - (266) (345) - (345)
Lease liabilities (143) 143 - (132) 132 -
Net cash 435 407 842 441 374 815
h) Average net cash/borrowings
The Group uses an average net cash/borrowings measure as this reflects its
financing requirements throughout the year. The Group calculates its average
net cash/borrowings based on the average opening and closing figures for each
month through the year.
The average net cash/borrowings measure excludes non-recourse cash and debt
and lease liabilities, and this performance measure shows average net cash of
£700 million for 2023 (2022: £804 million).
Using a statutory measure (inclusive of non-recourse elements and the lease
liabilities recognised) gives average net cash of £438 million for 2023
(2022: £430 million).
i) Directors' valuation of the Investments portfolio
The Group uses a different methodology to assess the value of its Investments
portfolio. As described in the Directors' valuation section, the Directors'
valuation for most of the investments in the portfolio has been undertaken
using forecast cash flows for each project on an asset by asset basis, based
on progress to date and market expectations of future performance. These cash
flows have been discounted using different discount rates depending on project
risk and maturity, reflecting secondary market transaction experience. As
such, the Board believes that this measure better reflects the potential
returns to the Group from those investments. The Directors have valued the
Investments portfolio at £1.21 billion at year end (2022: £1.29 billion).
The Directors' valuation will differ from the statutory carrying value of
these investments, which are accounted for using the relevant standards in
accordance with IFRS rather than a discounted cash flow approach.
Reconciliation of the net assets of the Infrastructure Investments segment to
the comparable statutory measure of the Investments portfolio included in the
Directors' valuation
2023 2022
£m £m
Net assets of the Infrastructure Investments segment (refer to Note 5.1) 596 593
Less: Net assets not included within the Directors' valuation - Housing (53) (30)
division
Comparable statutory measure of the Investments portfolio under IFRS 543 563
Comparison of the statutory measure of the Investments portfolio to its
performance measure
2023 2022
£m £m
Statutory measure of the Investments portfolio (as above) 543 563
Difference arising from the Directors' valuation being measured on a 669 728
discounted cash flow basis compared to the statutory measure primarily derived
using a combination of the following IFRS bases:
· historical cost
· amortised cost
· fair value
Directors' valuation (performance measure) 1,212 1,291
The difference between the statutory measure and the Directors' valuation
(performance measure) of the Group's Investments portfolio is not equal to the
gain on disposal that would result if the portfolio was fully disposed at the
Directors' valuation. This is because the gain/loss on disposal would be
affected by the recycling of items which were previously recognised directly
within reserves, which are material and can alter the resulting gain/loss on
disposal.
The statutory measure and the Directors' valuation are fundamentally different
due to the different methodologies used to derive the valuation of these
assets within the Investments portfolio.
As referred to in the Directors' valuation section, the Directors' valuation
for most investments is calculated using discounted cash flows. In deriving
these cash flows, assumptions have been made and different discount rates used
which are updated at each valuation date.
Unlike the Directors' valuation, the assets measured under statutory measures
using the appropriate IFRS accounting standards are valued using a combination
of the following methods:
· historical cost;
· amortised cost; and
· fair value for certain assets and liabilities within the PPP portfolio,
for which some assumptions are set at inception and some are updated at each
valuation date.
There is also an element of the Directors' valuation that is not represented
by an asset in the Group's balance sheet. This relates to the management
services contracts within the Investments business that are valued in the
Directors' valuation based on the future income stream expected from these
contracts.
j) Constant exchange rates (CER)
The Group operates across a variety of geographic locations and in its
statutory results, the results of its overseas entities are translated into
the Group's presentational currency at average rates of exchange for the year.
The Group's key exchange rates applied in deriving its statutory results are
shown in Note 4.
To measure changes in the Group's performance compared with the previous year
without the effects of foreign currency fluctuations, the Group provides
growth rates on a CER basis. These measures remove the effects of currency
movements by retranslating the prior year's figures at the current year's
exchange rates, using average rates for revenue and closing rates for order
book. A comparison of the Group's statutory growth rate to the CER growth rate
is provided in the table below:
2023 statutory growth compared to performance growth
Construction Services
UK US Gammon Total Support Services Infrastructure Investments Total
Revenue (£m)
2023 statutory 3,027 3,668 - 6,695 1,006 292 7,993
2022 statutory 2,763 3,646 - 6,409 988 232 7,629
Statutory growth 10% 1% - 4% 2% 26% 5%
2023 performance(^) 3,027 3,697 1,357 8,081 1,006 508 9,595
2022 performance retranslated(^) 2,763 3,647 1,066 7,476 989 460 8,925
Performance CER growth 10% 1% 27% 8% 2% 10% 8%
Order book (£bn)
2023 6.1 5.6 2.0 13.7 2.8 - 16.5
2022 6.1 6.0 2.9 15.0 2.4 - 17.4
Growth - (7)% (31)% (9)% 17% - (5)%
2023 6.1 5.6 2.0 13.7 2.8 - 16.5
2022 retranslated 6.1 5.6 2.8 14.5 2.4 - 16.9
CER growth - - (29)% (6)% 17% - (2)%
^ Performance revenue is underlying revenue including share of revenue from
joint ventures and associates as set out in section (e).
Forward-looking statements
This announcement, including information included or incorporated by reference
in it, may include certain forward-looking statements, beliefs or opinions,
including statements with respect to Balfour Beatty's business, financial
condition and results of operations. All statements other than statements of
historical facts included in this announcement may be forward-looking
statements.
These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "estimates",
"plans", "anticipates", "targets", "aims", "continues", "expects", "intends",
"hopes", "may", "will", "would", "could" or "should" or, in each case, their
negative or other various or comparable terminology. These statements are made
by Balfour Beatty
in good faith based on the information available to it at the date of this
announcement and reflect the beliefs and expectations of Balfour Beatty. By
their nature, forward-looking statements involve known and unknown risks and
uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future.
A number of factors could cause actual results and developments to differ
materially from those expressed or implied by the forward-looking statements,
including, without limitation, developments in the global economy, changes in
UK and US Government policies, spending and procurement methodologies, failure
in Balfour Beatty's health, safety or environmental policies and those factors
set out under Principal Risks on pages 96 to 103 of the Annual Report and
Accounts 2023.
No representation or warranty is made that any of these statements or
forecasts will come to pass or that any forecast results will be achieved, and
projections are not guarantees of future performance. Forward-looking
statements speak only as at the date of this announcement and Balfour Beatty
and its advisers expressly disclaim any obligations or undertaking to release
any update of, or revisions to, any forward-looking statements in this
announcement. No statement in this announcement is intended to be, or intended
to be construed as, a profit forecast or profit estimate or to be interpreted
to mean that Balfour Beatty plc's earnings per share for the current or future
financial years will necessarily match or exceed the historical earnings per
share for Balfour Beatty plc. As a result, you are cautioned not to place any
undue reliance on such forward-looking statements.
Group Income Statement
For the year ended 31 December 2023
2023 2022
Notes Underlying Non-underlying items Total Underlying Non-underlying Total
items(1) (Note 9) £m items(1) items £m
£m £m £m (Note 9)
£m
Revenue including share of joint ventures and associates 9,595 - 9,595 8,931 - 8,931
Share of revenue of joint ventures and associates 15 (1,602) - (1,602) (1,302) - (1,302)
Group revenue 7,993 - 7,993 7,629 - 7,629
Cost of sales (7,581) (12) (7,593) (7,202) - (7,202)
Gross profit/(loss) 412 (12) 400 427 - 427
Gain on disposals of interests in investments 23.2 24 - 24 - - -
Amortisation of acquired intangible assets 14 - (5) (5) - (6) (6)
Other net operating (expenses)/income (261) - (261) (253) 2 (251)
Group operating profit/(loss) 175 (17) 158 174 (4) 170
Share of results of joint ventures and associates excluding gain on disposals 51 - 51 35 - 35
of interests in investments
Gain on disposals of interests in investments 23.2 2 - 2 70 - 70
Share of results of joint ventures and associates 15 53 - 53 105 - 105
Profit/(loss) from operations 228 (17) 211 279 (4) 275
Investment income 7 82 - 82 50 - 50
Finance costs 8 (49) - (49) (38) - (38)
Profit/(loss) before taxation 261 (17) 244 291 (4) 287
Taxation 10 (56) 6 (50) (1) 1 -
Profit/(loss) for the year 205 (11) 194 290 (3) 287
Attributable to
Equity holders 208 (11) 197 291 (3) 288
Non-controlling interests (3) - (3) (1) - (1)
Profit/(loss) for the year 205 (11) 194 290 (3) 287
(1) Before non-underlying items (Note 9).
