REG - Balfour Beatty PLC - BALFOUR BEATTY PLC HALF YEAR RESULTS
16/08/2023 07:00
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RNS Number : 4180J Balfour Beatty PLC 16 August 2023
BALFOUR BEATTY PLC RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2023
16 August 2023
Strong first half performance from earnings-based businesses
On track for full year expectations
Leo Quinn, Balfour Beatty Group Chief Executive, said: "We continue to deliver
from the scale and breadth of our lower risk order book, which, during this
period of high inflation and interest rates, underpins the financial results
reported today and our expectations for the full year.
"Looking beyond 2023, we have positioned Balfour Beatty strongly with unique
capabilities and a sector-leading balance sheet, to capitalise on national
plans to transform critical infrastructure, particularly in the energy and
transport markets. This provides the Board with confidence in both profitable
managed growth and in our capacity to deliver significant future shareholder
returns."
Strong first half performance with continuing momentum from earnings-based
businesses
· Revenue up 9% to £4.5 billion (2022: £4.1 billion)
· Underlying profit from operations (PFO) from earnings-based
businesses up 12% to £95 million (2022: £85 million)
· Group PFO down 6% due to timing of disposals and lower
Infrastructure Investments profit
· Underlying profit before tax up 13% and underlying EPS up
to 13.0 pence per share (2022: 12.9 pence)
Geographically and operationally diversified portfolio providing resilience
· Construction Services: PFO up 33% to £65 million with
margin increased to 1.7% (2022: 1.4%)
· Support Services: PFO 17% lower with margins at 6.5%
(2022: 7.2%), full year expected towards top of 6-8% range
· Infrastructure Investments: Directors' valuation
maintained at £1.3 billion (FY 2022: £1.3 billion)
Balance sheet strength and consistent cash flow supporting shareholder
returns
· £150 million share buyback on track to complete in Q4
· £58 million of total dividends to be paid in 2023,
with the half year dividend maintained at 3.5 pence per share
· Average net cash of £695 million (FY 2022: £804
million)
Large, lower risk order book and unique capabilities give confidence for
future returns
· £16.4 billion order book underpins short to medium
term outlook (FY 2022: £17.4 billion)
· Unique capabilities aligned to significant future
opportunities in UK energy and transport markets
On track for full year expectations
· Earnings-based businesses PFO expected to be broadly in
line with 2022
· Growing pipeline giving confidence for the long term
outlook
(£ million unless otherwise specified) HY 2023 HY 2022
Underlying(2) Total Underlying(2) Total
Revenue(1) 4,527 4,527 4,147 4,147
Profit from earnings-based businesses 95(#) 82 85(#) 84
Profit from operations 80(#) 65 85(#) 82
Pre-tax profit 97 82 86 83
Profit for the period 74 63 80 98
Basic earnings per share 13.0p 11.1p 12.9p 15.7p
Dividends per share 3.5p 3.5p
HY 2023 FY 2022 HY 2022
Order book(1) £16.4bn £17.4bn £17.7bn
Directors' valuation of Investments portfolio £1.3bn £1.3bn £1.3bn
Net cash - recourse(3) 710 815 742
Average net cash - recourse(3) 695 804 811
Segment analysis HY 2023 HY 2022
Revenue(1) PFO(2,#) PFO Revenue(1) PFO(2,#) PFO
margin(2) margin(2)
£m £m % £m £m %
UK Construction 1,516 30 2.0% 1,237 18 1.5%
US Construction 1,736 21 1.2% 1,766 21 1.2%
Gammon 583 14 2.4% 411 10 2.4%
Construction Services 3,835 65 1.7% 3,414 49 1.4%
Support Services 463 30 6.5% 499 36 7.2%
Earnings-based businesses 4,298 95 2.2% 3,913 85 2.2%
Infrastructure Investments 229 2 234 17
Corporate activities - (17) - (17)
Total 4,527 80 4,147 85
Notes:
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 8)
(3) Excluding non-recourse net borrowings, which comprise cash and debt
ringfenced within certain infrastructure investments project companies
(#) 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
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 16 August 2023. 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 HALF YEAR RESULTS ANNOUNCEMENT
· GROUP CHIEF EXECUTIVE'S OVERVIEW
· RESULTS OVERVIEW
· DIVISIONAL FINANCIAL REVIEWS
· MEASURING OUR FINANCIAL PERFORMANCE
GROUP CHIEF EXECUTIVE'S OVERVIEW
Executive summary
Balfour Beatty's diverse portfolio and lower-risk order book have provided the
resilience for the Group to deliver improved financial results from its
earnings-based businesses during challenging economic conditions. The
combination of the long term and inflation protected nature of UK operations,
the breadth of geographies and end markets in the US and the consistency of
performance in Hong Kong, underpin the stability of the Group.
The current high interest rate environment, while beneficial to the Group's
cash balance, has caused delays in some projects going to contract, largely in
the US commercial office sector, as customers wait for economic stability.
Despite this, the large, lower risk order book continues to give clear
visibility in the short and medium term of the Group's ability to deliver
significant shareholder returns from profitable managed growth and cash
generation. The Group's awarded but not contracted position remains high,
having added notable airport and major road contracts in the first half.
Governments remain committed to driving economic growth through infrastructure
investment in all three of Balfour Beatty's core markets. The Group's outlook
is strengthened by its strategic decision in recent years to focus on specific
geographies, to continue to develop unique capability within them and to build
its track record in delivering world-class projects. Balfour Beatty is
particularly well-placed to benefit from the growing focus on infrastructure
which can mitigate climate change and improve energy security, with the Group
pursuing a broad range of opportunities across the energy landscape that will
drive profitable growth.
It is a matter of deep regret that two colleagues have tragically lost their
lives this year. The Company offers its deepest sympathy and support to their
family, friends and co-workers, and investigations into both incidents are
underway. The Group is ensuring that it validates all of its processes and
procedures while promptly acting on the resulting actions and learnings.
Health and safety and focusing on a Zero Harm culture continues to be the top
priority for Balfour Beatty and the Board.
Financial summary
In the first half of 2023, the Group reported underlying profit from
operations from its earnings-based businesses of £95 million (2022: £85
million), with improved profitability from UK Construction, steady delivery
from US Construction and higher Gammon profit, partially offset by a lower
Support Services contribution. Underlying profit from operations for the Group
reduced to £80 million (2022: £85 million), with the momentum in
earnings-based businesses offset by lower underlying profit in Infrastructure
Investments and the timing of disposals, which are planned for the second half
of 2023.
Balfour Beatty's average net cash reduced in the first half to £695 million
(FY 2022: £804 million), largely due to the working capital outflow forecast
at the 2022 year end and £87 million of share buybacks. The Directors'
valuation of the Investments portfolio remained stable at £1.3 billion (FY
2022: £1.3 billion), as increases from new investment and the unwind of
discounting were offset by the weakening of the US dollar against sterling and
increased forecast costs in the US military housing portfolio.
The Group's £16.4 billion order book (FY 2022: £17.4 billion) reduced by 6%
in the period, or 3% at constant exchange rates (CER), due to both progress on
major projects in the UK and Hong Kong and the impact of economic conditions
delaying US commercial office projects going to contract. Overall, Balfour
Beatty's focus on selectively bidding for contracts where it holds expert
capability and can achieve improved contract terms has resulted in a lower
risk order book.
Given the Group's order book, the opportunities identified in its chosen
markets and its competitive strengths, the Board has confidence in its
capacity to deliver significant future shareholder returns. The current
tranche of Balfour Beatty's multi-year share buyback programme, £150 million
for 2023, is progressing well and is expected to complete during the fourth
quarter of 2023. In addition, the Board has declared an interim dividend of
3.5 pence per share (2022: 3.5 pence).
Construction Services: operational progress in all geographies
UK Construction: Positive momentum continued in the first half, with strong
delivery contributing to a 67% increase in underlying profit from operations.
The Group's market-leading position in the UK infrastructure market is built
on its unmatched scale and vertically integrated capability for delivering
major projects. These include: Hinkley Point C, where the marine work is
progressing well and remains on schedule to be completed in the second half of
2023; HS2 Area North, where 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; and Old Oak Common, where the diaphragm walls and
piling to the HS2 Box have been completed and concrete works are progressing
at pace. In March, The Department for Transport announced delays to parts of
the HS2 project and various highways schemes, driven by Government funding
restrictions. Having worked through the change order on HS2 and rebalanced the
workload, the Group sees no material change to its forecasts.
US Construction: The business completed a number of buildings projects in the
first half, including a three-storey classroom building at Sierra College in
Sacramento, California, which is one of the early successes in the further
diversification of its US buildings footprint. 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. As part of the LINXS Constructors joint venture at Los Angeles
International Airport, the Group successfully energised the West Central
Terminal Station at the International terminal, with all stations and
maintenance facilities now energised. The Group also completed the
construction of the US$300 million Tertiary Treatment Facilities project at
the EchoWater Project in California.
Balfour Beatty continues to have a larger presence in buildings than civils in
the US, with performance varying across the Group's chosen markets in
difficult macroeconomic conditions. The education market in California remains
strong, as does the federal market in the Mid-Atlantic, while hospitality and
aviation markets in the Southeast continue to be a growth area for the
buildings business. In the Northwest, the tech downturn is likely to be a
medium term challenge, and as such, the business is pivoting to new
end-markets. The major impact from the inflationary pressures and rising
interest rates are delays to commercial real-estate projects in Texas. With US
inflation dropping to below 3% in June, the buildings business has started to
see early indicators of the pressure easing.
For US civils, the Group has yet to see an impact from the US Government's
Infrastructure Investment and Jobs Act and Inflation Reduction Act on the
volume of projects coming to its chosen geographies and markets. 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.
Gammon: Balfour Beatty's Hong Kong based 50:50 joint venture with Jardine
Matheson continues to perform consistently, with a strong share of both the
buildings and civils markets, for which the market outlook is positive.
Although inflation in Hong Kong is still lower than in the UK and US, the
elevated level of construction activity in the region has increased the demand
for labour, resulting in higher salaries. Consequently, voluntary attrition
remains a challenge.
Work continues at Hong Kong Airport, where Gammon is delivering the tunnel
structures for the Automatic People Mover and Baggage Handling System from
Terminal 2 to Terminal 2C in addition to working on the Terminal 2 expansion.
The steel roof of Terminal 2 is taking shape in parallel with the building
services and finishing works inside the terminal building. Good progress is
being made at the Central Kowloon Route project, where Gammon is constructing
buildings, tunnelling and carrying out mechanical and electrical works, with
the excavation of the last section of the tunnel close to completion. The
diaphragm wall construction for Ang Mo Kio Station and Tunnels, one of Gammon
Singapore's Land Transport Authority design and build projects, is also
progressing well.
Support Services: strong growth prospects across the portfolio
Support Services is focused on power, plant, road and rail maintenance and is
characterised by profitable recurring revenues and underpinned by long term
contracts. In the first half, the road maintenance business commenced both of
its key 2022 awards, with the £176 million eight-year contract for highways
services for Buckinghamshire County Council starting in April and the £297
million seven-year contract for the maintenance of highways assets and the
delivery of infrastructure services across East Sussex starting in May.
The power business continues to perform strongly, delivering key transmission
and distribution infrastructure throughout the UK, including phase two of
National Grid's London Power Tunnels, where cable installation has recently
started in 32km of underground tunnels between Wimbledon in the South West of
London and Crayford in the South East. In June, SSEN Transmission's first
major project under the RIIO T2 framework 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, supporting a major
milestone in SSEN Transmission's wider strategy to deliver a network for net
zero emissions across the north of Scotland. The Power business also completed
the 116 T-pylon structures for the Hinkley Connection Project. The 400kV
underground cabling section is now connected to the new line of T-pylons and
also energised and transporting electricity. This is an important step in
National Grid's project to connect six million homes and businesses in the
South West to homegrown, low carbon energy.
