TIDMBBY
RNS Number : 4180J
Balfour Beatty PLC
16 August 2023
BALFOUR BEATTY PLC RESULTS FOR THE HALF YEARED 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 GBP4.5 billion (2022: GBP4.1 billion)
-- Underlying profit from operations (PFO) from earnings-based
businesses up 12% to GBP95 million (2022: GBP85 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 GBP65 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 GBP1.3 billion (FY 2022: GBP1.3 billion)
Balance sheet strength and consistent cash flow supporting
shareholder returns
-- GBP150 million share buyback on track to complete in Q4
-- GBP58 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 GBP695 million (FY 2022: GBP804 million)
Large, lower risk order book and unique capabilities give
confidence for future returns
-- GBP16.4 billion order book underpins short to medium term
outlook (FY 2022: GBP17.4 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
(GBP million unless otherwise HY 2023 HY 2022
specified)
=============================== ======================= =======================
Underlying Total Underlying Total
(2) (2)
=============================== =========== ========== =========== ==========
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) GBP16.4bn GBP17.4bn GBP17.7bn
Directors' valuation of Investments GBP1.3bn GBP1.3bn GBP1.3bn
portfolio
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)
---------------------------- ----------- --------- ----------- ----------- --------- -----------
GBPm GBPm % GBPm GBPm %
---------------------------- ----------- --------- ----------- ----------- --------- -----------
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
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 . The webcast will be recorded and
subsequently available at Results, reports and presentations -
Investors - Balfour Beatty plc .
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 GBP95 million
(2022: GBP85 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 GBP80 million (2022: GBP85 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
GBP695 million (FY 2022: GBP804 million), largely due to the
working capital outflow forecast at the 2022 year end and GBP87
million of share buybacks. The Directors' valuation of the
Investments portfolio remained stable at GBP1.3 billion (FY 2022:
GBP1.3 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 GBP16.4 billion order book (FY 2022: GBP17.4
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, GBP150 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 GBP176 million eight-year contract for highways services for
Buckinghamshire County Council starting in April and the GBP297
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. GBP10 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
GBP2.7 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 GBP44 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 GBP24 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 GBP30 billion for investment in energy
networks and potential for a further GBP10 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 GBP20 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 GBP20 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 GBP20 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 GBP15 - GBP30 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 GBP650 - GBP700 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 GBP75 - GBP125 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 GBP4,527 million (2022:
GBP4,147 million) driven by an increase in Construction Services.
Statutory revenue, which excludes joint ventures and associates,
was GBP3,811 million (2022: GBP3,602 million).
Construction Services revenue was up 12% (9% at CER) to GBP3,835
million (2022: GBP3,414 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 GBP463 million
(2022: GBP499 million) due in part to the timing of power
projects.
Underlying profit / (loss) from operations (2) HY 2023 HY 2022
GBPm GBPm
==================================================== =========== ===========
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 GBP80 million (2022: GBP85 million), with an GBP8 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 GBP65
million (2022: GBP82 million).
Net finance income of GBP17 million (2022: GBP1 million)
improved as a result of higher interest rates . Underlying pre-tax
profit was GBP97 million (2022: GBP86 million). The taxation charge
on underlying profits increased to GBP23 million (2022: GBP6
million) as there were no additional deferred tax assets for UK tax
losses recognised. This resulted in underlying profit after tax of
GBP74 million (2022: GBP80 million). Total statutory profit after
tax for the period was GBP63 million (2022: GBP98 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 GBP11
million for the period (2022: net credit of GBP18 million). Items
included a GBP9 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
GBP2 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 GBP105
million decrease (2022: GBP48 million) in the Group's period end
net cash position to GBP710 million (FY 2022: GBP815 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 GBP87
million outflow for the current tranche of the multi-year share
buyback programme.
Cash flow performance HY 2023 HY 2022
GBPm GBPm
============================================== ========== ==========
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 GBP1 million (2022: GBP1 million) of regular
funding
Working capital
As expected, the Group had a net working capital outflow of
GBP42 million (2022: GBP55 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
GBPm GBPm
----------------------------- ---------- ----------
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 GBP1,144 million (FY 2022: GBP1,167 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 GBP695
million (FY 2022: GBP804 million; HY 2022: GBP811 million). The
Group's net cash position at the half year, excluding non-recourse
net borrowings, was GBP710 million (FY 2022: GBP815 million; HY
2022 GBP742 million).
Non-recourse net borrowings, held in Infrastructure Investments
entities consolidated by the Group, were GBP259 million (FY 2022:
GBP242 million; HY 2022: GBP242 million). The balance sheet also
included GBP135 million for lease liabilities (FY 2022: GBP132
million; HY 2022: GBP137 million). Statutory net cash at half year
was GBP316 million (FY 2022: GBP441 million; HY 2022: GBP363
million).