Notes 2023 pence 2022 pence
Earnings per share
- basic 11 35.3 46.9
- diluted 11 34.8 46.3
Dividends per share proposed for the year 12 11.5 10.5
Group Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
Group Share of joint ventures and associates Total Group Share of Total
£m £m £m £m joint £m
ventures
and associates
£m
Profit for the year 141 53 194 182 105 287
Other comprehensive (loss)/income for the year
Items which will not subsequently be reclassified to the income statement
Actuarial (losses)/gains on retirement benefit assets/liabilities (197) (1) (198) (52) 1 (51)
Fair value revaluations of investments in mutual funds measured at fair value 1 - 1 - - -
through OCI(+)
Tax on above 49 - 49 20 - 20
(147) (1) (148) (32) 1 (31)
Items which will subsequently be reclassified to the income statement
Currency translation differences (17) (13) (30) 32 23 55
Fair value revaluations - PPP financial assets - 20 20 (3) (124) (127)
- cash flow hedges - 2 2 3 29 32
- investments in mutual funds measured at fair value through OCI - - - (5) - (5)
Recycling of revaluation reserves to the income statement on disposal(^) - (3) (3) - (3) (3)
Tax on above (1) (5) (6) (1) 25 24
(18) 1 (17) 26 (50) (24)
Total other comprehensive (loss)/income for the year (165) - (165) (6) (49) (55)
Total comprehensive income for the year (24) 53 29 176 56 232
Attributable to
Equity holders 32 233
Non-controlling interests (3) (1)
Total comprehensive income for the year 29 232
(^) Recycling of revaluation reserves to the income statement on disposal has
no associated tax effect.
(+) Fair value revaluations of investments in mutual funds are measured at
fair value through OCI and are not reclassified to the income statement on
disposal. Prior year comparatives have not been re-presented.
Group Statement of Changes in Equity
For the year ended 31 December 2023
Called-up Share Capital Share Other reserves (µ) Retained Non- Total
share premium redemption of joint £m profits controlling £m
capital account reserve ventures' £m interests
£m £m £m and £m
associates'
reserves
£m
At 1 January 2022 345 176 1 72 144 631 7 1,376
Total comprehensive income/(loss) for the year - - - 56 25 152 (1) 232
Ordinary dividends - - - - - (58) - (58)
Joint ventures' and associates' dividends - - - (148) - 148 - -
Non-controlling interests' dividends - - - - - - (1) (1)
Purchase of treasury shares - - - - - (151) - (151)
Cancellation of ordinary shares (51) - 51 - - - - -
Movements relating to share-based payments(+) - - - - 1 (16) - (15)
At 31 December 2022 294 176 52 (20) 170 706 5 1,383
Total comprehensive income/(loss) for the year - - - 53 (17) (4) (3) 29
Ordinary dividends - - - - - (58) - (58)
Joint ventures' and associates' dividends - - - (60) - 60 - -
Purchase of treasury shares - - - - - (151) - (151)
Cancellation of ordinary shares (22) - 22 - - - - -
Movements relating to share-based payments(+) - - - - 4 (7) - (3)
Capital contribution - - - - - - 8 8
At 31 December 2023 272 176 74 (27) 157 546 10 1,208
(µ) Other reserves include £22m of special reserve (2022: £22m).
(+) Movements relating to share-based payments include £nil tax credit (2022:
£2m) recognised directly within retained profits.
Group Balance Sheet
At 31 December 2023
Notes 2023 2022
£m
£m
Non-current assets
Intangible assets - goodwill 13 845 876
- other 14 288 292
Property, plant and equipment 141 104
Right-of-use assets 135 127
Investment properties 66 27
Investments in joint ventures and associates 15 389 426
Investments 28 40
PPP financial assets 24 26
Trade and other receivables 17 308 286
Retirement benefit assets 21 104 262
Deferred tax assets 188 176
2,516 2,642
Current assets
Inventories 124 114
Contract assets 16.1 300 300
Trade and other receivables 17 894 881
Cash and cash equivalents - infrastructure investments 20.3 306 19
- other 20.3 1,108 1,160
Current tax receivable 16 6
Derivative financial instruments 1 1
2,749 2,481
Total assets 5,265 5,123
Current liabilities
Contract liabilities 16.2 (600) (663)
Trade and other payables 18 (1,734) (1,595)
Provisions 19 (216) (204)
Borrowings - non-recourse loans 20.3 (9) (30)
- other 20.3 (104) (173)
Lease liabilities (50) (49)
Current tax payable (6) (8)
(2,719) (2,722)
Non-current liabilities
Contract liabilities 16.2 (2) (2)
Trade and other payables 18 (122) (141)
Provisions 19 (201) (197)
Borrowings - non-recourse loans 20.3 (561) (231)
- other 20.3 (162) (172)
Lease liabilities (93) (83)
Retirement benefit liabilities 21 (35) (39)
Deferred tax liabilities (160) (152)
Derivative financial instruments (2) (1)
(1,338) (1,018)
Total liabilities (4,057) (3,740)
Net assets 1,208 1,383
Equity
Called-up share capital 272 294
Share premium account 176 176
Capital redemption reserve 74 52
Share of joint ventures' and associates' reserves (27) (20)
Other reserves 157 170
Retained profits 546 706
Equity attributable to equity holders of the parent 1,198 1,378
Non-controlling interests 10 5
Total equity 1,208 1,383
Group Statement of Cash Flows
For the year ended 31 December 2023
Notes 2023 2022
£m
£m
Cash flows from operating activities
Cash from operations 293 185
Income taxes paid (8) (17)
Net cash from operating activities 285 168
Cash flows from investing activities
Dividends received from:
- joint ventures and associates - infrastructure investments 24 114
- joint ventures and associates - other 36 34
- other investments 3 4
Interest received - infrastructure investments - joint ventures 7 10
Interest received subsidiaries - infrastructure investments 4 7
- other 33 -
Acquisition of businesses 23.1 - (3)
Purchases of: - intangible assets - infrastructure investments (30) (1)
- property, plant and equipment (66) (31)
- investment properties (42) -
- other investments (2) (7)
Investments in and long-term loans to joint ventures and associates (14) (29)
Return of equity from joint ventures and associates 4 34
PPP financial assets cash expenditure (2) (2)
PPP financial assets cash receipts 6 5
Disposals of: - investments in joint ventures - infrastructure investments 56 -
- investments in joint ventures - other - 1
- property, plant and equipment - other 4 8
- other investments 12 2
Net cash from investing activities 33 146
Cash flows used in financing activities
Purchase of ordinary shares (18) (25)
Purchase of treasury shares (151) (151)
Proceeds from new loans relating to: - infrastructure investments assets 20.4 336 8
- other 20.4 28 130
Repayments of loans relating to: - infrastructure investments assets 20.4 (8) (7)
- other 20.4 (197) -
Repayment of lease liabilities (57) (52)
Ordinary dividends paid 12 (58) (58)
Other dividends paid - non-controlling interests - (1)
Capital contribution - non-controlling interests 8 -
Interest paid - infrastructure investments (11) (9)
Interest paid - other (30) (24)
Net cash used in financing activities (158) (189)
Net increase in cash and cash equivalents 160 125
Effects of exchange rate changes (29) 55
Cash and cash equivalents at beginning of year 1,179 999
Cash and cash equivalents at end of year 20.2 1,310 1,179
Notes to the financial statements
1 Basis of accounting
The annual financial statements have been prepared on a going concern basis in
accordance with UK-adopted international accounting standards and in
conformity with the requirements of the Companies Act 2006 (the Act). The
presentational currency of the Group is sterling.
The financial information in this announcement, which was approved by the
Board of Directors on 12 March 2024, does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022, but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the Registrar of Companies and those for 2023 will be delivered following
the Company's Annual General Meeting. The auditor has reported on the 2023
accounts; the report is unqualified, did not draw attention to any matters by
way of emphasis without qualifying the report and did not contain statements
under Section 498(2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Company expects to
publish full financial statements for the Group that comply with IFRS in April
2024.
2 Going concern
The Directors consider it reasonable to assume that the Group has adequate
resources to continue for the foreseeable future and, for this reason, have
continued to adopt the going concern basis in preparing the financial
statements.
The key financial risk factors for the Group remain largely unchanged. The
Group's principal risks and the consequent impact these might have on the
Group as well as mitigations that are in place are detailed on pages 96 to 103
of the Annual Report and Accounts 2023.
The Group's US private placement and committed bank facilities contain certain
financial covenants, such as the ratio of the Group's EBITDA to its net debt
which needs to be less than 3.0 and the ratio of its EBITA to net borrowing
costs which needs to be in excess of 3.0. These covenants are tested on a
rolling 12-month basis as at the June and December reporting dates. At 31
December 2023, both these covenants were passed as the Group had net cash and
net interest income from a covenant test perspective.
The Directors have carried out an assessment of the Group's ability to
continue as a going concern for the period of at least 12 months from the date
of approval of the financial statements. This assessment has involved the
review of medium-term cash forecasts of each of the Group's operations. The
Directors have also considered the strength of the Group's order book which
amounted to £16.5bn at 31 December 2023 and will provide a pipeline of
secured work over the going concern assessment period. These base case
projections indicate that the headroom provided by the Group's strong cash
position and the debt facilities currently in place is adequate to support the
Group over the going concern assessment period.
At 31 December 2023, the Group's only debt, other than non-recourse borrowings
ring-fenced within certain concession companies, comprised US private
placement (USPP) notes. Of the USPP notes issued in 2013, US$209m matured in
March 2023 and the remaining US$50m will mature in March 2025. The Group
raised US$158m in June 2022 through the issue of new USPP notes which will
mature in tranches in 2027, 2029 and 2032. In December 2022, the Group secured
a new £30m bilateral committed facility which was undrawn at 31 December 2023
and expires in December 2024; the Group retains an option to extend the
maturity of the facility to December 2027. In March 2023, the funds raised
through the new USPP notes issuance and the new bilateral committed facility
were utilised towards repayment of the US$209m USPP notes. The US$36m drawn
under the bilateral committed facility was repaid in September 2023.