The UK Government has announced a programme to accelerate the delivery of
strategic transmission upgrades by at least three years, with an ambition to
cut delivery times in half, due to the necessity of upgrading the UK's
electricity transmission and distribution network. As a result, the Group's
power transmission and distribution team is bidding for record levels of work
and in August was selected as one of ten preferred bidders on SSEN
Transmission's c. £10 billion Accelerated Strategic Transmission Investment
(ASTI) framework.
The UK markets for road and rail maintenance remain positive. The highways
maintenance market is part way through a five-year £2.7 billion scheme for
road patching, which has increased local council budgets by around 50%. There
are also several Local Authority contracts, like those won by Balfour Beatty
for Buckinghamshire and East Sussex in 2022, coming to market in the coming
years for which the Group is well positioned. The rail maintenance market also
has a positive trajectory with the UK Government's commitment to invest £44
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.
Infrastructure Investments: pursuing opportunities in attractive markets
In the first half, Balfour Beatty invested £24 million in new and existing
projects with one new US student accommodation project in Tallahassee,
Florida, added to the portfolio. Construction of the Vanderbilt University
student accommodation project is approaching completion, with student rentals
starting in the Fall 2023 semester. The Group remains preferred bidder on two
UK student accommodation projects and has reached financial close on the
William & Mary University project in Virginia, for which construction will
start in the second half of 2023.
In US military housing, the Group completed the demolition works at Fort
Carson as part of a proposed multi-phase project that enables the construction
of new townhomes at the base. Work has now begun on the preparation phase. 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.
Balfour Beatty continues to invest in attractive new opportunities. In
challenging market conditions, the Group maintains its disciplined approach to
investments and disposals with each expected to meet its investment hurdle
rates. The Group's current focus is on 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 ample 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.
Momentum in UK energy security and transition
Balfour Beatty's end to end capabilities position it well to capitalise on the
market opportunities in UK energy security and transition infrastructure. In
addition to the RIIO-T2 spend period (2021-2026), which includes £30 billion
for investment in energy networks and potential for a further £10 billion on
green energy projects, the UK Government has committed significant investment
through its Powering Up Britain programme. Published in March 2023, the plans
set out energy transition and security strategies under which major
infrastructure projects are already being brought to market in areas such as
offshore wind, carbon capture, nuclear and hydrogen production. The Group's
end to end capabilities across UK Construction and Support Services position
it strongly to participate in these structural opportunities, for example:
- The £20 billion ASTI fund supports the accelerated delivery of
strategic electricity transmission network upgrades needed to meet the
Government's 2030 renewable electricity generation ambitions. The Group's two
key power transmission and distribution customers are involved in 25 of the 26
funded projects.
- The £20 billion funding allocated to the development of carbon
capture and hydrogen production technologies is creating opportunities such as
Net Zero Teesside, a first-of-a-kind integrated power and carbon capture
project, for which the Group was involved in the recent 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. In 2022,
Balfour Beatty signed an agreement with Holtec Britain and Hyundai Engineering
and Construction to support the planning advancement for the construction of
Holtec's SMR-160 pressurised light-water nuclear reactors in the UK, with the
Group acting as the main construction partner.
Outlook
In the first half of 2023, Balfour Beatty has delivered a strong financial
performance and continues to expect full year 2023 PFO from its earnings-based
businesses to be broadly in line with the 2022 full year, with further
incremental growth in UK Construction profitability and Support Services
delivering towards the top end of its 6-8% targeted margin range. Gains on
disposal are still expected to be in the range of £15 - £30 million, with
full year 2023 underlying profit after tax also expected to be in line with
the Board's expectations.
2023 full year average net cash is now expected to be in the range of £650 -
£700 million, which includes the share buyback, dividends and further working
capital outflows in the second half of the year. The 2023 full year working
capital unwind is expected to be in the range of £75 - £125 million.
The longer-term outlook for the Group remains positive. The strong, lower risk
order book, combined with the opportunities identified in the Group's chosen
markets, give the Board confidence in Balfour Beatty's continued ability to
deliver profitable managed growth and sustainable cash generation, and in turn
significant future 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, Balfour Beatty has presented financial performance
measures which 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 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, underlying revenue includes the Group's share of
revenue in joint ventures and associates.
Group financial summary
The Group's results in the first half of the year show a strong performance
against a backdrop of challenging economic conditions. Revenue increased by 9%
(6% at CER) to £4,527 million (2022: £4,147 million) driven by an increase
in Construction Services. Statutory revenue, which excludes joint ventures and
associates, was £3,811 million (2022: £3,602 million).
Construction Services revenue was up 12% (9% at CER) to £3,835 million (2022:
£3,414 million) driven by higher HS2 volumes in the UK and increased activity
at the major airport projects in Hong Kong. Support Services revenue decreased
by 7% to £463 million (2022: £499 million) due in part to the timing of
power projects.
Underlying profit / (loss) from operations(2) HY 2023 HY 2022
£m £m
UK Construction 30 18
US Construction 21 21
Gammon 14 10
Construction Services 65 49
Support Services 30 36
Earnings-based businesses 95 85
Infrastructure Investments pre-disposals operating profit 2 10
Infrastructure Investments gain on disposals - 7
Corporate activities (17) (17)
Total underlying profit from operations 80 85
(2) Before non-underlying items (Note 8)
In the first half, underlying profit from operations decreased by 6% to £80
million (2022: £85 million), with an £8 million reduction in Infrastructure
Investments pre-disposal profit from operations due largely to increased costs
relating to the independent compliance monitor's work across the US military
housing portfolio. All 2023 disposals are expected in the second half. In the
earnings-based businesses, improved Construction Services profitability was
partially offset by a lower Support Services contribution. Statutory profit
from operations was £65 million (2022: £82 million).
Net finance income of £17 million (2022: £1 million) improved as a result of
higher interest rates. Underlying pre-tax profit was £97 million (2022: £86
million). The taxation charge on underlying profits increased to £23 million
(2022: £6 million) as there were no additional deferred tax assets for UK tax
losses recognised. This resulted in underlying profit after tax of £74
million (2022: £80 million). Total statutory profit after tax for the period
was £63 million (2022: £98 million), as a result of the net effect of
non-underlying items.
Underlying basic earnings per share was 13.0 pence (2022: 12.9 pence), which,
along with a non-underlying loss per share of 1.9 pence (2022: gain of 2.8
pence), gave a total basic earnings per share of 11.1 pence (2022: 15.7
pence). This included the benefit from the basic weighted average number of
ordinary shares reducing to 567 million (2022: 629 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: net credit of £18 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
8.
Cash flow performance
The total cash movement in the first half resulted in a £105 million decrease
(2022: £48 million) in the Group's period end net cash position to £710
million (FY 2022: £815 million), excluding non-recourse net borrowings.
Operating cash flows were ahead of profit from operations. As expected, there
was a working capital unwind in the first half and there was also an £87
million outflow for the current tranche of the multi-year share buyback
programme.
Cash flow performance HY 2023 HY 2022
£m £m
Operating cash flows 112 110
Working capital outflow (42) (55)
Pension deficit payments(+) (13) (29)
Cash from operations 57 26
Lease payments (including interest paid) (31) (29)
Dividends from joint ventures and associates 27 33
Capital expenditure (30) (13)
Share buybacks (87) (47)
Infrastructure Investments
- disposal proceeds - 12
- new investments (24) (17)
Other (17) (13)
Net cash movement (105) (48)
Opening net cash* 815 790
Closing net cash* 710 742
(*)( ) Excluding infrastructure investments (non-recourse) net borrowings
(+) Including £1 million (2022: £1 million) of regular funding
Working capital
As expected, the Group had a net working capital outflow of £42 million
(2022: £55 million) in the first half. This reduction in the negative working
capital position was a net result of several movements including outflows
relating to major US Construction projects and Support Services
projects.
Working capital flows^ HY 2023 HY 2022
£m £m
Inventories (27) (5)
Net contract assets (158) (4)
Trade and other receivables (51) 22
Trade and other payables 169 (73)
Provisions 25 5
Working capital outflow^ (42) (55)
(^) Excluding impact of foreign exchange and disposals
Including the impact of foreign exchange and non-operating items, negative
(i.e. favourable) current working capital decreased to £1,144 million (FY
2022: £1,167 million). In the medium term, the Group expects negative working
capital as a percentage of revenue to be in line with its historical long term
average of 11-13% (HY 2023: 15.0%; FY 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 in the first half reduced to £695 million (FY
2022: £804 million; HY 2022: £811 million). The Group's net cash position at
the half year, excluding non-recourse net borrowings, was £710 million (FY
2022: £815 million; HY 2022 £742 million).
Non-recourse net borrowings, held in Infrastructure Investments entities
consolidated by the Group, were £259 million (FY 2022: £242 million; HY
2022: £242 million). The balance sheet also included £135 million for lease
liabilities (FY 2022: £132 million; HY 2022: £137 million). Statutory net
cash at half year was £316 million (FY 2022: £441 million; HY 2022: £363
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.
In the first half, the Group purchased 24 million shares for a total
consideration of £87 million. These shares are currently held in treasury
with no voting rights. This tranche of the multi-year share buyback programme
is expected to complete in the fourth quarter of 2023.
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 over
the next five years.
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. This 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 period 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 condensed financial statements and, for this reason,
have continued to adopt the going concern basis. Further detail is provided in
Note 1.3 Going Concern.
Pensions
Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have
committed 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 agreed
the 31 March 2022 formal valuation in the first half of 2023. Under the agreed
principles of the valuation, Balfour Beatty will pay deficit contributions to
the BBPF of £24 million in 2023, £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 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.
The Group's balance sheet includes net retirement benefit assets of £174
million (FY 2022: £223 million) as measured on an IAS 19 basis, with the
surpluses on the BBPF (£176 million) and RPS (£34 million) partially offset
by deficits on other schemes (£36 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 gain on disposal of Investments assets. As announced at the time
of the 2022 full year results, going forward, the Board expects the interim
dividend to be roughly one third of the prior year's full year dividend.
Aligned to this, the Board has declared an interim dividend of 3.5 pence for
2023
DIVISIONAL FINANCIAL REVIEWS
CONSTRUCTION SERVICES
Underlying revenue at £3,835 million was up 12% (2022: £3,414 million), a 9%
increase at CER, with higher volumes in the UK and Gammon. Underlying profit
from operations increased to £65 million (2022: £49 million) due to improved
profitability in UK Construction and higher volumes at Gammon. The order book
reduced by 8% (5% at CER) in the period to £13.8 billion (FY 2022: £15.0
billion), due to a combination of progress on major projects in the UK and
Hong Kong and the economic climate delaying US commercial office projects
going to contract.
Construction Services HY 2023 HY 2022 FY 2022
Revenue(1) PFO Order book(1) Revenue(1) PFO Order book(1) Order book(1)
£m £m £bn £m £m £bn £bn
UK Construction 1,516 30 5.9 1,237 18 5.8 6.1
US Construction 1,736 21 5.3 1,766 21 6.3 6.0
Gammon 583 14 2.6 411 10 3.2 2.9
Underlying(2) 3,835 65 13.8 3,414 49 15.3 15.0
Non-underlying - (13) - - (1) - -
Total 3,835 52 13.8 3,414 48 15.3 15.0
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 8)
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 23% to £1,516
million (2022: £1,237 million) driven primarily by higher volumes at HS2.