The Group's £475m committed sustainability linked bank facility which was
signed in June 2023, remained undrawn at 31 December 2023 and remains fully
available to the Group until June 2027. At the first anniversary of the
facility (June 2024), the Group has an option to extend the maturity of the
facility to June 2028, with the consent of the lending banks.
2 Going concern continued
The Directors have stress-tested the Group's base case projections of both
cash and profit against key sensitivities which could materialise as a result
of adverse changes in the economic environment including a deterioration in
commercial or operational conditions. The Group has sensitised its projections
against severe but plausible downside scenarios which include:
· elimination of a portion of unsecured work assumed within the Group's
base case projections and a delay of six months for any awarded but not yet
contracted work;
· a deterioration of contract judgements and restriction of a portion of
the Group's margins; and
· delay in the disposal of Investments assets by 12 months.
In the severe but plausible downside scenarios modelled, the Group continues
to retain sufficient headroom on liquidity throughout the going concern
period. Through these downside scenarios, the Group is still expected to be in
a net cash position and to remain within its banking covenants through the
going concern assessment period.
Based on the above and having made appropriate enquiries, the Directors
consider it reasonable to assume that the Group has adequate resources to
continue for the going concern period and, for this reason, have continued to
adopt the going concern basis in preparing the financial statements.
3 Accounting policies
3.1 Adoption of new and revised standards
The following accounting standards, interpretations and amendments have been
adopted by the Group in the year ended 31 December 2023:
· IFRS 17 Insurance Contracts
· Amendments to the following standards:
o IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2:
Disclosure of Accounting Policies
o IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors:
Definition of Accounting Estimates
o IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
o IAS 12 Incomes Taxes: International Tax Reform - Pillar Two Model Rules
o IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 -
Comparative Information
These new and amended standards did not have a material effect on the Group.
3.2 Accounting standards not yet adopted by the Group
The following accounting standards, interpretations and amendments have been
issued by the IASB but had either not been adopted by the UK or were not yet
effective in the UK at 31 December 2023:
· Amendments to the following standards:
o IAS 1 Presentation of Financial Statements: Classification of Liabilities
as Current or Non-current
o IAS 1 Presentation of Financial Statements: Non-current Liabilities with
Covenants
o IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures: Supplier Finance Arrangements
o IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of
Exchangeability
o IFRS 16 Leases: Lease Liability in a Sale and Leaseback
The Directors do not expect the standards above to have a material effect on
the Group and have chosen not to adopt any of the above standards and
interpretations earlier than required.
3.3 Judgements and key sources of estimation uncertainty
The Group's principal judgements and key sources of estimation uncertainty are
set out in Note 2.27 of the Annual Report and Accounts 2023.
4 Exchange rates
The following key exchange rates were applied in the financial statements.
Average rates
£1 buys 2023 2022 Change
US$ 1.24 1.24 -
HK$ 9.73 9.72 0.1%
Closing rates
£1 buys 2023 2022 Change
US$ 1.27 1.20 5.8%
HK$ 9.95 9.39 6.0%
5 Segment analysis
Reportable segments of the Group:
Construction Services - activities resulting in the physical construction of
an asset
Support Services - activities which support existing assets or functions such
as asset maintenance and refurbishment
Infrastructure Investments - acquisition, operation and disposal of
infrastructure assets such as roads, hospitals, student accommodation,
military housing, multifamily residences, offshore transmission networks,
waste and biomass and other concessions. This segment also includes the
Group's housing development division.
5.1 Total Group Construction Support Infrastructure Corporate Total
Income statement - performance by activity Services Services Investments activities
2023 2023 2023 2023 2023
£m £m £m £m £m
Revenue including share of joint ventures and associates 8,081 1,006 508 - 9,595
Share of revenue of joint ventures and associates (1,386) - (216) - (1,602)
Group revenue 6,695 1,006 292 - 7,993
Group operating profit/(loss)(1) 120 80 14 (39) 175
Share of results of joint ventures and associates 36 - 17 - 53
Profit/(loss) from operations(1) 156 80 31 (39) 228
Non-underlying items:
- provision recognised for rectification works to be carried out on a (12) - - - (12)
development in London
- amortisation of acquired intangible assets (1) - (4) - (5)
(13) - (4) - (17)
Profit/(loss) from operations 143 80 27 (39) 211
Investment income 82
Finance costs (49)
Profit before taxation 244
(1) Before non-underlying items (Note 9).
Construction Support Infrastructure Corporate Total
Income statement - performance by activity Services Services Investments activities
2022 2022 2022 2022 2022
£m £m £m £m £m
Revenue including share of joint ventures and associates 7,482 989 460 - 8,931
Share of revenue of joint ventures and associates (1,073) (1) (228) - (1,302)
Group revenue 6,409 988 232 - 7,629
Group operating profit/(loss)(1) 129 83 (4) (34) 174
Share of results of joint ventures and associates 20 - 85 - 105
Profit/(loss) from operations(1) 149 83 81 (34) 279
Non-underlying items:
- amortisation of acquired intangible assets (1) - (5) - (6)
- other non-underlying items 2 - - - 2
1 - (5) - (4)
Profit/(loss) from operations 150 83 76 (34) 275
Investment income 50
Finance costs (38)
Profit before taxation 287
(1) Before non-underlying items (Note 9).
5 Segment analysis continued
5.1 Total Group continued
Construction Support Infrastructure Corporate Total
Assets and liabilities by activity Services Services Investments activities
2023 2023 2023 2023 2023
£m £m £m £m £m
Contract assets 203 69 28 - 300
Contract liabilities - current (506) (90) (4) - (600)
Inventories 45 25 54 - 124
Trade and other receivables - current 768 73 33 20 894
Trade and other payables - current (1,491) (176) (48) (19) (1,734)
Provisions - current (187) (4) (7) (18) (216)
Working capital* (1,168) (103) 56 (17) (1,232)
Total assets 2,168 459 1,260 1,378 5,265
Total liabilities (2,484) (385) (664) (524) (4,057)
Net assets (316) 74 596 854 1,208
* Includes non-operating items and current working capital.
Assets and liabilities by activity Construction Support Infrastructure Corporate Total
Services Services Investments activities
2022 2022 2022 2022 2022
£m £m £m £m £m
Contract assets 209 62 29 - 300
Contract liabilities - current (550) (112) (1) - (663)
Inventories 50 32 32 - 114
Trade and other receivables - current 730 91 37 23 881
Trade and other payables - current (1,374) (171) (44) (6) (1,595)
Provisions - current (179) (3) (8) (14) (204)
Working capital* (1,114) (101) 45 3 (1,167)
Total assets 2,342 443 940 1,398 5,123
Total liabilities (2,421) (378) (347) (594) (3,740)
Net assets (79) 65 593 804 1,383
* Includes non-operating items and current working capital.
5 Segment analysis continued
5.1 Total Group continued
Other information Construction Support Infrastructure Corporate Total
Services Services Investments activities
2023 2023 2023 2023 2023
£m £m £m £m £m
Capital expenditure on property, plant and equipment 8 47 - 11 66
Capital expenditure on intangible assets (Note 14) - - 30 - 30
Depreciation 28 48 2 9 87
Gain on disposals of interests in investments (Note 23.2) - - 24 - 24
Gain on disposals of interests in investments within joint ventures and - - 2 - 2
associates (Note 23.2)
2022 2022 2022 2022 2022
£m £m £m £m £m
Capital expenditure on property, plant and equipment 13 15 - 3 31
Capital expenditure on intangible assets (Note 14) - - 1 - 1
Depreciation 30 41 2 10 83
Gain on disposals of interests in investments within joint ventures and - - 70 - 70
associates
Performance by geographic destination United United Rest of
Kingdom States world Total
2023 2023 2023 2023
£m £m £m £m
Revenue including share of joint ventures and associates 4,192 4,035 1,368 9,595
Share of revenue of joint ventures and associates (101) (138) (1,363) (1,602)
Group revenue 4,091 3,897 5 7,993
2022 2022 2022 2022
£m £m £m £m
Revenue including share of joint ventures and associates 3,894 3,954 1,083 8,931
Share of revenue of joint ventures and associates (98) (130) (1,074) (1,302)
Group revenue 3,796 3,824 9 7,629
( )
5.2 Infrastructure Investments
Group Share of joint Total Group Share of joint Total
2023 ventures and 2023 2022 ventures and 2022
£m associates £m £m associates £m
Underlying profit/(loss) from operations(1) (Note 15)(+) (Note 15)(+)
2023 2022
£m £m
UK^ (1) 3 2 3 1 4
North America 7 12 19 18 14 32
Gain on disposals of interests in investments 24 2 26 - 70 70
30 17 47 21 85 106
Bidding costs and overheads (16) - (16) (25) - (25)
14 17 31 (4) 85 81
(+) The Group's share of the results of joint ventures and associates is
disclosed net of investment income, finance costs and taxation.
(^) Including Ireland
(1) Before non-underlying items (Note 9).
6. Revenue
6.1 Nature of services provided
6.1.1 Construction Services
The Group's Construction Services segment encompasses activities in relation
to the physical construction of assets provided to public and private
customers. Revenue generated in this segment is measured over time as control
passes to the customer as the asset is constructed. Progress is measured by
reference to the cost incurred on the contract to date compared to the
contract's end of job forecast (the input method). Payment terms are based on
a schedule of value that is set out in the contract and fairly reflect the
timing and performance of service delivery. Contracts with customers are
typically accounted for as one performance obligation (PO).
Types of assets Typical contract length Nature, timing of satisfaction of performance obligations and significant
payment terms
Buildings 12 to 36 months The Group constructs buildings which include commercial, healthcare,
education, retail and residential assets. As part of its construction
services, the Group provides a range of services including design and/or
build, mechanical and electrical engineering, shell and core and/or fit-out
and interior refurbishment. The Group's customers in this area are a mix of
private and public entities.
The contract length depends on the complexity and scale of the building and
contracts entered into for these services are typically fixed price.
In most instances, the contract with the customer is assessed to only contain
one PO as the services provided by the Group, including those where the Group
is also providing design services, are highly interrelated. However, for
certain types of contracts, services relating to fit-out and interior
refurbishment may sometimes be assessed as a separate PO.
Infrastructure 1 to 3 months for small-scale infrastructure works The Group provides construction services for three main types of
infrastructure assets: highways, railways and other large-scale infrastructure
24 to 60 months for large-scale complex construction assets such as waste, water and energy plants.
Highways represent the Group's activities in constructing motorways in the UK,
US and Hong Kong. This includes activities such as design and construction of
roads, widening of existing motorways or converting existing motorways. The
main customers are government bodies.
Railway construction services include design and managing the construction of
railway systems delivering major multi-disciplinary projects, track work,
electrification and power supply. The Group serves both public and private
railways including high-speed passenger railways, freight and mixed traffic
routes, dense commuter networks, metros and light rail.
Other infrastructure assets include construction, design and build services on
large-scale complex assets predominantly servicing the waste, water and energy
sectors.
Contracts entered into relating to these infrastructure assets can take the
form of fixed-price, cost-plus or target-cost contracts with shared pain/gain
mechanisms. Contract lengths vary according to the size and complexity of the
asset build and can range from a few months for small-scale infrastructure
works to four to five years for large-scale complex construction works.
In most cases, the contract itself represents a single PO where only the
design and construction elements are contracted. In some instances, the
contract with the customer will include maintenance of the constructed asset.
The Group assesses the maintenance element as a separate PO and revenue from
this PO is recognised in the Support Services segment. Refer to Note 6.1.2.
6 Revenue continued
6.1 Nature of services provided continued
6.1.2 Support Services
The Group's work in this segment supports existing assets through maintaining,
upgrading and managing services across utilities and infrastructure assets.
Revenue generated in this segment is measured over time as control passes to
the customer as and when services are provided. Progress is measured by
reference to the cost incurred on the contract to date compared to the
contract's end of job forecast (the input method). Payments are structured as
milestone payments set out in the respective contracts.
Types of assets Nature, timing of satisfaction of performance obligations and significant
payment terms
Utilities Within the Group's services contracts, the Group provides support services to
various types of utility assets.
For contracts servicing power transmission and distribution assets, the Group
constructs and maintains electricity networks, including replacement or new
build of overhead lines, underground cabling, cable tunnels and offshore wind
farm maintenance. Contracts entered into are normally fixed-price and contract
lengths can vary from 12 to 36 months, and up to 20 years for offshore wind
farm maintenance contracts. Each contract is normally assessed to contain one
PO. However, where a contract contains both a construction phase and a
maintenance phase, these are assessed to contain two separate POs.
Infrastructure The Group provides maintenance, asset and network management and design
services in respect of highways, railways and other publicly available assets.
The customer in this area of the Group is mainly government bodies. Types of
contract include a fixed schedule of rates, fixed-price, target-cost
arrangements and cost-plus.
Contract terms range from 1 to 25 years. Where contracts include a lifecycle
element, this is accounted for as a separate PO and recognised when the work
is delivered.
6 Revenue continued
6.1 Nature of services provided continued
6.1.3 Infrastructure Investments
The Group invests directly in a variety of assets, predominantly consisting of
infrastructure assets where there are opportunities to manage the asset upon
completion of construction. The Group also invests in real estate type assets,
in particular private residential and student accommodation assets. Revenue
generated in this segment is from the provision of construction, maintenance
and management services and also from the recognition of rental income. The
Group's strategy is to hold these assets until optimal values are achieved
through disposal of mature assets.
Types of services Nature, timing of satisfaction of performance obligations and significant
payment terms
Service concessions The Group operates a UK and US portfolio of service concession assets
comprising assets in the roads, healthcare, student accommodation, biomass and
waste and offshore transmission sectors. The Group accounts for these assets
under IFRIC 12 Service Concession Arrangements.
Where the Group constructs and maintains these assets, the two services are
deemed to be separate performance obligations and accounted for separately. If
the maintenance phase includes a lifecycle element, this is considered to be a
separate PO.
Contract terms can be up to 40 years. The Group recognises revenue over time
using the input method. Consideration is paid through a fixed unitary payment
charge spread over the life of the contract.
Revenue from this service is presented across Buildings, Infrastructure or
Utilities in Note 6.2.
Management services The Group provides real estate management services such as property
development and asset management services. Contract terms can be up to 50
years. The Group recognises revenue over time as and when service is delivered
to the customer.
Revenue from this service is presented within Buildings in Note 6.2.
Housing development The Group also develops housing units on land that is owned by the Group.
Revenue is recognised on the sale of individual units at the point in time
when control of the asset is transferred to the purchaser. This is deemed to
be when an unconditional sale is achieved.
Revenue from this service is presented within Buildings in Note 6.2.
6 Revenue continued
6.2 Disaggregation of revenue
The Group presents a disaggregation of its revenue according to the primary
geographical markets in which the Group operates as well as the types of
assets serviced by the Group. The nature of the various services provided by
the Group is explained in Note 6.1. This disaggregation of revenue is also
presented according to the Group's reportable segments as described in Note
5.
For the year ended 31 December 2023
United United Rest of Total
Revenue by primary geographical markets Kingdom States world £m
£m £m £m
Construction Services Revenue including share of joint ventures and associates 3,025 3,697 1,359 8,081
Group revenue 3,025 3,669 1 6,695
Support Revenue including share of joint ventures and associates 1,003 - 3 1,006
Services
Group revenue 1,003 - 3 1,006
Infrastructure Investments Revenue including share of joint ventures and associates 164 338 6 508
Group revenue 63 228 1 292
Total Revenue including share of joint ventures and associates 4,192 4,035 1,368 9,595
revenue
Group revenue 4,091 3,897 5 7,993
Buildings Infrastructure Utilities Other Total
Revenue by types of assets serviced £m £m £m £m £m
Construction Services Revenue including share of joint ventures and associates 3,954 3,442 593 92 8,081
Group revenue 3,284 2,738 581 92 6,695
Support Revenue including share of joint ventures and associates 9 661 326 10 1,006
Services
Group revenue 9 661 326 10 1,006
Infrastructure Investments Revenue including share of joint ventures and associates 346(+) 146 16 - 508
Group revenue 289(+) 3 - - 292
Total Revenue including share of joint ventures and associates 4,309 4,249 935 102 9,595
revenue
Group revenue 3,582 3,402 907 102 7,993
Timing of revenue recognition Construction Support Infrastructure Total
Services Services Investments £m
£m £m £m
Over time 8,076 1,002 496 9,574
At a point in time 5 4 12 21
Revenue including share of joint ventures and associates 8,081 1,006 508 9,595
Over time 6,690 1,002 280 7,972
At a point in time 5 4 12 21
Group revenue 6,695 1,006 292 7,993
+ Includes rental income of £53m including share of joint ventures and
associates or £21m excluding share of joint ventures and associates.
6 Revenue continued
For the year ended 31 December 2022
United United Rest of Total
Revenue by primary geographical markets Kingdom States world £m
£m £m £m
Construction Services Revenue including share of joint ventures and associates 2,761 3,650 1,071 7,482
Group revenue 2,761 3,645 3 6,409
Support Revenue including share of joint ventures and associates 982 - 7 989
Services
Group revenue 982 - 6 988
Infrastructure Investments Revenue including share of joint ventures and associates 151 304 5 460
Group revenue 53 179 - 232
Total Revenue including share of joint ventures and associates 3,894 3,954 1,083 8,931
revenue
Group revenue 3,796 3,824 9 7,629
Buildings Infrastructure Utilities Other Total
Revenue by types of assets serviced £m £m £m £m £m
Construction Services Revenue including share of joint ventures and associates 3,878 2,960 639 5 7,482
Group revenue 3,387 2,401 616 5 6,409
Support Revenue including share of joint ventures and associates 5 625 349 10 989
Services
Group revenue 5 625 348 10 988
Infrastructure Investments Revenue including share of joint ventures and associates 291(+) 154 15 - 460
Group revenue 229(+) 3 - - 232
Total Revenue including share of joint ventures and associates 4,174 3,739 1,003 15 8,931
revenue
Group revenue 3,621 3,029 964 15 7,629
Timing of revenue recognition Construction Support Infrastructure Total
Services Services Investments £m
£m £m £m
Over time 7,475 984 430 8,889
At a point in time 7 5 30 42
Revenue including share of joint ventures and associates 7,482 989 460 8,931
Over time 6,402 983 202 7,587
At a point in time 7 5 30 42
Group revenue 6,409 988 232 7,629
6.2 Disaggregation of revenue continued
+ Includes rental income of £49m including share of joint ventures and
associates or £16m excluding share of joint ventures and associates.