UK Construction profitability continued to improve, with increased volumes at
HS2 and improved project delivery contributing to £30 million of underlying
profit from operations (2022: £18 million). This represents a 2.0% PFO margin
(2022: 1.5%), with the full year PFO margin for UK Construction expected to be
above the 2.1% delivered in the 2022 full year.
The UK Construction order book decreased by 3% to £5.9 billion (FY 2022:
£6.1 billion). Over 95% of the UK Construction order book is from public
sector and regulated industry clients.
US Construction: Revenue in US Construction decreased by 2% (6% at CER) to
£1,736 million (2022: £1,766 million). US Construction recorded a £21
million underlying profit from operations in the period, representing a 1.2%
PFO margin, both of which were in line with the first half of 2022. The
business is anticipated to deliver a 1-2% PFO margin for the 2023 full year.
The US Construction order book decreased 12% (5% at CER) to £5.3 billion (FY
2022: £6.0 billion), with the economic conditions contributing to delays in
projects going to contract, especially in the commercial office sector. Work
winning has been strong across most geographies, and a US buildings growth
strategy to target additional cities in states with an existing Balfour Beatty
presence and broader end-markets in some regions where the business is already
active, has delivered some early success. New additions to the order book in
the first half include a US$242 million design-build highways contract in
North Carolina and US$230 million of data centres in the US Northwest.
Furthermore, Balfour Beatty has been selected for projects at airports in
North Carolina and California, which are included in a high level of work for
the coming years which has been awarded. This work is not included in the
order book until the client proceeds to contract.
Gammon: The Group's share of Gammon's revenue increased by 42% (36% at CER) to
£583 million (2022: £411 million) driven by an increase in major civils
volumes, including the Terminal 2 expansion at Hong Kong Airport. Underlying
profit increased to £14 million (2022: £10 million) representing a 2.4%
profit margin.
The Group's 50% share of Gammon's order book decreased by 10% (7% at CER) to
£2.6 billion (FY 2022: £2.9 billion) with the accelerated utilisation of the
order book partially offset by new orders, including 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
The Support Services business provides power, plant, road and rail maintenance
and is characterised by profitable recurring revenues underpinned by long term
frameworks targeting PFO margin of 6-8%.
Support Services revenue decreased by 7% to £463 million (2022: £499
million), mainly due to the timing of power projects. Underlying profit from
operations at £30 million (2022: £36 million) was lower than the prior
period due to the reduced revenue and the commencement of two new major road
maintenance contracts, which typically incur additional costs in the start-up
phase. This has reduced the PFO margin to 6.5% in the period (2022: 7.2%),
however the power, road and rail maintenance businesses all continue to
perform well, and Support Services is expected to deliver towards the top end
of its targeted 6-8% margin range for the 2023 full year.
The Support Services order book increased by 8% to £2.6 billion (FY 2022:
£2.4 billion). During the first half, the road maintenance business added the
£297 million East Sussex contract to the order book and the power business
won a £42 million contract with National Grid to design and build a new 400
kV substation as well as two new terminal towers for the Little Horsted
Substation Grid Supply Point.
Support Services HY 2023 HY 2022
Order book(1) (£bn) 2.6 2.4
Revenue(1) (£m) 463 499
Profit from operations(2) (£m) 30 36
Non-underlying items (£m) - -
Statutory profit from operations (£m) 30 36
(1) Including share of joint ventures and associates
(2) Before non-underlying items (Note 8)
A reconciliation of the Group's performance measures to its statutory results
is provided in the Measuring our financial performance section
INFRASTRUCTURE INVESTMENTS
Underlying pre-disposals profit from operations in the period decreased to £2
million (2022: £10 million) due largely to increased costs relating to the
independent compliance monitor's work across the US military housing
portfolio, and a £3 million reduction in the Group's share of profits from UK
joint ventures due to higher interest rates on the subordinated debt provided
by the Group which is offset by an increase in net investment income.
No disposals were made in the first half (2022: £7 million gain on
disposals), with the Group forecasting a gain on disposals in the second half
of 2023 in the range of £15 - £30 million. Underlying profit from operations
was £2 million (2022: £17 million).
Net investment income of £12 million (2022: £7 million) included the £3
million benefit from higher interest rates on the subordinated debt provided
by the Group to joint ventures and contributed to underlying profit before tax
of £14 million (2022: £24 million).
Balfour Beatty continues to invest in attractive new opportunities, each
expected to meet its investment hurdle rates. In the first half, the Group
invested £24 million in new and existing projects, with one new student
accommodation project in Tallahassee, Florida, added to the portfolio.
Infrastructure Investments HY 2023 HY 2022
£m £m
Pre-disposals operating profit(2) 2 10
Gain on disposals(2) - 7
Profit from operations(2) 2 17
Net investment income(~) 12 7
Profit before tax(2) 14 24
Non-underlying items (2) (2)
Statutory profit before tax 12 22
(2) Before non-underlying items (Note 8)
(~) 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
Directors' valuation
The Directors' valuation decreased 2% to £1,269 million (FY 2022: £1,291
million). The portfolio is now 54% weighted towards the US (FY 2022: 58%). The
number of projects in the portfolio increased to 60 (FY 2022: 59).
Movement in value FY 2022 to HY 2023
£m FY 2022 Equity invested Distributions received Sales proceeds Unwind of discount Operational performance FX HY 2023
UK 548 3 (13) - 18 22 - 578
US 743 21 (20) - 24 (38) (39) 691
Total 1,291 24 (33) - 42 (16) (39) 1,269
Balfour Beatty invested £24 million (2022: £17 million) in new and existing
projects. During the first half the Group added one new investment: a student
accommodation project in Tallahassee, Florida.
Cash yield from distributions amounted to £33 million (2022: £36 million).
There were no asset disposals in the first half (2022: £12 million).
Unwind of discount at £42 million (2022: £42 million) is a function of
moving the valuation date forward by six months with the result that future
cash flows are discounted by six fewer months.
Operational performance movements resulted in a £16 million decrease (2022:
£93 million increase). The operational performance movements in the UK
portfolio 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 portfolio, the main driver of the decrease was
increased forecast insurance costs in the US military housing portfolio, while
forecast costs relating to the independent compliance monitor's work were also
increased.
The foreign exchange movement was a £39m decrease (2022: £86 million
increase), as sterling appreciated against the US dollar in the period.
Methodology and assumption changes
For the 2022 year end valuation, a third-party valuation expert independently
reviewed the portfolio and the Directors' valuation was consistent with their
conclusions. The valuation methodology used for the 2023 half year Directors'
valuation is unchanged from that used for the 2022 year end valuation.
The methodology for valuing most of the 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 multi-family 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.
UK discount rates range from 6.75% to 8.75% depending on the maturity and risk
of each project and the implied weighted average discount rate for the UK
portfolio is 7.9% (FY 2022 7.9%). A 1% change in the discount rate would
change the valuation of the UK portfolio by approximately £59 million. US
discount rates range between 6% and 10.5% and the implied US weighted average
discount rate is 7.9% (FY 2022: 7.9%). A 1% change in the discount rate would
change the valuation of the US portfolio by approximately £78 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 £31 million and a 1% change in the long term rental growth rate
in the US portfolio would change the valuation by approximately £86 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 International Financial Reporting
Standards (IFRS) rather than using a discounted cash flow approach. A full
reconciliation is provided in section i) of the Measuring Our Financial
Performance section.
Portfolio valuation June 2023
Value by sector
Sector HY 2023 FY 2022 HY 2023 FY 2022
No. projects No. projects £m £m
Roads 12 12 171 171
Healthcare 2 2 136 126
Student accommodation 5 5 144 128
Energy transition 5 5 103 101
Other 2 2 24 22
UK total 26 26 578 548
US military housing 21 21 551 615
Student accommodation and other PPP 4 3 76 59
Residential housing 9 9 64 69
US total 34 33 691 743
Total 60 59 1,269 1,291
Value by phase
Phase HY 2023 FY 2022 HY 2023 FY 2022
No. projects No. projects £m £m
Operations 56 55 1,213 1,239
Construction 3 3 51 47
Preferred bidder 1 1 5 5
Total 60 59 1,269 1,291
Value by income type
Income type HY 2023 FY 2022 HY 2023 FY 2022
No. projects No. projects £m £m
Availability based 17 17 364 353
Demand - operationally proven (2+ years) 37 36 709 761
Demand - early stage (less than 2 years) 6 6 196 177
Total 60 59 1,269 1,291
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK;
· the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R
(https://alex.kpmg.com/AROWeb/document/lfc/find/UK_XLNUK_FSA_DR_DTR_BODY_para4_2_7R)
of the Disclosure Guidance and Transparency Rules, being an indication of
important events that have occurred during the first half of the financial
year and their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the remaining second
half of the year; and
(b) DTR 4.2.8R
(https://alex.kpmg.com/AROWeb/document/lfc/find/UK_XLNUK_FSA_DR_DTR_BODY_para4_2_8R)
of the Disclosure Guidance and Transparency Rules, being related party
transactions that have taken place in the first half of the current financial
year and that have materially affected the financial position or performance
of the Group during that period; and any changes in the related party
transactions described in the last annual report that could do so.
Leo Quinn
Philip Harrison
Group Chief Executive Chief
Financial Officer
15 August 2023
Forward-looking statements
This report, 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 document 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 Beattyin good faith based on the information available to it at the
date of this report 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 89 to 96 of the Annual Report and
Accounts 2022.
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 report 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 report. No
statement in this report 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.
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 report with the aim of providing
transparency and clarity on the measures adopted internally to assess
performance.
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.
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 report 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 receivables and
accrued interest, 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 report when reporting
performance, both in absolute terms and also in comparison to earlier periods:
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 187 to 193 of the Annual Report and Accounts 2022.
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 2022. 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 2022
first half first half year
£m
£m
£m
Order book (performance measure) 16,442 17,672 17,390
Less: Share of orders included within the Group's joint ventures and associates (2,938) (3,572) (3,275)
Less: Estimated orders under framework agreements included in the order book - (106) (25)
disclosure
Add: Transaction price allocated to remaining performance obligations in 1,903 1,791 2,009
Infrastructure Investments
Transaction price allocated to remaining performance obligations for the Group 15,407 15,785 16,099
(statutory measure)
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 8.