7 Investment income
2023 2022
£m £m
Subordinated debt interest receivable 34 27
Interest receivable on PPP financial assets 2 2
Fair value gain on investment asset - 6
Interest received on bank deposits 33 8
Other interest receivable and similar income - 2
Impairment reversal of joint ventures and associates - accrued interest 1 -
Net finance income on pension scheme assets and obligations (Note 21) 12 5
82 50
8 Finance costs
2023 2022
£m £m
Non-recourse borrowings - bank loans and overdrafts 11 9
US private placement - finance cost 12 15
Interest on lease liabilities 6 6
Fair value loss on investment asset 1 -
Other interest payable - committed facilities 3 2
- letter of credit fees 2 2
- other finance charges 5 2
Impairment of joint ventures and associates - loans 9 -
- accrued interest - 2
49 38
The net impairment of loans to joint ventures and associates and accrued
interest receivable of £8m (2022: £2m) relates to expected credit loss
assessments performed. All of these impairments relate to subordinated debt
and accrued interest receivable from joint ventures and associates held within
the Infrastructure Investments segment.
9 Non-underlying items
2023 2022
£m £m
Items (charged against)/credited to profit
9.1 Amortisation of acquired intangible assets (5) (6)
9.2 Other non-underlying items:
- provision recognised for rectification works to be carried out on a (12) -
development in London
- release of indemnity provisions relating to sale of Heery International Inc. - 2
Total other non-underlying items (12) 2
Charged against profit before taxation (17) (4)
9.3 Tax credit/(charge):
- tax on rectification works provision 3 -
- tax on other items above 3 (1)
- impact of tax rate change on deferred tax assets previously recognised - 2
through non-underlying
Total tax credit 6 1
Charged against profit for the year (11) (3)
9.1 The amortisation of acquired intangible assets comprises: customer
contracts £4m (2022: £5m); and customer relationships £1m (2022: £1m).
The charge was recognised in the following segments: Construction Service £1m
(2022: £1m); and Infrastructure Investments £4m (2022: £5m).
9.2 In 2021, the Group recognised a provision of £42m in relation to
rectification works to be carried out on a development in London which was
constructed by the Group between 2013 and 2016. The rectification work
includes the replacement of stone panels affixed to the façade of the
development to meet performance requirements. The provision was initially
calculated in line with a methodology based on an independent expert's
assessment of the rectification at that time and included an estimate of costs
associated with any potential consequential disruption to the development as a
result of these rectification works. Rectification works are expected to
complete in 2025. The most recent assessment carried out in 2023 resulted in a
£12m increase in the estimated cost of rectification.
The Group initially presented the provision recognised in 2021 in
non-underlying due to its size. In line with this presentation, the Group
continues to present this within non-underlying. The provision does not
include potential recoveries from third parties.
This charge was recognised in the Construction Services segment.
9.3.1 As explained in Note 10.2.1, a non-underlying charge of £12m was
recognised in relation to the rectification works to be carried out on a
development in London. This expense has given rise to a tax credit of £3m.
9.3.2 The remaining non-underlying items recognised in the Group's operating
profit gave rise to a tax credit of £3m which was recognised mainly on the
amortisation of acquired intangible assets (2022: £1m charge).
10 Income taxes
Underlying Non-underlying Total Total
Items(1) items 2023 2022
2023 (Note 9) £m £m
£m 2023
£m
Total UK tax 38 (3) 35 (35)
Total non-UK tax 18 (3) 15 35
Total tax charge/(credit)(x) 56 (6) 50 -
UK current tax
- current tax 7 (3) 4 2
7 (3) 4 2
Non-UK current tax
- current tax 2 (1) 1 18
- adjustments in respect of previous periods (3) - (3) (3)
(1) (1) (2) 15
Total current tax 6 (4) 2 17
UK deferred tax
- origination and reversal of temporary differences 30 - 30 (22)
- UK corporation tax rate change 2 - 2 (13)
- adjustments in respect of previous periods (1) - (1) (2)
31 - 31 (37)
Non-UK deferred tax
- origination and reversal of temporary differences 17 (1) 16 17
- adjustments in respect of previous periods 2 (1) 1 3
19 (2) 17 20
Total deferred tax 50 (2) 48 (17)
Total tax charge/(credit)(x) 56 (6) 50 -
(x) Excluding joint ventures and associates.
(1) Before non-underlying items (Note 9).
The Group has recognised a £6m tax credit (2022: £1m) within non-underlying
items in the year. Refer to Notes 9.3.1 and 9.3.2.
The Group tax charge excludes amounts for joint ventures and associates (refer
to Note 15), except where tax is levied at the Group level.
In addition to the Group tax charge, tax of £43m has been credited (2022:
£44m) directly to other comprehensive income, comprising: a tax credit of
£48m for subsidiaries (2022: £19m); and a tax charge in respect of joint
ventures and associates of £5m (2022: £25m credit). A tax charge of £nil
(2022: £2m credit) has been recognised directly in equity relating to
share-based payments, comprising a current tax credit of £2m (2022: £nil)
and a deferred tax charge of £2m (2022: £2m credit).
11 Earnings per share
2023 2022
Earnings Basic Diluted Basic Diluted
£m £m £m £m
Earnings 197 197 288 288
Amortisation of acquired intangible assets - including tax credit of £3m 2 2 7 7
(2022: £1m charge)
Other non-underlying items - including tax credit of £3m (2022: £2m) 9 9 (4) (4)
Underlying earnings 208 208 291 291
Basic Diluted Basic Diluted
m m m m
Weighted average number of ordinary shares 558 566 612 620
The basic earnings per ordinary share is calculated by dividing the profit for
the year attributable to equity holders by the weighted average number of
ordinary shares outstanding during the year, excluding treasury shares and
shares held in the Employee Share Ownership Trust.
The diluted earnings per ordinary share uses an adjusted weighted average
number of shares and includes shares that are potentially outstanding in
relation to equity-settled share-based payment arrangements.
Potential dilutive effect of ordinary shares issuable under equity-settled
share-based payment arrangements is 8m (2022: 8m).
Earnings per share Basic Diluted Basic Diluted
pence Pence pence Pence
Earnings per ordinary share 35.3 34.8 46.9 46.3
Amortisation of acquired intangible assets after tax 0.4 0.4 1.2 1.1
Other non-underlying items after tax 1.6 1.6 (0.6) (0.6)
Underlying earnings per ordinary share 37.3 36.8 47.5 46.8
12 Dividends
2023 2022
Per share Amount Per share Amount
pence £m pence £m
Proposed dividends for the year
Interim - current year 3.5 19 3.5 21
Final - current year 8.0 43(&) 7.0 40
11.5 62 10.5 61
Recognised dividends for the year
Final - prior year 39 37
Interim - current year 19 21
58 58
(&) Amount dependent on number of shares on the register on 17 May 2024.
Subject to approval at the Annual General Meeting on 9 May 2024, the final
2023 dividend will be paid on 3 July 2024 to holders on the register on 17 May
2024 by direct credit or, where no mandate has been given, by cheque posted by
3 July 2024. The ordinary shares will be quoted ex-dividend on 16 May 2024.
The last date for Dividend Reinvestment Plan (DRIP) elections will be 12 June
2024.
13 Intangible assets - goodwill
Cost Accumulated Carrying
£m impairment amount
losses £m
£m
At 1 January 2023 1,106 (230) 876
Currency translation differences (37) 6 (31)
At 31 December 2023 1,069 (224) 845
2023 2022
Carrying amounts of goodwill by cash-generating unit £m Pre-tax £m Pre-tax
discount rate discount rate
% %
UK Regional and Engineering Services 248 10.7 248 9.1
Balfour Beatty Construction Group Inc 437 11.1 464 9.3
Rail UK 68 11.0 68 9.3
Balfour Beatty Investments US 52 11.3 55 11.1
Other 40 11.0 41 9.3
Group total 845 876
The recoverable amount of goodwill is based on value-in-use, a key input of
which is forecast cash flows. The Group's cash flow forecasts are based on the
expected future revenues and margins of each CGU, giving consideration to the
current level of confirmed and anticipated orders. Cash flow forecasts for the
next three years are based on the Group's Three-Year Plan, which covers the
period from 2024 to 2026. The cash flow forecasts for each CGU were compiled
from each of its constituent business units as part of the Group's annual
financial planning process.
The other key inputs in assessing each CGU are its long-term growth rate and
discount rate. The discount rates have been calculated using the Weighted
Average Cost of Capital (WACC) method, which takes account of the Group's
capital structure (financial risk) as well as the nature of each CGU's
business (operational risk). Long-term growth rates are assumed to be the
estimated future GDP growth rates based on published independent forecasts for
the country or countries in which each CGU operates, less 1.0% to reflect
current economic uncertainties and their consequent estimated effect on public
sector spending on infrastructure.
In the derivation of each CGU's value-in-use, a terminal value is assumed
based on a multiple of earnings before interest and tax. The multiple is
applied to a terminal cash flow, which is the normalised cash flow in the last
year of the forecast period. However, due to the long-term nature and the
degree of predictability of some contracts within Balfour Beatty Investments
US, the forecast period used in the derivation of this CGU's value-in-use
extends beyond the Group's three-year cash flow forecast period in line with
the duration of the contracts within the CGU. The EBIT multiple is calculated
using the Gordon Growth Model and is a factor of the discount rate and growth
rate for each CGU. The nominal terminal value is discounted to present value.
13 Intangible assets - goodwill continued
2023 2022
Inflation rate Real growth rate Nominal long-term growth rate applied Inflation rate Real growth Nominal long-term growth
% % % % rate rate applied
% %
UK Regional and Engineering Services 2.8 1.1 3.9 2.3 0.8 3.1
Balfour Beatty Construction Group Inc 2.2 1.7 3.9 2.2 0.7 2.9
Rail UK 2.8 1.1 3.9 2.3 0.8 3.1
Balfour Beatty Investments US 2.2 1.7 3.9 2.2 0.7 2.9
Other 2.6 1.3 3.9 2.3 0.8 3.1
Sensitivities
The Group's impairment review is sensitive to changes in the key assumptions
used. The major assumptions that result in significant sensitivities are the
discount rate and the long-term growth rate, and for certain CGUs, changes to
underlying cash projections.
A reasonable possible change in key assumptions would not give rise to an
impairment in any of the Group's CGUs.
14 Intangible assets - other
Cost Accumulated Carrying
£m amortisation amount
£m £m
At 1 January 2023 668 (376) 292
Currency translation differences (18) 15 (3)
Additions 30 - 30
Fair value movement on loan associated with Infrastructure Investment (19) - (19)
intangible asset
Charge for the year - (12) (12)
At 31 December 2023 661 (373) 288
Other intangible assets comprise: acquired intangible assets of customer
contracts, customer relationships, and brand names; Infrastructure
Investments' intangible assets on student accommodation projects in which the
Group bears demand risk; and software and other.
15 Investments in joint ventures and associates
2023
Infrastructure Investments
Construction Support UK^ North Total
Services Services £m America £m Total
£m £m £m £m
Income statement
Revenue 1,386 - 103 113 216 1,602
Operating profit excluding gain on disposals of interests in investments 33 - 2 21 23 56
Gain on disposals of interests in investments - - - 2 2 2
Operating profit 33 - 2 23 25 58
Investment income 10 - 74 16 90 100
Finance costs (1) - (73) (25) (98) (99)
Profit before taxation 42 - 3 14 17 59
Taxation (6) - - - - (6)
Profit after taxation 36 - 3 14 17 53
Balance sheet
Non-current assets
Intangible assets:
- Infrastructure Investments intangible - - 14 - 14 14
- other - - 12 - 12 12
Property, plant and equipment 21 - - - - 21
Investment properties - - - 232 232 232
Investments in joint ventures and associates 7 - - - - 7
Money market funds - - - 44 44 44
PPP financial assets - - 905 244 1,149 1,149
Military housing projects - - - 113 113 113
Other non-current assets 107 - 24 13 37 144
Current assets
Cash and cash equivalents 340 - 146 20 166 506
Other current assets 310 3 55 5 60 373
Total assets 785 3 1,156 671 1,827 2,615
Current liabilities
Borrowings - - - (36) - (36) (36)
non-recourse
Other current liabilities (549) (3) (158) (30) (188) (740)
Non-current liabilities
Borrowings - non-recourse (94) - (767) (461) (1,228) (1,322)
Other non-current liabilities (90) - (147) (5) (152) (242)
Total liabilities (733) (3) (1,108) (496) (1,604) (2,340)
Net assets 52 - 48 175 223 275
Goodwill 31 - - - - 31
Reclassify negative investment to provisions 10 - - - - 10
Loans to joint ventures and associates - - 73 - 73 73
Total investment in joint ventures and associates 93 - 121 175 296 389
^ Including Ireland.
The Group's investment in military housing joint ventures' and associates'
projects is recognised at its remaining equity investment plus the value of
the Group's accrued returns from the underlying projects.
15 Investments in joint ventures and associates continued
2022
Infrastructure Investments
Construction Support UK^ North Total Total
Services Services £m America £m £m
£m £m £m
Income statement
Revenue 1,073 1 99 129 228 1,302
Operating profit excluding gain on disposals of interests in investments 24 - (3) 21 18 42
Gain on disposals of interests in investments - - - 70 70 70
Operating profit 24 - (3) 91 88 112
Investment income 3 - 72 13 85 88
Finance costs (1) - (66) (20) (86) (87)
Profit before taxation 26 - 3 84 87 113
Taxation (6) - (2) - (2) (8)
Profit after taxation 20 - 1 84 85 105
Balance sheet
Non-current assets
Intangible assets:
- Infrastructure Investments intangible - - 40 - 40 40
- other - - 13 - 13 13
Property, plant and equipment 33 - - - - 33
Investment properties - - - 257 257 257
Investments in joint ventures and associates 5 - - - - 5
Money market funds - - - 26 26 26
PPP financial assets - - 984 260 1,244 1,244
Military housing projects - - - 119 119 119
Other non-current assets 106 - 27 13 40 146
Current assets
Cash and cash equivalents 385 - 150 26 176 561
Other current assets 275 - 46 5 51 326
Total assets 804 - 1,260 706 1,966 2,770
Current liabilities
Borrowings - (89) - (37) - (37) (126)
non-recourse
Other current liabilities (579) - (124) (12) (136) (715)
Non-current liabilities
Borrowings - non-recourse - - (885) (502) (1,387) (1,387)
Other non-current liabilities (80) - (180) (5) (185) (265)
Total liabilities (748) - (1,226) (519) (1,745) (2,493)
Net assets 56 - 34 187 221 277
Goodwill 33 - - - - 33
Reclassify negative investment to provisions 10 - - - - 10
Loans to joint ventures and associates - - 106 - 106 106
Total investment in joint ventures and associates 99 - 140 187 327 426
(^) Including Ireland.
16 Contract balances
16.1 Contract assets
£m
At 1 January 2022 214
Currency translation differences 6
Transfers from contract assets recognised at the beginning of the year to (196)
receivables
Increase related to services provided in the year 304
Reclassified from contract provisions (Note 19) (1)
Reclassified from contract liabilities (Note 16.2) (21)
Impairments on contract assets recognised at the beginning of the year (6)
At 31 December 2022 300
Currency translation differences (4)
Transfers from contract assets recognised at the beginning of the year to (241)
receivables
Increase related to services provided in the year 265
Reclassified from contract liabilities (Note 16.2) (11)
Impairments on contract assets recognised at the beginning of the year (9)
At 31 December 2023 300
16.2 Contract liabilities
£m
At 1 January 2022 (678)
Currency translation differences (39)
Revenue recognised against contract liabilities at the beginning of the year 578
Increase due to cash received, excluding amounts recognised as revenue during (547)
the year
Reclassified to contract assets (Note 16.1) 21
At 31 December 2022 (665)
Currency translation differences 19
Revenue recognised against contract liabilities at the beginning of the year 561
Increase due to cash received, excluding amounts recognised as revenue during (528)
the year
Reclassified to contract assets (Note 16.1) 11
At 31 December 2023 (602)
17 Trade and other receivables
2023 2022
£m £m
Current
Trade receivables 484 526
Less: provision for impairment of trade receivables (8) (3)
476 523
Due from joint ventures and associates 16 16
Due from joint operation partners 4 6
Contract fulfilment assets 19 13
Contract retentions receivable 227 194
Accrued income 13 15
Prepayments 57 56
Other receivables 82 58
894 881
Non-current
Due from joint ventures and associates 111 86
Contract fulfilment assets 40 31
Contract retentions receivable 150 166
Other receivables 7 3
308 286
Total trade and other receivables 1,202 1,167
18 Trade and other payables
2023 2022
£m £m
Current
Trade and other payables 602 605
Accruals 788 741
Contract retentions payable 213 175
VAT, payroll taxes and social security 131 74
1,734 1,595
Non-current
Accruals 9 10
Contract retentions payable 104 122
Due to joint ventures and associates 9 9
122 141
Total trade and other payables 1,856 1,736
19 Provisions
Contract Employee Other Total
provisions provisions provisions £m
£m £m £m
At 1 January 2022 321 36 22 379
Currency translation differences 9 - 1 10
Reclassified from accruals - - 1 1
Charged/(credited) to the income statement:
- additional provisions 134 6 2 142
- unused amounts reversed (48) (2) - (50)
Utilised during the year (80) (7) (3) (90)
Reclassified to contract assets (Note 16.1) (1) - - (1)
Reclassified negative investment in Group's investments in joint ventures and - - 10 10
associates
At 31 December 2022 335 33 33 401
Currency translation differences (3) - (1) (4)
Charged/(credited) to the income statement:
- additional provisions 170 9 4 183
- unused amounts reversed (59) (2) - (61)
Utilised during the year (91) (7) (4) (102)
At 31 December 2023 352 33 32 417
20 Notes to the statement of cash flows
20.1 Cash from/(used in) operations Non-underlying items Total Total
Underlying 2023 2023 2022
items(1) £m £m £m
2023
£m
Profit from operations 228 (17) 211 275
Share of results of joint ventures and associates (53) - (53) (105)
Depreciation of property, plant and equipment 28 - 28 27
Depreciation of right-of-use-assets 57 - 57 54
Depreciation of investment properties 2 - 2 2
Amortisation of other intangible assets 7 5 12 13
Amortisation of contract fulfilment assets 15 - 15 15
Pension deficit payments, including regular funding (28) - (28) (43)
Movements relating to equity-settled share-based payments 15 - 15 9
Gain on disposal of interests in investments (24) - (24) -
Profit on disposal of property, plant and equipment (2) - (2) (4)
Other non-cash items (3) - (3) (4)
Operating cash flows before movements in working capital 242 (12) 230 239
Decrease/(increase) in operating working capital 63 (54)
Inventories (11) (6)
Contract assets (4) (78)
Trade and other receivables (73) 34
Contract liabilities (44) (59)
Trade and other payables 177 57
Provisions 18 (2)
Cash from operations 293 185
(1) Before non-underlying items (Note 9).