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 the half-year ended 30 June 2023 statutory results to
performance measures
Non-underlying items
2023 first half Intangible Provision in relation to rectification works in London 2023 first half performance
statutory
amortisation
measures
results
£m £m
£m
£m
Revenue including share of joint ventures and associates (performance) 4,527 - - 4,527
Share of revenue of joint ventures and associates (716) - - (716)
Group revenue (statutory) 3,811 - - 3,811
Cost of sales (3,631) - 12 (3,619)
Gross profit 180 - 12 192
Amortisation of acquired intangible assets (3) 3 - -
Other net operating expenses (134) - - (134)
Group operating profit 43 3 12 58
Share of results of joint ventures and associates 22 - - 22
Profit from operations 65 3 12 80
Investment income 38 - - 38
Finance costs (21) - - (21)
Profit before taxation 82 3 12 97
Taxation (19) (1) (3) (23)
Profit for the period 63 2 9 74
Reconciliation of the half-year ended 30 June 2023 statutory results to
performance measures by segment
Non-underlying items
Profit/(loss) from operations 2023 first half Intangible Provision in relation to rectification 2023 first half performance
statutory
amortisation
measures
results
£m works in London
£m
£m
£m
Segment
Construction Services 52 1 12 65
Support Services 30 - - 30
Infrastructure Investments - 2 - 2
Corporate activities (17) - - (17)
Total 65 3 12 80
Reconciliation of the half-year ended 1 July 2022 statutory results to
performance measures
Non-underlying items
2022 first half Intangible UK deferred tax assets 2022 first half performance
statutory
amortisation
measures
results
£m £m
£m
£m
Revenue including share of joint ventures and associates (performance) 4,147 - - 4,147
Share of revenue of joint ventures and associates (545) - - (545)
Group revenue (statutory) 3,602 - - 3,602
Cost of sales (3,429) - - (3,429)
Gross profit 173 - - 173
Amortisation of acquired intangible assets (3) 3 - -
Other net operating expenses (117) - - (117)
Group operating profit 53 3 - 56
Share of results of joint ventures and associates 29 - - 29
Profit from operations 82 3 - 85
Investment income 25 - - 25
Finance costs (24) - - (24)
Profit before taxation 83 3 - 86
Taxation 15 (1) (20) (6)
Profit for the period 98 2 (20) 80
Reconciliation of the half-year ended 1 July 2022 statutory results to
performance measures by segment
Non-underlying items
Profit/(loss) from operations 2022 first half Intangible UK deferred tax assets 2022 first half performance
statutory
amortisation
measures
results
£m £m
£m
£m
Segment
Construction Services 48 1 - 49
Support Services 36 - - 36
Infrastructure Investments 15 2 - 17
Corporate activities (17) - - (17)
Total 82 3 - 85
Reconciliation of the year ended 31 December 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 the year ended 31 December 2022 statutory results to
performance measures
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 2022
first half first half year
£m
£m
£m
Underlying profit from operations (section (b) and Note 3) 2 17 81
Add: Subordinated debt interest receivable(^) 16 12 27
Add: Interest receivable on PPP financial assets(^) 1 1 2
Add: Fair value (loss)/gain on investment asset(^) (1) 5 6
Less: Non-recourse borrowings finance cost(^) (4) (4) (9)
Less: Impairment of subordinated debt receivable(^) - (3) -
Less: Impairment of accrued interest(^) - (4) (2)
Underlying profit before tax (performance) 14 24 105
Non-underlying items (section (b) and Note 3) (2) (2) (5)
Statutory profit before tax 12 22 100
(^) Refer to Note 6 and Note 7.
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.
2023 2022 2022
first half first half year
£m
£m
£m
Statutory basic earnings per ordinary share 11.1 15.7 46.9
Amortisation of acquired intangible assets after tax 0.3 0.3 1.2
Other non-underlying items after tax 1.6 (3.1) (0.6)
Underlying basic earnings per ordinary share (performance) 13.0 12.9 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's Statement of Cash Flows.
Reconciliation from statutory cash generated from operations to OCF
2023 first half 2022 2022
£m
first half year
£m
£m
Cash generated from operating activities (statutory) 48 19 168
Add back: Pension payments including deficit funding (Note 18) 13 29 43
Less: Repayment of lease liabilities (including lease interest payments) (31) (29) (58)
Add: Operational dividends received from joint ventures and associates 27 33 89
Add back: Cash flow movements relating to non-operating items 8 5 (12)
Less: Operating cash flows relating to non-recourse activities (5) (6) (11)
Operating cash flow (OCF) (performance) 60 51 219
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 (£13m): 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 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) (£31m
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 (£27m
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 represent 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 (£8m): the Group's OCF
measure excludes certain working capital movements that are not directly
attributable to the Group's operating activities.
f) Operating cash flow (OCF) continued
Operating cash flows relating to non-recourse activities (£5m): 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 period 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 2022 Adjustment 2022
£m
£m
£m
first half first half first half first half year year
(statutory)
(performance)
(statutory)
(performance)
(statutory)
(performance)
£m
£m
£m
£m
£m
£m
Total cash within the Group 927 (27) 900 1,110 (20) 1,090 1,179 (19) 1,160
Cash and cash equivalents
- infrastructure concessions 27 (27) - 20 (20) - 19 (19) -
- other 900 - 900 1,090 - 1,090 1,160 - 1,160
Total debt within the Group (611) 421 (190) (747) 399 (348) (738) 393 (345)
Borrowings - non-recourse loans (286) 286 - (262) 262 - (261) 261 -
- other (190) - (190) (348) - (348) (345) - (345)
Lease liabilities (135) 135 - (137) 137 - (132) 132 -
Net cash 316 394 710 363 379 742 441 374 815
h) Average net cash/borrowings
The Group uses average net cash/borrowings measure as this reflects its
financing requirements throughout the period. The Group calculates its average
net cash/borrowings based on the average of opening and closing figures for
each month through the period.
The average net cash/borrowings measure excludes non-recourse cash and debt
and lease liabilities, and this performance measure shows average net cash of
£695m (2022: first half £811m; full-year £804m).
Using a statutory measure (inclusive of non-recourse elements and lease
liabilities) gives average net cash of £379m (2022: first half £391m;
full-year £430m).
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.
i) Directors' valuation of the Investments portfolio continued
The Directors have valued the Investments portfolio at £1.27bn at the
half-year (2022: first half £1.30bn; full-year £1.29bn). 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 2022
first half first half year
£m
£m
£m
Net assets of the Infrastructure Investments segment (refer to Note 3.2) 619 654 593
Less: Net assets not included within the Directors' valuation - Housing (40) (27) (30)
division
Comparable statutory measure of the Investments portfolio under IFRS 579 627 563
Comparison of the statutory measure of the Investments portfolio to its
performance measure
2023 2022 2022
first half first half year
£m
£m
£m
Statutory measure of the Investments portfolio (as above) 579 627 563
Difference arising from the Directors' valuation being measured on a 690 669 728
discounted cash flow basis compared to the statutory measure primarily derived
using a combination of the following IFRS bases:
§ historical cost;
§ amortised cost; and
§ fair value
Directors' valuation (performance measure) 1,269 1,296 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
period. The Group's key exchange rates applied in deriving its statutory
results are shown in Note 2.
To measure changes in the Group's performance compared with the previous
period 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 period's figures at the current
period'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 first half statutory 1,516 1,718 - 3,234 463 114 3,811
2022 first half statutory 1,237 1,758 - 2,995 498 109 3,602
Statutory growth 23% (2)% - 8% (7)% 5% 6%
2023 first half performance(^) 1,516 1,736 583 3,835 463 229 4,527
2022 first half performance retranslated(^) 1,237 1,853 430 3,520 499 241 4,260
Performance CER growth 23% (6)% 36% 9% (7)% (5)% 6%
Order book (£bn)
2023 first half 5.9 5.3 2.6 13.8 2.6 - 16.4
2022 year 6.1 6.0 2.9 15.0 2.4 - 17.4
Growth (3)% (12)% (10)% (8)% 8% - (6)%
2023 first half 5.9 5.3 2.6 13.8 2.6 - 16.4
2022 year retranslated 6.1 5.6 2.8 14.5 2.4 - 16.9
CER growth (3)% (5)% (7)% (5)% 8% - (3)%
(^) Performance revenue is underlying revenue including share of revenue from
joint ventures and associates as set out in section (e).
INDEPENDENT REVIEW REPORT TO BALFOUR BEATTY PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the period ended 30 June
2023 which comprises the Condensed Group Income Statement, Condensed Group
Statement of Comprehensive Income, Condensed Group Statement of Changes in
Equity, Condensed Group Balance Sheet, Condensed Group Statement of Cash Flows
and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the period ended 30 June 2023 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the Directors
have inappropriately adopted the going concern basis of accounting, or that
the Directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with
UK-adopted international accounting standards. The Directors are responsible
for preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted for use in
the UK.
In preparing the condensed set of financial statements, the Directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Mike Barradell
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
15 August 2023
Condensed Group Income Statement
For the half-year ended 30 June 2023
2023 first half unaudited 2022 first half unaudited 2022 year audited
Notes Underlying Non-underlying items Total Underlying Non-underlying items Total Underlying Non-underlying Total
items(1) (Note 8) £m items(1) (Note 8) £m items(1) items £m
£m £m £m £m £m (Note 8)
£m
Revenue including share of joint ventures and associates 4,527 - 4,527 4,147 - 4,147 8,931 - 8,931
Share of revenue of joint ventures and associates 5.1 (716) - (716) (545) - (545) (1,302) - (1,302)
Group revenue 3,811 - 3,811 3,602 - 3,602 7,629 - 7,629
Cost of sales (3,619) (12) (3,631) (3,429) - (3,429) (7,202) - (7,202)
Gross profit/(loss) 192 (12) 180 173 - 173 427 - 427
Amortisation of acquired intangible assets - (3) (3) - (3) (3) - (6) (6)
Other net operating (expenses)/income (134) - (134) (117) - (117) (253) 2 (251)
Group operating profit/(loss) 58 (15) 43 56 (3) 53 174 (4) 170
Share of results of joint ventures and associates excluding gain on disposals 22 - 22 22 - 22 35 - 35
of interests in investments
Gain on disposals of interests in investments - - - 7 - 7 70 - 70
Share of results of joint ventures and associates 5.1 22 - 22 29 - 29 105 - 105
Profit/(loss) from operations 80 (15) 65 85 (3) 82 279 (4) 275
Investment income 6 38 - 38 25 - 25 50 - 50
Finance costs 7 (21) - (21) (24) - (24) (38) - (38)
Profit/(loss) before taxation 97 (15) 82 86 (3) 83 291 (4) 287
Taxation 9 (23) 4 (19) (6) 21 15 (1) 1 -
Profit/(loss) for the period 74 (11) 63 80 18 98 290 (3) 287
Attributable to
Equity holders 74 (11) 63 81 18 99 291 (3) 288
Non-controlling interests - - - (1) - (1) (1) - (1)
Profit/(loss) for the period 74 (11) 63 80 18 98 290 (3) 287
(1) Before non-underlying items (Note 8).
Notes 2023 2022 2022
first half unaudited first half unaudited year
pence pence audited
pence
Earnings per share
- basic 10 11.1 15.7 46.9
- diluted 10 11.0 15.6 46.3
Dividends per share proposed for the period 11 3.5 3.5 10.5
Condensed Group Statement of Comprehensive Income
For the half-year ended 30 June 2023
2023 first half unaudited 2022 first half unaudited 2022 year audited
Group Share of joint ventures and associates Total Group Share of joint ventures and associates Total Group Share of Total
£m £m £m £m £m £m £m joint £m
ventures
and associates
£m
Profit for the period 41 22 63 69 29 98 182 105 287
Other comprehensive (loss)/income for the period
Items which will not subsequently be reclassified to the income statement
Actuarial (losses)/gains on retirement benefit assets/liabilities (71) - (71) 103 - 103 (52) 1 (51)
Tax on above 18 - 18 (20) - (20) 20 - 20
(53) - (53) 83 - 83 (32) 1 (31)
Items which will subsequently be reclassified to the income statement
Currency translation differences (16) (12) (28) 20 29 49 32 23 55
Fair value revaluations - PPP financial assets (1) (10) (11) (1) (74) (75) (3) (124) (127)
- cash flow hedges 1 2 3 1 15 16 3 29 32
- investments in mutual funds measured at fair value through OCI 1 - 1 (4) - (4) (5) - (5)
Recycling of revaluation reserves to the income statement on disposal(^) - - - - - - - (3) (3)
Tax on above - 2 2 - 15 15 (1) 25 24
(15) (18) (33) 16 (15) 1 26 (50) (24)
Total other comprehensive (loss)/income for the period (68) (18) (86) 99 (15) 84 (6) (49) (55)
Total comprehensive (loss)/income for the period (27) 4 (23) 168 14 182 176 56 232
Attributable to
Equity holders (23) 183 233
Non-controlling interests - (1) (1)
Total comprehensive (loss)/income for the period (23) 182 232
(^) Recycling of revaluation reserves to the income statement on disposal has
an associated deferred tax credit of £nil.