20.2 Cash and cash equivalents
2023 2022
£m £m
Cash and deposits 890 828
Term deposits 218 332
Cash balances within infrastructure concessions 306 19
Bank overdrafts (104) -
1,310 1,179
20.3 Analysis of net cash/(borrowings)
2023 2022
£m £m
Cash and cash equivalents (excluding infrastructure concessions) 1,108 1,160
Bank overdrafts (104) -
US private placement (162) (345)
Net cash excluding infrastructure concessions 842 815
Non-recourse infrastructure concessions project finance loans at amortised (570) (261)
cost with final maturity between 2024 and 2072
Infrastructure concessions cash and cash equivalents 306 19
(264) (242)
Net cash 578 573
The Company, together with certain of its UK subsidiaries, operates a notional
pooling facility with a main relationship UK clearing bank where overdraft
balances are offset with cash balances and interest is calculated on a net
basis. During the year ended 31 December 2023, the Group maintained a net cash
position on this pooling facility, so there was no interest payable to the
bank in respect of these bank overdrafts. Overdraft balances and cash held at
this bank have been reported gross in the Group balance sheet at 31 December
2023 as there was no intention to settle the bank overdrafts at that date.
The loans relating to project finance arise under non-recourse facilities
taken out by project-specific subsidiary companies. The loans of each company
are secured by a combination of fixed and floating charges over that company's
interests in its project's assets and revenues and the shares in the company
held by its immediate parent company.
Term deposits are held on a short-term basis and are readily accessible to the
Group at any time with insignificant break costs.
Included in cash and cash equivalents is restricted cash of £12m (2022: £3m)
held by the Group's self-insurance company, Delphian Insurance Company Ltd,
which is subject to Isle of Man insurance solvency regulations.
Cash and cash equivalents also include: £77m (2022: £194m) within
construction project bank accounts which is used for project specific
expenditure; £369m (2022: £253m) in relation to the Group's share of cash
held by joint operations which is used for expenditure within the joint
operation projects; and £306m (2022: £19m) relating to maintenance and other
reserve accounts in Infrastructure Investments subsidiaries, of which £277m
is reserved for the construction of University of Sussex's West Slope student
accommodation project.
20.4 Analysis of movements in borrowings
Infrastructure US private placement Bilateral committed facility Bank overdrafts Total
concessions £m £m £m £m
non-recourse
project finance
£m
At 1 January 2023 (261) (345) - - (606)
Currency translation differences - 14 - - 14
Proceeds of loans (336) - (28) (104) (468)
Repayments of loans 8 169 28 - 205
Fair value adjustment to loan 19 - - - 19
At 31 December 2023 (570) (162) - (104) (836)
20.4 Analysis of movements in borrowings continued
In March 2023, the Group repaid US$209m of US Private Placement (USPP) notes
as they fell due. The repayment was funded from the proceeds of debt issuance
arranged in 2022, specifically US$158m of new USPP notes issued in June 2022
(US$35m 6.31% notes maturing in June 2027, US$80m 6.39% notes maturing in June
2029 and US$43m 6.45% notes maturing in June 2032), and a US$36m drawdown in
March 2023 under the £30m bilateral committed facility. In September 2023,
drawings under the £30m bilateral committed facility were repaid and the
facility was undrawn at 31 December 2023. This facility is on similar terms to
the Group's core facility and has an initial maturity of December 2024, but
the Group holds an extension option to extend the expiry to December 2027. At
31 December 2023 the Group had not triggered the bilateral committed
facility's extension option.
In June 2023 the Group completed the refinancing of its core £375m revolving
credit facility, which was set to expire in October 2024, replacing it with a
new £475m facility that will expire in June 2027 (the RCF). The RCF has an
extension option for a further year to June 2028, with the agreement of the
lending banks, and its terms and conditions are materially the same as the
prior facility. The RCF is a Sustainability Linked Loan, under the terms of
which the Group is incentivised to deliver annual measurable performance
improvement in three key areas: Carbon Emissions, Social Value generation and
an independent Environment, Social and Governance (ESG) rating score - these
areas of performance and the associated metrics are to be reviewed and updated
in 2024. The RCF remained undrawn at 31 December 2023.
At 31 December 2023, £303m was included within non-recourse borrowings
relating to the construction of the West Slope student accommodation project,
of which £171m relates to external funding obtained from a third party bank
and £132m relates to a loan provided by the University of Sussex. The funding
from the university represents a loan arrangement which was entered into
separately with the university at the same time as the concession arrangement.
21 Retirement benefit assets and liabilities
IAS 19 Employee Benefits (IAS 19) prescribes the accounting for defined
benefit schemes in the Group's financial statements. Obligations are
calculated using the projected unit credit method and discounted to a net
present value using the market yield on high-quality corporate bonds. The
pension expense relating to current service cost is charged to contracts or
overheads based on the function of scheme members and is included in cost of
sales and net operating expenses. The net finance income arising from the
expected interest income on plan assets and interest cost on scheme
obligations is included in investment income. Actuarial gains and losses are
reported in the statement of comprehensive income.
The investment strategy of the Balfour Beatty Pension Fund (BBPF) is to hold
assets of appropriate liquidity and marketability to generate income and
capital growth. The BBPF invests partly in a diversified range of assets
including equities and hedge funds in anticipation that, over the longer term,
they will grow in value faster than the scheme's obligations. The BBPF has
been undertaking a phased withdrawal from equities and hedge funds. The only
residual equities held are a very small amount of emerging market equities
held via pooled funds. The remaining BBPF assets are principally fixed and
index-linked bonds and derivatives, providing protection against movements in
inflation and interest rates and hence enhancing the resilience of the funding
level of the scheme. The performance of the assets is measured against market
indices.
The Group operates a Scottish Limited Partnership (SLP) structure which holds
the Group's 40% interest in the Birmingham Hospital PFI investment and the
Group's 15% share of the Connect Plus (M25) asset. The BBPF is a partner in
the SLP and is entitled to a share of the income of the SLP. In accordance
with IFRS 10 Consolidated Financial Statements, the SLP is deemed to be
controlled by the Group, which retains the ability to substitute the
investment in the Birmingham Hospital PFI investment and the Connect Plus
(M25) asset for other investments from time to time.
Under IAS 19, the investment held by the BBPF in the SLP does not constitute a
plan asset and therefore the pension surplus presented in these financial
statements does not reflect the BBPF's interest in the SLP. Distributions from
the SLP to the BBPF will be reflected in the Group's financial statements as
pension contributions on a cash basis. In 2023, the BBPF received
distributions of £2m from the SLP (2022: £2m).
21 Retirement benefit assets and liabilities continued
Balfour Beatty and the trustees of the BBPF have reconfirmed their commitment
to a journey plan approach to managing the BBPF with the aim of reaching
self-sufficiency by 2027. The Company and trustees have agreed the 31 March
2022 formal valuation and as a result Balfour Beatty made deficit
contributions to the BBPF of £19m in 2023 (2022: £35m) and has agreed to pay
deficit contributions to the BBPF of £24m in 2024 and £6m in 2025. The
Company and the trustees expect to take further steps over the coming months
to reduce the overall risk in the scheme and the Company has agreed that
additional amounts will become payable at £2m per month from March 2025 if
the BBPF's performance is materially different from that expected. The next
formal triennial funding valuation is due with effect from 31 March 2025.
This agreement constitutes a minimum funding requirement (MFR) under IFRIC 14
IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction. The Group has not recognised any liabilities in relation to
this MFR as any surplus of deficit contributions to the BBPF would be
recoverable by way of a refund and the Group has the unconditional right to
the surplus and controls the run-off of the benefit obligations once all other
obligations of the BBPF have been settled.
Principal actuarial assumptions for the IAS 19 accounting valuations of the
Group's principal schemes
2023 2022
Balfour Railways Balfour Railways
Beatty Pension Beatty Pension
Pension Scheme Pension Scheme
Fund % Fund %
% %
Discount rate 4.65 4.65 4.95 4.95
Inflation rate - RPI 3.15 3.15 3.35 3.35
- CPI 2.60 2.75 2.75 2.90
Future increases in pensionable salary 2.60 2.75 2.75 2.90
Rate of increase in pensions in payment (or such other rate as is guaranteed) 2.95 2.85 3.10 2.95
( )
Number Number Number Number
Total number of defined benefit members 25,535 2,946 26,208 2,972
Following the completion of the BBPF's 31 March 2022 triennial valuation, the
future improvements assumption adopted for the BBPF and RPS has also been
updated for 2023 to reflect the most recent model available, with the Group
setting future improvements in line with the Continuous Mortality
Investigation (CMI) 2022 core projections model.
BBPF life expectancies
2023 2022
Average life expectancy at 65 years of age Average life expectancy
at 65 years of age
Male Female Male Female
Members in receipt of a pension 21.3 23.0 21.7 23.4
Members not yet in receipt of a pension (current age 50) 22.2 23.9 22.6 24.3
RPS life expectancies
2023 2022
Average life expectancy at 65 years of age Average life expectancy
at 65 years of age
Male Female Male Female
Members in receipt of a pension 20.8 22.7 20.7 22.7
Members not yet in receipt of a pension (current age 50) 21.6 23.6 21.6 23.7
21 Retirement benefit assets and liabilities continued
Amounts recognised in the Balance Sheet
2023 2022
Balfour Railways Balfour Railways
Beatty Pension Beatty Pension
Pension Scheme Other schemes^ Pension Scheme Other schemes^
Fund £m £m Total Fund £m £m Total
£m £m £m £m
Present value of obligations (2,501) (320) (35) (2,856) (2,464) (300) (39) (2,803)
Fair value of plan assets 2,602 323 - 2,925 2,689 337 - 3,026
Assets/(liabilities) in the balance sheet 101 3 (35) 69 225 37 (39) 223
^ Investments in mutual funds of £19m (2022: £20m) are held to satisfy the
Group's deferred compensation obligations.
The defined benefit obligations comprise £35m (2022: £39m) arising from
wholly unfunded plans and £2,821m (2022: £2,764m) arising from plans that
are wholly or partly funded.
Movements in the retirement benefit assets and obligations for the year £m
At 1 January 2023 223
Currency translation differences 2
Current service cost (4)
Net finance income 12
Actuarial movements - on obligations from reassessing the difference between RPI and CPI (4)
- on obligations from changes to other financial assumptions (101)
- on obligations from changes to demographics 16
- on obligations from experience losses (2)
- on assets (106)
Contributions from employer - regular funding 3
- ongoing deficit funding 25
Benefits paid 5
At 31 December 2023 69
Sensitivity of the Group's retirement benefit obligations at 31 December 2023
to different actuarial assumptions
Sensitivity to increase in assumption Sensitivity to decrease in assumption
Assumption Percentage (Decrease)/ (Decrease)/ Percentage Increase/ (decrease) Increase/ (decrease) in
points/years increase in increase in points/years in obligations
obligations obligations obligations £m
% £m %
Discount rate 0.5% (5.7)% (160) (0.5)% 6.3% 177
Market expectation of RPI inflation 0.5% 4.0% 112 (0.5)% (3.9)% (111)
Salary growth 0.5% <0.1% - (0.5)% <(0.1)% -
Life expectancy 1 year 4.0% 114 (1 year) (4.1)% (117)
Sensitivity of the Group's retirement benefit assets at 31 December 2023 to
changes in market conditions
Percentage (Decrease)/ (Decrease)/
points increase in increase in
assets assets
% £m
Increase in interest rates 0.5% (5.4)% (158)
Increase in market expectation of RPI inflation 0.5% 3.9% 113
The asset sensitivities only take into account the impact of the changes in
market conditions on bond-type assets. The value of the schemes'
return-seeking assets is not directly correlated with movements in interest
rates or RPI inflation.
21 Retirement benefit assets and liabilities continued
The BBPF includes a defined contribution section with 15,512 members at 31
December 2023 (2022: 15,382 members) with £48m (2022: £52m) of contributions
paid and charged in the income statement in respect of this section. The
total pension cost recognised in the income statement in respect of employee
service for defined benefit and defined contribution schemes was £58m (2022:
£63m).
22 Share capital
During the year ended 31 December 2023, 5.1m (2022: 9.8m) shares were
purchased at a cost of £18m (2022: £25m) by the Group's employee
discretionary trust to satisfy awards under the Performance Share Plan, the
Deferred Bonus Plan and the Restricted Share Plan.
In 2023 the Company commenced the third phase of its share buyback programme,
which completed on 15 December 2023. The Company purchased 43.3m (2022: 52.0m)
shares for a total consideration of £150m (2022: £150m) and held these
shares in treasury with no voting rights. The purchase of these shares,
together with associated fees and stamp duty amounting to £1m (2022: £1m),
utilised £151m (2022: £151m) of the Company's distributable profits.
On 20 December 2023, the Company cancelled the 43.3m treasury shares purchased
through the 2023 phase of its share buyback programme (2022: 102.3m). This
cancellation resulted in a decrease in called-up share capital in issue of
£22m (2022: £51m) and a corresponding increase in the capital redemption
reserve.
23 Acquisitions and disposals
23.1 Current and prior year acquisitions
There were no material acquisitions in 2023 or deferred consideration paid
during 2023 in respect of acquisitions completed in earlier years (2022:
deferred consideration £3m).
23.2 Current year disposals
During the year, the Group disposed of two Infrastructure Investments assets
as detailed below. The gain recognised from the disposal of assets that were
held within joint venture entities of the Group is recognised within the
Group's share of results of joint ventures and associates.
Notes Disposal date Entity/asset Structure of sale Percentage disposed % Cash Net assets Amount recycled from reserves £m Underlying
consideration disposed gain
£m £m £m
23.2.1 28 September 2023 Moretti Apartments(^) Asset sale n/a 5 (3) - 2
23.2.2 8 November 2023 Gloucester Waste Equity interest sale 49.5 56 (35) 3 24
61 (38) 3 26
(^) Disposal of asset within a joint venture entity.
23.2.1 On 28 September 2023, the Group disposed of its Moretti Apartments
multifamily property asset located in Homewood, Alabama, and received total
cash consideration of £5m. The asset disposal resulted in an underlying gain
of £2m being recognised in the Group's share of joint ventures and
associates.
23.2.2 On 8 November 2023, the Group disposed of its entire 49.5% interest in
UBB Waste (Gloucestershire) Holdings Limited (Gloucester Waste) for a cash
consideration of £56m. The disposal included the Group's share of joint
venture net assets of £31m and £4m of accrued interest receivable and
resulted in a net gain of £24m being recognised in underlying operating
profit, including a loss of £6m in respect of PPP financial asset reserves
and a gain of £9m in respect of hedging reserves recycled to the income
statement on disposal.
24 Contingent liabilities
The Company and certain subsidiary undertakings have, in the normal course of
business, given guarantees and entered into counter-indemnities in respect of
bonds relating to the Group's own contracts and given guarantees in respect of
their share of certain contractual obligations of joint ventures and
associates and certain retirement benefit liabilities of the Balfour Beatty
Pension Fund and the Railways Pension Scheme. Guarantees are treated as
contingent liabilities until such time as it becomes probable payment will be
required under the terms of the guarantee.
Provision has been made for the Directors' best estimate of known legal
claims, investigations and legal actions in progress. The Group takes legal
advice as to the likelihood of success of claims and actions and no provision
is made where the Directors consider, based on that advice, that the action is
unlikely to succeed, or that the Group cannot make a sufficiently reliable
estimate of the potential obligation. However, in certain cases where
assessments are ongoing and the Group cannot yet conclude whether it is
probable the claim is valid, a possible obligation may exist at 31 December
2023. In respect of these cases, it is not practicable to estimate the
financial effect based on the current status of the assessments.
25 Related party transactions
Joint ventures and associates
The Group has contracted with, provided services to, and received management
fees from, certain joint ventures and associates amounting to £445m (2022:
£447m). These transactions occurred in the normal course of business at
market rates and terms. In addition, the Group procured equipment and labour
on behalf of certain joint ventures and associates which were recharged at
cost with no mark-up. The amounts due from or to joint ventures and associates
at the reporting date are disclosed in Notes 17 and 18 respectively.
Transactions with non-Group members
The Group also entered into transactions and had amounts outstanding with
related parties which are not members of the Group as set out below. This
company was a related party as it was controlled, jointly controlled or under
significant influence by a director of Balfour Beatty plc.
2023 2022
£m £m
Site Assist Software Limited
Purchase of services 1 1
All transactions with this related party were conducted on normal commercial
terms, equivalent to those conducted with external parties. No guarantees have
been given or received. No expense has been recognised in the year for bad or
doubtful debts in respect of amounts owed by this related party.
During 2023, a member of the Group's staff was seconded on a full-time basis
to The 5% Club, a charity which is a dynamic movement of employer-members
working to create a shared prosperity across the UK by driving 'earn and
learn' skills training. The expense for the salary cost was borne by the Group
and no consideration was received in return.
26 Principal risks and uncertainties
The nature of the principal risks and uncertainties which could adversely
impact the Group's profitability and ability to achieve its strategic
objectives include: external risks arising from the effects of national or
market trends and political change and the complex and evolving legal and
regulatory environments in which the Group operates; organisation and
management risks including business conduct/compliance, data protection,
cybercrime and people-related risks; financial risks arising from failure to
forecast material exposures and manage financial resources; and operational
risks arising from work winning, project delivery, joint ventures, supply
chain, health and safety and sustainability matters.
The Directors do not consider that the nature of the principal risks and
uncertainties facing the Group has fundamentally changed since the publication
of the Annual Report and Accounts 2022.
27 Events after the reporting date
In the period from 1 January 2024 to 11 March 2024 (the latest practicable
date prior to the date of this announcement) the Company purchased 8.2m
ordinary shares, which are held in treasury with no voting rights, for a total
consideration of £28m (including stamp duty and fees).
There were no other material post balance sheet events arising after the
reporting date.
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