Condensed Group Statement of Changes in Equity
For the half-year ended 30 June 2023
Other reserves
Called-up Share Capital Redemption Reserve Share Hedging reserves PPP financial assets Currency translation reserve Other (µ) Retained Non- Total
share premium £m of joint £m £m £m £m profits controlling £m
capital account ventures' £m interests
£m £m and £m
associates'
reserves
£m
At 31 December 2021 audited 345 176 1 72 (5) 4 100 45 631 7 1,376
Total comprehensive income/(loss) for the period - - - 15 - (1) 20 (3) 152 (1) 182
Ordinary dividends - - - - - - - - (37) - (37)
Joint ventures' and associates' dividends - - - (38) - - - - 38 - -
Purchase of treasury shares - - - - - - - - (48) - (48)
Cancellation of ordinary shares (25) - 25 - - - - - - - -
Movements relating to share-based payments(+) - - - - - - - (3) (16) - (19)
At 1 July 2022 unaudited 320 176 26 49 (5) 3 120 39 720 6 1,454
Total comprehensive income/(loss) for the period - - - 41 1 (2) 12 (2) - - 50
Ordinary dividends - - - - - - - - (21) - (21)
Joint ventures' and associates' dividends - - - (110) - - - - 110 - -
Non-controlling interests' dividends - - - - - - - - - (1) (1)
Purchase of treasury shares - - - - - - - - (103) - (103)
Cancellation of ordinary shares (26) - 26 - - - - - - - -
Movements relating to share-based payments(+) - - - - - - - 4 - - 4
At 31 December 2022 audited 294 176 52 (20) (4) 1 132 41 706 5 1,383
Total comprehensive income/(loss) for the period - - - 4 1 (1) (16) 1 (12) - (23)
Ordinary dividends - - - - - - - - (39) - (39)
Joint ventures' and associates' dividends - - - (27) - - - - 27 - -
Reserves transfers relating to joint ventures and associates - - - 4 - - - - (4) - -
Purchase of treasury shares - - - - - - - - (88) - (88)
Movements relating to share-based payments(+) - - - - - - - (2) 7 - 5
At 30 June 2023 unaudited 294 176 52 (39) (3) - 116 40 597 5 1,238
(µ) Other reserves include £22m of special reserve.
(+) Movements relating to share-based payments include £nil tax credit (2022:
first half £nil; full-year: £2m) recognised directly within retained
profits.
Condensed Group Balance Sheet
At 30 June 2023
Notes 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Non-current assets
Intangible assets - goodwill 12 847 877 876
- other 282 298 292
Property, plant and equipment 118 102 104
Right-of-use assets 127 132 127
Investment properties 67 28 27
Investments in joint ventures and associates 5.2 406 493 426
Investments 31 38 40
PPP financial assets 25 28 26
Trade and other receivables 14 287 237 286
Retirement benefit assets 18 210 407 262
Deferred tax assets 181 122 176
2,581 2,762 2,642
Current assets
Inventories 140 112 114
Contract assets 13.1 471 215 300
Trade and other receivables 14 890 937 881
Cash and cash equivalents - infrastructure investments 17.2 27 20 19
- other 17.2 900 1,090 1,160
Current tax receivable 10 6 6
Derivative financial instruments 21 1 - 1
2,439 2,380 2,481
Total assets 5,020 5,142 5,123
Current liabilities
Contract liabilities 13.2 (662) (695) (663)
Trade and other payables 15 (1,770) (1,519) (1,595)
Provisions 16 (213) (186) (204)
Borrowings - non-recourse loans 17.3 (8) (6) (30)
- other 17.3 - (175) (173)
Lease liabilities (50) (48) (49)
Current tax payable (8) (12) (8)
Derivative financial instruments 21 - (1) -
(2,711) (2,642) (2,722)
Non-current liabilities
Contract liabilities 13.2 (2) (15) (2)
Trade and other payables 15 (121) (125) (141)
Provisions 16 (212) (207) (197)
Borrowings - non-recourse loans 17.3 (278) (256) (231)
- other 17.3 (190) (173) (172)
Lease liabilities (85) (89) (83)
Retirement benefit liabilities 18 (36) (46) (39)
Deferred tax liabilities (146) (134) (152)
Derivative financial instruments 21 (1) (1) (1)
(1,071) (1,046) (1,018)
Total liabilities (3,782) (3,688) (3,740)
Net assets 1,238 1,454 1,383
Equity
Called-up share capital 294 320 294
Share premium account 176 176 176
Capital redemption reserve 52 26 52
Share of joint ventures' and associates' reserves (39) 49 (20)
Other reserves 153 157 170
Retained profits 597 720 706
Equity attributable to equity holders 1,233 1,448 1,378
Non-controlling interests 5 6 5
Total equity 1,238 1,454 1,383
Condensed Group Statement of Cash Flows
For the half-year ended 30 June 2023
Notes 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Cash flows from operating activities
Cash from operations 17.1 57 26 185
Income taxes paid (9) (7) (17)
Net cash from operating activities 48 19 168
Cash flows (used in)/from investing activities
Dividends received from: - joint ventures and associates - infrastructure investments 13 26 114
- joint ventures and associates - other 14 12 34
- other investments 4 - 4
Interest received - infrastructure investments - joint ventures 5 5 10
Interest received - infrastructure investments - subsidiaries 16 - 7
Acquisition of businesses - (3) (3)
Purchases of: - intangible assets - infrastructure investments - - (1)
- property, plant and equipment (30) (13) (31)
- investment properties (42) - -
- other investments - - (7)
Investments in and long-term loans to joint ventures and associates (7) (17) (29)
Return of equity from joint ventures and associates - 7 34
PPP financial assets cash expenditure (1) (2) (2)
PPP financial assets cash receipts 3 3 5
Disposals of: - investments in joint ventures - other - 1 1
- property, plant and equipment - other 1 3 8
- other investments 5 1 2
Net cash (used in)/from investing activities (19) 23 146
Cash flows used in financing activities
Purchase of ordinary shares 19 (2) (24) (25)
Purchase of treasury shares 19 (87) (47) (151)
Proceeds from new loans relating to: - infrastructure investments assets 17.4 30 5 8
- other 17.4 29 132 130
Repayments of loans relating to: - infrastructure investments 17.4 (4) (3) (7)
assets
- other (169) - -
Repayment of lease liabilities (28) (27) (52)
Ordinary dividends paid 11 - - (58)
Other dividends paid - non-controlling interest - - (1)
Interest paid - infrastructure investments (5) (4) (9)
Interest paid - other (17) (10) (24)
Net cash (used in)/from financing activities (253) 22 (189)
Net (decrease)/increase in cash and cash equivalents (224) 64 125
Effects of exchange rate changes (28) 46 55
Cash and cash equivalents at beginning of period 1,179 999 999
Cash and cash equivalents at end of period 17.2 927 1,109 1,179
Notes to the financial statements
1.1 Basis of accounting
The condensed Group financial statements for the half-year ended 30 June 2023
have been prepared in accordance with the Disclosure and Transparency Rules of
the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as
adopted for use in the UK. The condensed Group financial statements should be
read in conjunction with the financial statements for the year ended 31
December 2022, which were prepared in accordance with UK-adopted international
accounting standards (IFRS) and in conformity with the requirements of the
Companies Act 2006 (the Act).
The condensed Group financial statements, which are not audited, have been
reviewed and were approved for issue by the Board on 15 August 2023. The
financial information included in this report does not constitute statutory
accounts for the purposes of Section 434 of the Companies Act 2006. A copy of
the Group's audited statutory accounts for the year ended 31 December 2022 has
been delivered to the Registrar of Companies. The independent auditor's report
on those accounts was unqualified, did not include a reference to any matters
to which the auditor drew attention by way of emphasis without qualifying the
report and did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006. The condensed Group financial statements have been
prepared on the basis of the accounting policies set out in the Annual Report
and Accounts 2022 except as described in Note 1.4 below.
1.2 Judgements and key sources of estimation uncertainty
The Group's principal judgements and key sources of estimation uncertainty
remain unchanged since the year-end and are set out in Note 2.27 on pages 192
to 193 of the Annual Report and Accounts 2022.
1.3 Going concern
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 these condensed financial statements and, for this reason, have
continued to adopt the going concern basis.
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 89 to 96
of the Annual Report and Accounts 2022.
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 30 June
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 condensed 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 £16.4bn at 30 June 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 30 June 2023, the Group's only debt, other than non-recourse borrowings
ring-fenced within certain concession companies, comprised US private
placement (USPP) notes and its bilateral committed facility. The remaining
US$50m USPP notes issued in 2013 will mature in March 2025. The US$158m USPP
notes issued in 2022 will mature in tranches in 2027, 2029 and 2032. The
Group's bilateral committed facility, which was fully utilised through a
US$36m drawdown in March 2023, is due to expire in December 2024 however the
facility contains an extension option for a further three years subject to
certain specific conditions.
1.3 Going concern continued
In June 2023, the Group also 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
contains 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 was undrawn at 30 June 2023.
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 condensed financial statements
1.4 Adoption of new and revised standards
The following accounting standards, interpretations and amendments have been
adopted by the Group in the current period:
· IFRS 17 Insurance Contracts
· Amendments to the following standards:
· IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2: Disclosure of Accounting Policies
· IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors: Definition of Accounting Estimates
· IAS 12 Income Taxes: Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
· IFRS 17 Insurance contracts: Initial Application of IFRS 17 and
IFRS 9 - Comparative Information
The above accounting standard and amended standards did not have a material
effect on the Group.
1.5 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 30 June 2023:
· Amendments to the following standards:
− IAS 1 Presentation of Financial Statements: Classification of
Liabilities as Current or Non-current
− IAS 1 Presentation of Financial Statements: Non-current
liabilities with Covenants
− IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures: Supplier Finance Arrangements
− IAS 12 Income taxes: International Tax Reform - Pillar Two Model
Rules
− IFRS 16 Leases: Lease Liability in a Sale and Leaseback
2 Exchange rates
The following key exchange rates were applied in these financial statements:
Average rates
£1 buys 2023 2022 2022 1 July 2022 - 30 June 2023 31 Dec 2022 - 30 June 2023
first half first half year % change % change
unaudited unaudited audited
US$ 1.23 1.29 1.24 (4.7)% (0.8)%
HK$ 9.66 10.12 9.72 (4.5)% (0.6)%
Closing rates
£1 buys 2023 2022 2022 1 July 2022 - 30 June 2023 31 Dec 2022 - 30 June 2023
first half first half year % change % change
unaudited unaudited audited
US$ 1.27 1.20 1.20 5.8% 5.8%
HK$ 9.96 9.41 9.39 5.8% 6.1%
3 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, offshore transmission networks, waste and biomass and other
concessions. This segment also includes the Group's housing development
division.
3.1 Income statement - performance by activity
For the half-year ended 30 June 2023 unaudited Construction Support Infrastructure Corporate Total
Services Services Investments activities £m
£m £m £m £m
Revenue including share of joint ventures and associates 3,835 463 229 - 4,527
Share of revenue of joint ventures and associates (601) - (115) - (716)
Group revenue 3,234 463 114 - 3,811
Group operating profit/(loss)(1) 50 30 (5) (17) 58
Share of results of joint ventures and associates 15 - 7 - 22
Profit/(loss) from operations(1) 65 30 2 (17) 80
Non-underlying items:
- amortisation of acquired intangible assets (1) - (2) - (3)
- provision recognised for rectification works to be carried out on a (12) - - - (12)
development in London
Profit/(loss) from operations 52 30 - (17) 65
Investment income 38
Finance costs (21)
Profit before taxation 82
(1) Before non-underlying items (Note 8).
3 Segment analysis continued
3.1 Income statement - performance by activity continued
For the half-year ended 1 July 2022 unaudited Construction Support Infrastructure Corporate Total
Services Services Investments activities £m
£m £m £m £m
Revenue including share of joint ventures and associates 3,414 499 234 - 4,147
Share of revenue of joint ventures and associates (419) (1) (125) - (545)
Group revenue 2,995 498 109 - 3,602
Group operating profit/(loss)(1) 38 36 (1) (17) 56
Share of results of joint ventures and associates 11 - 18 - 29
Profit/(loss) from operations(1) 49 36 17 (17) 85
Non-underlying items:
- amortisation of acquired intangible assets (1) - (2) - (3)
Profit/(loss) from operations 48 36 15 (17) 82
Investment income 25
Finance costs (24)
Profit before taxation 83
(1) Before non-underlying items (Note 8).
Construction Support Infrastructure Corporate Total
For the year ended 31 December 2022 audited Services Services Investments activities £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 net operating income 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 8).
3 Segment analysis continued
3.2 Assets and liabilities by activity
As at 30 June 2023 unaudited Construction Support Infrastructure Corporate Total
Services Services Investments activities £m
£m £m £m £m
Contract assets - current 365 84 22 - 471
Contract liabilities - current (571) (90) (1) - (662)
Inventories 69 30 41 - 140
Trade and other receivables - current 732 94 50 14 890
Trade and other payables - current (1,474) (194) (42) (60) (1,770)
Provisions - current (187) (3) (6) (17) (213)
Working capital* (1,066) (79) 64 (63) (1,144)
* Includes non-operating items and current working capital.
Total assets 2,413 481 985 1,141 5,020
Total liabilities (2,535) (390) (366) (491) (3,782)
Net (liabilities)/assets (122) 91 619 650 1,238
As at 1 July 2022 unaudited Construction Support Infrastructure Corporate Total
Services Services Investments activities £m
£m £m £m £m
Contract assets - current 125 61 29 - 215
Contract liabilities - current (571) (123) (1) - (695)
Inventories 44 38 30 - 112
Trade and other receivables - current 799 89 36 13 937
Trade and other payables - current (1,249) (176) (41) (53) (1,519)
Provisions - current (159) (3) (8) (16) (186)
Working capital* (1,011) (114) 45 (56) (1,136)
* Includes non-operating items and current working capital.
Total assets 2,411 463 1,001 1,267 5,142
Total liabilities (2,308) (397) (347) (636) (3,688)
Net assets 103 66 654 631 1,454
As at 31 December 2022 audited Construction Support Infrastructure Corporate Total
Services Services Investments activities £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)
* Includes non-operating items and current working capital.
Total assets 2,342 443 940 1,398 5,123
Total liabilities (2,421) (378) (347) (594) (3,740)
Net (liabilities)/assets (79) 65 593 804 1,383
3 Segment analysis continued
3.3 Other information
Construction Support Infrastructure Corporate Total
Services Services Investments activities £m
£m £m £m £m
For the half-year ended 30 June 2023 unaudited
Capital expenditure on property, plant and equipment 4 22 - 4 30
Depreciation 14 25 1 5 45
For the half-year ended 1 July 2022 unaudited
Capital expenditure on property, plant and equipment 6 6 - 1 13
Depreciation 14 21 1 5 41
Gain on disposals of interests in investments - - 7 - 7
For the year ended 31 December 2022 audited
Capital expenditure on property, plant and equipment 13 15 - 3 31
Capital expenditure on intangible assets - - 1 - 1
Depreciation 30 41 2 10 83
Gain on disposals of interests in investments within joint ventures and - - 70 - 70
associates
3.4 Infrastructure Investments
Group Share of joint Total Group Share of Total Group Share of Total
2023 ventures and 2023 2022 joint 2022 2022 joint 2022
first half
first half
first half
first half
unaudited associates
unaudited
unaudited ventures and
unaudited year ventures and year
£m
£m
£m
£m
Underlying profit/(loss) from operations(1) 2023 associates audited associates audited
first half 2022 £m 2022 £m
first half
unaudited(+)
unaudited(+) year
£m
£m audited(+)
£m
UK(^) - - - 3 3 6 3 1 4
North America 4 7 11 8 8 16 18 14 32
Gain on disposals of interests in investments - - - - 7 7 - 70 70
4 7 11 11 18 29 21 85 106
Bidding costs and overheads (9) - (9) (12) - (12) (25) - (25)
(5) 7 2 (1) 18 17 (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 8).
4 Revenue
4.1 Nature of services provided
4.1.1 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 to three main types of infrastructure
assets: highways, railways and other large-scale infrastructure assets such as
24 to 60 months for large-scale complex construction 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 4.1.2.
4 Revenue continued
4.1 Nature of services provided continued
4.1.2 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
windfarm 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 windfarm 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.
4 Revenue continued
4.1 Nature of services provided continued
4.1.3 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 4.2.
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 4.2.
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 4.2.
4 Revenue continued
4.2 Disaggregation of revenue
The Group presents a disaggregation of its underlying 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 4.1. This disaggregation of underlying
revenue is also presented according to the Group's reportable segments as
described in Note 3.
For the half-year ended 30 June 2023 unaudited
Segment Primary geographical markets United United Rest of Total
Kingdom States world £m
£m £m £m
Construction Services Revenue including share of joint ventures and associates 1,516 1,736 583 3,835
Group revenue 1,516 1,718 - 3,234
Support Revenue including share of joint ventures and associates 461 - 2 463
Services
Group revenue 461 - 2 463
Infrastructure Investments Revenue including share of joint ventures and associates 68 158 3 229
Group revenue 18 95 1 114
Total revenue Revenue including share of joint ventures and associates 2,045 1,894 588 4,527
Group revenue 1,995 1,813 3 3,811
Segment Revenue by types of assets serviced Buildings Infrastructure Utilities Other Total
£m £m £m £m £m
Construction Services Revenue including share of joint ventures and associates 1,844 1,650 336 5 3,835
Group revenue 1,576 1,324 329 5 3,234
Support Revenue including share of joint ventures and associates - 289 158 16 463
Services
Group revenue - 289 158 16 463
Infrastructure Investments Revenue including share of joint ventures and associates 141(+) 78 9 1 229
Group revenue 113(+) 1 - - 114
Total revenue Revenue including share of joint ventures and associates 1,985 2,017 503 22 4,527
Group revenue 1,689 1,614 487 21 3,811
Timing of revenue recognition Construction Services Support Infrastructure Investments Total
£m Services £m £m
£m
Over time 3,832 461 223 4,516
At a point in time 3 2 6 11
Revenue including share of joint venture and associates 3,835 463 229 4,527
Over time 3,231 461 108 3,800
At a point in time 3 2 6 11
Group revenue 3,234 463 114 3,811
(+) Includes rental income of £25m including share of joint ventures and
associates or £10m excluding share of joint ventures and associates.
4 Revenue continued
4.2 Disaggregation of revenue continued
For the half-year ended 1 July 2022 unaudited
Segment Primary geographical markets United United Rest of Total
Kingdom States world £m
£m £m £m
Construction Services Revenue including share of joint ventures and associates 1,237 1,766 411 3,414
Group revenue 1,237 1,758 - 2,995
Support Revenue including share of joint ventures and associates 495 - 4 499
Services
Group revenue 495 - 3 498
Infrastructure Investments Revenue including share of joint ventures and associates 82 149 3 234
Group revenue 29 79 1 109
Total revenue Revenue including share of joint ventures and associates 1,814 1,915 418 4,147
Group revenue 1,761 1,837 4 3,602
Segment Revenue by types of assets serviced Buildings Infrastructure Utilities Other Total
£m £m £m £m £m
Construction Services Revenue including share of joint ventures and associates 1,769 1,372 273 - 3,414
Group revenue 1,602 1,134 259 - 2,995
Support Revenue including share of joint ventures and associates - 300 187 12 499
Services
Group revenue - 300 186 12 498
Infrastructure Investments Revenue including share of joint ventures and associates 141(+) 86 7 - 234
Group revenue 107(+) 2 - - 109
Total revenue Revenue including share of joint ventures and associates 1,910 1,758 467 12 4,147
Group revenue 1,709 1,436 445 12 3,602
Timing of revenue recognition Construction Services Support Infrastructure Investments Total
£m Services £m £m
£m
Over time 3,411 497 215 4,123
At a point in time 3 2 19 24
Revenue including share of joint venture and associates 3,414 499 234 4,147
Over time 2,992 496 90 3,578
At a point in time 3 2 19 24
Group revenue 2,995 498 109 3,602
(+) Includes rental income of £29m including share of joint ventures and
associates or £8m excluding share of joint ventures and associates.
4 Revenue continued
4.2 Disaggregation of revenue continued
For the year ended 31 December 2022 audited
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 Services Support Infrastructure Total
£m Services Investments £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
+ Includes rental income of £49m including share of joint ventures and
associates or £16m excluding share of joint ventures and associates.
5 Share of results and net assets of joint ventures and associates
5.1 Income statement
2023 2022 2022
first half
first half unaudited year
unaudited
audited
£m
£m £m
Revenue 716 545 1,302
Operating profit 28 24 112
Investment income 49 42 88
Finance costs (52) (35) (87)
Profit before taxation 25 31 113
Taxation (3) (2) (8)
Profit after taxation 22 29 105
5.2 Balance sheet
2023 2022 2022
first half
first half unaudited year
unaudited
audited
£m
£m £m
Intangible assets - goodwill 31 33 33
- Infrastructure Investments intangible 39 40 40
- other 12 13 13
Property, plant and equipment 23 33 33
Investment properties 246 333 257
Investments in joint ventures and associates 6 4 5
Money market funds 37 64 26
PPP financial assets 1,195 1,267 1,244
Military housing projects 113 119 119
Net borrowings (898) (990) (952)
Other net liabilities (514) (527) (508)
Share of net assets of joint ventures and associates 290 389 310
Reclassify negative investment to provisions 10 - 10
Loans to joint ventures and associates 106 104 106
Total investment in joint ventures and associates 406 493 426
6 Investment income
2023 2022 2022
first half
first half year
unaudited
unaudited
audited
£m £m £m
Subordinated debt interest receivable 16 12 27
Interest receivable on PPP financial assets 1 1 2
Fair value gain on investment asset - 5 6
Interest received on bank deposits 14 2 8
Other interest receivable and similar income 1 3 2
Net finance income on pension scheme assets and obligations (Note 18) 6 2 5
38 25 50
7 Finance costs
2023 2022 2022
first half
first half year
unaudited
unaudited
audited
£m £m £m
Non-recourse borrowings - bank loans and overdrafts 4 4 9
US private placement - finance cost 6 6 15
Interest on lease liabilities 3 2 6
Fair value loss on investment asset 1 - -
Other interest payable - committed facilities 2 1 2
- letter of credit fees 1 1 2
- other finance charges 4 3 2
Impairment of loans to joint ventures and associates - loans - 3 -
- 4 2
- accrued interest
21 24 38
8 Non-underlying items
2023 2022 2022
first half
first half year
unaudited
unaudited
audited
£m £m £m
Items (charged against)/credited to profit
8.1 Amortisation of acquired intangible assets (3) (3) (6)
8.2 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 (15) (3) (4)
8.3 Tax credits/(charges):
- tax on provision recognised for rectification works to be caried out on a 3 - -
development in London
- tax on other items above 1 1 (1)
- recognition of deferred tax assets in the UK - 20 -
- impact of tax rate change on deferred tax assets previously recognised - - 2
through non-underlying
Total tax credit 4 21 1
Non-underlying items (charged against)/credited to profit for the period (11) 18 (3)
8.1 The amortisation of acquired intangible assets comprises: customer
contracts £2m (2022: first half £2m; full-year £5m); and customer
relationships £1m (2022: first half £1m; full-year £1m).
The charge was recognised in the following segments: Construction Services
£1m (2021: first half £1m; full-year £1m) and Infrastructure Investments
£2m (2022: first half £2m; full-year £5m).
8.2.1 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 2024. The most recent
assessment carried out at half-year 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.
8.3.1 As explained in Note 8.2.1, a non-underlying charge of £12m was
recognised at half-year 2023 in relation to the rectification works to be
carried out on a development in London. This expense gave rise to a tax credit
of £3m.
8.3.2 The remaining non-underlying items charged against the Group's operating
profit gave rise to a tax credit of £1m mainly on amortisation of acquired
intangible assets (2022: first half £1m; full-year £1m charge).
9 Taxation
Underlying Non- Total 2022 2022
items underlying 2023 first half year
unaudited
audited
2023 items first half
first half
£m £m
(Note 8) unaudited
unaudited(1)
2023 £m
£m
first half
unaudited
£m
Total UK tax 15 (3) 12 (23) (35)
Total non-UK tax 8 (1) 7 8 35
Total tax charge/(credit) (x) 23 (4) 19 (15) -
UK current tax 1 (3) (2) - 2
Non-UK current tax 6 (1) 5 6 15
Total current tax 7 (4) 3 6 17
UK deferred tax 14 - 14 (23) (37)
Non-UK deferred tax 2 - 2 2 20
Total deferred tax 16 - 16 (21) (17)
Total tax charge/(credit)(x) 23 (4) 19 (15) -
(x) Excluding joint ventures and associates.
(1) Before non-underlying items (Note 8).
In addition to the Group tax charge/(credit) above, tax of £20m has been
credited (2022: first half £5m charged; full-year £44m credited) directly to
other comprehensive income, comprising: a deferred tax credit of £18m for
subsidiaries (2022: first half £20m charge; full-year £19m credit) and a
deferred tax credit in respect of joint ventures and associates of £2m (2022:
first half £15m credit; full-year £25m credit). A tax credit of £nil
(2022: first half £nil; full-year £2m credit) has been recognised directly
in equity relating to share-based payments.
10 Earnings per share
2023 first half unaudited 2022 first half unaudited 2022 year audited
Earnings Basic Diluted Basic Diluted Basic Diluted
£m £m £m £m £m £m
Earnings 63 63 99 99 288 288
Amortisation of acquired intangible assets after tax 2 2 2 2 7 7
Other non-underlying items after tax 9 9 (20) (20) (4) (4)
Underlying earnings 74 74 81 81 291 291
Basic Diluted Basic Diluted Basic Diluted
m m m m m m
Weighted average number of ordinary shares 567 571 629 632 612 620
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 4m (2022: first half 3m; full-year 8m).
10 Earnings per share continued
2023 first half unaudited 2022 first half unaudited 2022 year audited
Earnings per share Basic Diluted Basic Diluted Basic Diluted
Pence Pence pence pence pence pence
Earnings per ordinary share 11.1 11.0 15.7 15.6 46.9 46.3
Amortisation of acquired intangible assets after tax 0.3 0.3 0.3 0.3 1.2 1.1
Other non-underlying items after tax 1.6 1.6 (3.1) (3.1) (0.6) (0.6)
Underlying earnings per ordinary share 13.0 12.9 12.9 12.8 47.5 46.8
11 Dividends on shares
2023 first half unaudited 2022 first half unaudited 2022 year audited
Per share Amount Per share Amount Per share Amount
pence £m pence £m pence £m
Proposed dividends for the period
Interim 2022 - - 3.5 20 3.5 21
Final 2022 - - - - 7.0 40(^)
Interim 2023 3.5 19(&) - - - -
3.5 19 3.5 20 10.5 61
Recognised dividends for the period
Final 2021 - 37 37
Interim 2022 - - 21
Final 2022 39 - -
39 37 58
(^) The Group declared a final dividend of 7.0p for 2022 which was estimated
to amount to £40m based on the number of shares that would be on the register
on 19 May 2023. Based on the actual number of shares, a payment of £39m was
made on 5 July 2023.
(&) Amount dependent on number of shares on the register on 27 October
2023.
The final 2022 dividend of 7.0 pence per share was paid on 5 July 2023 to
holders on the register on 19 May 2023. The ordinary shares were quoted
ex-dividend on 18 May 2023.
The Board is declaring an interim dividend of 3.5 pence per share, which will
be payable on 5 December 2023 to holders on the register on 27 October 2023.
The last date for DRIP (Dividend Reinvestment Plan) elections is 14 November
2023.
12 Intangible assets - goodwill
Cost Accumulated Carrying
£m impairment amount
losses £m
£m
At 31 December 2021 audited 1,035 (218) 817
Currency translation differences 70 (10) 60
At 1 July 2022 unaudited 1,105 (228) 877
Currency translation differences 1 (2) (1)
At 31 December 2022 audited 1,106 (230) 876
Currency translation differences (36) 7 (29)
At 30 June 2023 unaudited 1,070 (223) 847
As at 30 June 2023, the Group performed an assessment to identify indicators
of impairment relating to goodwill allocated to cash-generating units (CGUs).
This included a review of internal and external indicators of impairment and
consideration of the year-to-date performance of the relevant CGUs and any
changes in key assumptions. The outcome of this assessment was that there were
no indications of impairment which could reasonably be expected to eliminate
the headroom computed as at 31 December 2022. As a result of this assessment,
no impairment charges were recorded in the first half of 2023 (2022: first
half £nil; full-year £nil).
A full detailed impairment review will be conducted on all CGUs as at 31
December 2023.
13 Contract balances
13.1 Contract assets
£m
At 31 December 2021 audited 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 16) (1)
Reclassified from contract liabilities (Note 13.2) (21)
Impairments on contract assets recognised at the beginning of the year (6)
At 31 December 2022 audited 300
Currency translation differences (2)
Transfers from contract assets recognised at the beginning of the year to (167)
receivables
Increase related to services provided in the period 356
Impairments on contract assets recognised at the beginning of the year (5)
Reclassified from contract liabilities (Note 13.2) (11)
At 30 June 2023 unaudited 471
13.2 Contract liabilities
£m
At 31 December 2021 audited (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 13.1) 21
At 31 December 2022 audited (665)
Currency translation differences 17
Revenue recognised against contract liabilities at the beginning of the year 503
Increase due to cash received, excluding amounts recognised as revenue during (530)
the period
Reclassified to contract assets (Note 13.1) 11
At 30 June 2023 unaudited (664)
14 Trade and other receivables
2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Current
Trade receivables 512 565 526
Less: provision for impairment of trade receivables (3) (3) (3)
509 562 523
6
Due from joint ventures and associates 17 15 16
Due from joint operation partners 6 9 6
Contract fulfilment assets 19 19 13
Contract retentions receivable 215 231 194
Accrued income 14 9 15
Prepayments 56 40 56
Other receivables 54 52 58
890 937 881
Non-current
Due from joint ventures and associates 98 76 86
Contract fulfilment assets 35 19 31
Contract retentions receivable 149 138 166
Other receivables 5 4 3
287 237 286
Total trade and other receivables 1,177 1,174 1,167
15 Trade and other payables
2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Current
Trade and other payables 638 588 605
Accruals 802 609 741
Contract retentions payable 191 200 175
VAT, payroll taxes and social security 100 85 74
Dividends on ordinary shares 39 37 -
1,770 1,519 1,595
Non-current
Trade and other payables - 1 -
Accruals 8 8 10
Contract retentions payable 103 106 122
Due to joint ventures and associates 10 10 9
121 125 141
Total trade and other payables 1,891 1,644 1,736
16 Provisions
Contract Employee Other Total
provisions provisions provisions £m
£m £m £m
At 31 December 2021 audited 321 36 22 379
Currency translation differences 8 - 1 9
Reclassified from accruals 5 - - 5
Charged/(credited) to the income statement:
- additional provisions 53 4 1 58
- unused amounts reversed (13) - (1) (14)
Utilised during the period (39) (3) (2) (44)
At 1 July 2022 unaudited 335 37 21 393
Currency translation differences - - 1 1
Reclassified (to)/from accruals (5) - 1 (4)
Charged/(credited) to the income statement:
- additional provisions 81 2 1 84
- unused amounts reversed (34) (2) - (36)
Utilised during the period (41) (4) (1) (46)
Reclassified to contract assets (Note 13.1) (1) - - (1)
Reclassified negative investment in Group's investments in joint ventures and - - 10 10
associates (Note 5)
At 31 December 2022 audited 335 33 33 401
Currency translation differences (3) - (1) (4)
Charged/(credited) to the income statement:
- additional provisions 69 5 2 76
- unused amounts reversed (16) - - (16)
Utilised during the period (28) (3) (1) (32)
At 30 June 2023 unaudited 357 35 33 425
17 Notes to the statement of cash flows
17.1 Cash from operations Underlying items Non-underlying items Total Total Total
2023 2023 2023 2022 2022
first half unaudited(1) first half unaudited first half unaudited first half year
£m £m £m unaudited(+) audited
£m £m
Profit/(loss) from operations 80 (15) 65 82 275
Share of results of joint ventures and associates (22) - (22) (29) (105)
Depreciation of property, plant and equipment 16 - 16 14 27
Depreciation of right-of-use assets 28 - 28 26 54
Depreciation of investment properties 1 - 1 1 2
Amortisation of other intangible assets 3 3 6 6 13
Amortisation of contract fulfilment assets(+) 11 - 11 10 15
Pension payments including deficit funding (13) - (13) (29) (43)
Movements relating to equity-settled share-based payments 7 - 7 4 9
Profit on disposal of property, plant and equipment - - - (3) (4)
Other non-cash items - - - (1) (4)
Operating cash flows before movements in working capital 111 (12) 99 81 239
(Increase)/decrease in operating working capital (42) (55) (54)
Inventories (27) (5) (6)
Contract assets (175) 9 (78)
Trade and other receivables(+) (51) 22 34
Contract liabilities 17 (13) (59)
Trade and other payables 169 (73) 57
Provisions 25 5 (2)
Cash from operations 57 26 185
(1) Before non-underlying items (Note 8).
+ 2022 first half re-presented to show amortisation of contract fulfilment
assets separately. This was previously presented within the movement of trade
and other receivables.
17.2 Cash and cash equivalents 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Cash and deposits 738 779 828
Term deposits 162 311 332
Cash balances within infrastructure investments 27 20 19
Bank overdrafts - (1) -
927 1,109 1,179
17.3 Analysis of net cash/(borrowings) 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Cash and cash equivalents (excluding infrastructure investments) 900 1,090 1,160
Bank overdrafts - (1) -
US private placement (162) (347) (345)
Bilateral committed facility (28) - -
Net cash excluding infrastructure investments 710 742 815
Non-recourse infrastructure investments project finance loans at amortised (286) (262) (261)
cost with final maturity between 2023 and 2072
Infrastructure investments cash and cash equivalents 27 20 19
(259) (242) (242)
Net cash 451 500 573
17 Notes to the statement of cash flows continued
Included in cash and cash equivalents is restricted cash of £4m (2022: first
half £10m; full-year £3m) held by the Group's self-insurance company,
Delphian Insurance Company Ltd, which is subject to Isle of Man insurance
solvency regulation.
Cash and cash equivalents also include: £86m (2022: first half £217m;
full-year £194m) within construction project bank accounts which is used for
project specific expenditure; £355m (2022: first-half £285m; full-year
£253m) held in joint operations which is used for expenditure within the
joint operation projects; and £18m (2022: first half £20m; full-year £19m)
relating to maintenance and other reserve accounts in the Infrastructure
Investments subsidiaries.
17.4 Analysis of movements in borrowings Infrastructure investments US private placement Bilateral comitted facility Bank overdraft Total
non-recourse £m £m £m £m
project finance
£m
At 31 December 2021 audited (260) (192) - (34) (486)
Currency translation differences - (23) - - (23)
Proceeds from new loans (5) (132) - (1) (138)
Repayments of loans 3 - - 34 37
At 1 July 2022 unaudited (262) (347) - (1) (610)
Arrangement fee paid - 2 - - 2
Proceeds from new loans (3) - - - (3)
Repayments of loans 4 - - 1 5
At 31 December 2022 audited (261) (345) - - (606)
Currency translation differences 1 14 1 - 16
Proceeds from new loans (30) - (29) - (59)
Repayments of loans 4 169 - - 173
At 30 June 2023 unaudited (286) (162) (28) - (476)
In March 2023, the Group repaid US$209m 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$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
bilateral committed facility, which was fully utilised through a US$36m
drawdown in March 2023 and expires in December 2024. This bilateral committed
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
core facility in June 2023. As at the end of the period, 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, for which the Group
is incentivised to deliver annual measurable performance improvement in three
key areas: carbon emissions, social value generation, and an independent
Environmental, Social and Governance (ESG) rating score which remain unchanged
from the prior facility. The RCF was undrawn at 30 June 2023.
18 Retirement benefit assets and liabilities
Principal actuarial assumptions for the IAS 19 accounting valuations of the 2023 2022 2022
Group's principal schemes
first half first half year
unaudited unaudited audited
% % %
Discount rate on obligations 5.40 3.80 4.95
Inflation rate - RPI 3.40 3.35 3.35
- CPI(*) 2.80 2.75 2.75
Future increases in pensionable salary(#) 2.80 2.75 2.75
Rate of increases in pensions in payment (or such other rate as is 3.10 3.10 3.10
guaranteed)(^)
(*) Actuarial assumption applied to the Railways Pension Scheme was 3.00%
(2022: first half 2.95%; full-year 2.90%).
(#) Actuarial assumption applied to the Railways Pension Scheme was 2.95%
(2022: first half 2.95%; full-year 2.90%).
(^) Actuarial assumption applied to the Railways Pension Scheme was 3.10%
(2022: first half 3.10%; full-year 2.95%).
Amounts recognised in the balance sheet 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Present value of obligations (2,683) (3,238) (2,803)
Fair value of plan assets 2,857 3,599 3,026
Net assets in the balance sheet(+) 174 361 223
(+) This amount represents the aggregate of the retirement benefit assets of
£210m (2022: first half £407m; full-year £262m) and the retirement benefit
liabilities of £36m at 30 June 2023 (2022: first half £46m; full-year
£39m). These asset amounts are shown separately on the balance sheet as the
Balfour Beatty Pension Fund and the Railway Pension Scheme are in a net
surplus position.
Analysis of net assets in the balance sheet 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Balfour Beatty Pension Fund 176 393 225
Railways Pension Scheme 34 14 37
Other schemes(*) (36) (46) (39)
174 361 223
(*) Other schemes include the Group's deferred compensation obligations for
which investments in mutual funds of £19m (2022: first half £22m; full-year
£20m) are held by the Group to satisfy these obligations.
2023 2022 2022
Movements in the retirement benefit net assets for the period first half first half year
unaudited unaudited audited
£m £m £m
At beginning of period 223 231 231
Currency translation differences 3 (4) (3)
Current service cost (2) (2) (5)
Interest cost (67) (39) (77)
Interest income 73 41 82
Actuarial movements - on obligations from reassessing the difference between RPI and CPI - - 2
- on obligations from changes in demographic assumptions (7) - -
- on obligations from changes to other financial assumptions 107 921 1,293
- on obligations from experience gains - - 21
- on assets (171) (818) (1,368)
Contributions from employer - regular funding 1 1 2
- ongoing deficit funding 12 28 41
Benefits paid 2 2 4
At end of period 174 361 223
18 Retirement benefit assets and liabilities continued
The Balfour Beatty Pension Fund (BBPF)'s actuary undertakes regular mortality
investigations based on the experience exhibited by pensioners of the BBPF and
due to the size of the membership of the BBPF is able to make comparisons of
this experience with the mortality rates set out in the various published
mortality tables, with the last such investigation conducted as part of the 31
March 2022 actuarial valuation, which was finalised in May 2023. This research
is taken into account in the mortality assumption for the BBPF, which has been
updated as at 30 June 2023 to reflect the experience of the BBPF pensioners
for the six-year period to 30 September 2021. The mortality tables adopted for
the BBPF are the Self-Administered Pension Scheme (SAPS) S3 tables 'middle'
for males and 'heavy' for females with a multiplier of 98% for males and 97%
for females (2022: 97% for males and 93% for females). The future improvements
were set to be in line with the CMI 2021 core projection model with a default
smoothing parameter of 7.0 and initial addition parameter of 0.25% (2022: CMI
2019 core projection model with a default smoothing parameter of 7.0 and
initial addition paramaeter of nil), and a weighting of 5% placed on 2020 and
2021 experience. The long-term improvement rates were set at 1.25% per annum
and 1.00% per annum for males and females respectively (2022: 1.25% per annum
and 1.00% per annum).
The base-table mortality assumptions for the Railways Pension Scheme (RPS)
were left unchanged from full-year 2022, with the Group looking to update them
following the completion of the RPS's 31 December 2022 valuation. However, in
line with previous periods, the future improvements assumed for the RPS as at
30 June 2023 have been updated to be consistent with those adopted for the
BBPF.
The Group's balance sheet includes net retirement benefit assets of £174m
(2022: first half £361m; full-year £223m) as measured on an IAS 19 basis,
with surpluses on the BBPF and RPS partially offset by deficits on the other
schemes.
In the first half of 2023, the Group recorded net actuarial losses on its
retirement benefit schemes of £71m (2022: first half £103m net gains;
full-year £52m net losses). An increase in corporate bond yields since 31
December 2022, which led to a corresponding increase in the IAS19 discount
rate, resulted in a reduction in the present value of obligations at 30 June
2023. However, this was more than offset by the fall in the fair value of
assets over the period, which was primarily driven by the hedging strategy in
place for the BBPF. The overall impact of these factors, together with
actuarial losses arising from the change in demographic assumptions for the
BBPF and the emergence of higher than expected short-term inflation, led to
the Group's net actuarial losses of £71m.
The investment strategy of the BBPF and the sensitivity of the Group's
retirement benefit obligations and assets to different actuarial assumptions
are set out in Note 30 on pages 222 and 227, respectively, of the Annual
Report and Accounts 2022.
19 Share capital
During the half-year ended 30 June 2023, 0.6m (2022: first half 9.4m;
full-year 9.8m) shares were purchased for £2.4m (2022: first half £23.5m;
full-year £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.
The Company commenced the third phase of its share buyback programme in 2023.
As at 30 June 2023, the Company had purchased 24.0m (2022: first half 18.7m;
full-year 52.0m) shares. These 24.0m shares are currently held in treasury
with no voting rights. The purchase of these shares, together with associated
fees and stamp duty, has utilised £88m (2022: first half £48m; full-year
£151m) of the Company's distributable profits and the cash paid in settlement
during the period was £87m (2022: first half £47m; full-year £151m).
20 Acquisitions and disposals
There were no acquisitions or disposals made in the first half of 2023.
21 Financial instruments
Fair value estimation
The Group holds certain financial instruments on the balance sheet at their
fair values. The following hierarchy classifies each class of financial asset
or liability in accordance with the valuation technique applied in determining
its fair value.
There have been no transfers between these categories in the current period or
preceding year.
Financial instruments at fair value 2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
Financial assets
Level 1
Investments in mutual fund financial assets 19 22 20
Level 3
PPP financial assets 25 28 26
Other investment assets 7 14 11
Financial assets - fuel hedges 1 - 1
Total assets measured at fair value 52 64 58
Financial liabilities
Level 2
Financial liabilities - foreign currency contracts (1) - -
Financial liabilities - infrastructure concessions interest rate swaps - (2) (1)
Total liabilities measured at fair value (1) (2) (1)
Level 1 - The fair value is calculated based on quoted prices traded in active
markets for identical assets or liabilities.
The Group holds investments in mutual funds measured at fair value through
other comprehensive income which are traded in active markets and valued at
the closing market price at the reporting date.
Level 2 - The fair value is based on inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly
or indirectly.
The fair value of interest rate swaps is calculated as the present value of
the estimated future cash flows utilising yield curves at the reporting date
and taking into account own credit risk. Own credit risk for Infrastructure
Investments' swaps is not material and is calculated using the following
credit valuation adjustment (CVA) calculation: loss given default multiplied
by exposure multiplied by probability of default.
The fair value of forward foreign exchange contracts is determined using
quoted forward exchange rates at the reporting date and yield curves derived
from quoted interest rates matching the maturities of the foreign exchange
contracts. Own credit risk for the other derivative liabilities is not
material and is calculated by applying a relevant credit default swap (CDS)
rate obtained from a third party.
Level 3 - The fair value is based on unobservable inputs.
The fair value of the Group's PPP financial assets is determined in the
construction phase by applying an attributable profit margin by reference to
the construction margin on non-PPP projects reflecting the construction risks
retained by the construction contractor, and fair value of construction
services performed. In the operational phase it is determined by discounting
the future cash flows allocated to the financial asset at a discount rate
which is based on long-term gilt rates adjusted for the risk levels associated
with the assets, with market-related movements in fair value recognised in
other comprehensive income and other movements recognised in the income
statement. Amounts originally recognised in other comprehensive income are
transferred to the income statement upon disposal of the asset.
21 Financial instruments continued
Fair value estimation continued
A change in the discount rate would have a significant effect on the value of
the asset and a 50 basis point increase/decrease, which represents
management's assessment of a reasonably possible change in the risk-adjusted
discount rate, would lead to a £1m decrease (2022: first half £1m; full-year
£1m) / £1m increase (2022: first half £1m; full-year £1m) in the fair
value of the assets taken through equity.
For PPP financial assets held in joint ventures and associates, a change in
the discount rate by a 50 basis point increase/decrease, which represents
management's assessment of a reasonably possible change in the risk-adjusted
discount rate, would lead to a £26m decrease (2022: first half £33m;
full-year £28m)/£27m increase (2022: first half £35m; full-year £29m) in
the fair value of the assets taken through equity within the share of joint
ventures' and associates' reserves.
22 Related party transactions
The Group has contracted with, provided services to, and received management
fees from, certain joint ventures and associates amounting to £215m (2022:
first half £197m, full-year £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 14 and 15 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. Each
company was a related party as it was controlled, jointly controlled or under
significant influence by a Director of Balfour Beatty plc.
2023 2022 2022
first half first half year
unaudited unaudited audited
£m £m £m
HMC Architects
Purchase of services 2 - 3
Amount owed to related parties 1 - 1
Severfield PLC
Purchase of goods and services - - 1
Site Assist Software Limited
Purchase of services 1 - 1
All transactions with these related parties 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
period for bad or doubtful debts in respect of amounts owed by related
parties.
During the first half of 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.
23 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 Group's Annual Report and Accounts 2022.
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.
25 Events after the reporting date
In the period from 1 July 2023 to 15 August 2023 (the latest practicable date
prior to the date of this report), the Company purchased 3.4m shares, which
are currently held in treasury with no voting rights, for a total
consideration of £12m (including associated fees and stamp duty).
There were no other material post balance sheet events arising after the
reporting date.
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