Share buyback
O n 3 January 2023 , Balfour Beatty commenced an initial GBP50
million tranche of its 2023 share buyback programme, which was
subsequently increased, following the release of its 2022 full year
results, to GBP150 million on 20 March 2023. In the first half, the
Group purchased 24 million shares for a total consideration of
GBP87 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
GBP375 million revolving credit facility, which was set to expire
in October 2024, replacing it with a new GBP475 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
Th e 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 GBP24 million in 2023, GBP24 million in 2024 and GBP6
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 GBP2 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 GBP6 million per annum
which should reduce the funding deficit to zero by 2025.
The Group's balance sheet includes net retirement benefit assets
of GBP174 million (FY 2022: GBP223 million) as measured on an IAS
19 basis, with the surpluses on the BBPF (GBP176 million) and RPS
(GBP34 million) partially offset by deficits on other schemes
(GBP36 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 GBP3,835 million was up 12% (2022:
GBP3,414 million), a 9% increase at CER, with higher volumes in the
UK and Gammon. Underlying profit from operations increased to GBP65
million (2022: GBP49 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 GBP13.8 billion (FY 2022:
GBP15.0 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 HY 2023 HY 2022 FY 2022
Services
----------------- ------------------------------- ------------------------------- ---------
Revenue(1) PFO Order Revenue(1) PFO Order Order
book(1) book(1) book(1)
----------------- ----------- ------- --------- ----------- ------- --------- ---------
GBPm GBPm GBPbn GBPm GBPm GBPbn GBPbn
----------------- ----------- ------- --------- ----------- ------- --------- ---------
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
GBP1,516 million (2022: GBP1,237 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 GBP30 million of underlying profit from operations (2022: GBP18
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 GBP5.9 billion
(FY 2022: GBP6.1 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 GBP1,736 million (2022: GBP1,766 million). US
Construction recorded a GBP21 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
GBP5.3 billion (FY 2022: GBP6.0 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 GBP583 million (2022: GBP411 million) driven by an
increase in major civils volumes, including the Terminal 2
expansion at Hong Kong Airport. Underlying profit increased to
GBP14 million (2022: GBP10 million) representing a 2.4% profit
margin.
The Group's 50% share of Gammon's order book decreased by 10%
(7% at CER) to GBP2.6 billion (FY 2022: GBP2.9 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 GBP463 million
(2022: GBP499 million), mainly due to the timing of power projects.
Underlying profit from operations at GBP30 million (2022: GBP36
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 GBP2.6
billion (FY 2022: GBP2.4 billion). During the first half, the road
maintenance business added the GBP297 million East Sussex contract
to the order book and the power business won a GBP42 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) (GBPbn) 2.6 2.4
Revenue(1) (GBPm) 463 499
----------------------------------------- --------- --------
Profit from operations(2) (GBPm) 30 36
Non-underlying items (GBPm) - -
----------------------------------------- --------- --------
Statutory profit from operations (GBPm) 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 GBP2 million (2022: GBP10 million) due largely to
increased costs relating to the independent compliance monitor's
work across the US military housing portfolio, and a GBP3 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: GBP7 million
gain on disposals), with the Group forecasting a gain on disposals
in the second half of 2023 in the range of GBP15 - GBP30 million.
Underlying profit from operations was GBP2 million (2022: GBP17
million).
Net investment income of GBP12 million (2022: GBP7 million)
included the GBP3 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 GBP14 million (2022:
GBP24 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 GBP24 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
GBPm GBPm
----------------------------------- -------- ------------------
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 GBP1,269 million (FY
2022: GBP1,291 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
Equity Distributions Sales Unwind Operational
GBPm FY 2022 invested received proceeds of discount 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 GBP24 million (2022: GBP17 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 GBP33 million (2022:
GBP36 million). There were no asset disposals in the first half
(2022: GBP12 million).
Unwind of discount at GBP42 million (2022: GBP42 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 GBP16 million
decrease (2022: GBP93 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 GBP39m decrease (2022: GBP86
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 GBP59 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
GBP78 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 GBP31 million and a 1% change
in the long term rental growth rate in the US portfolio would
change the valuation by approximately GBP86 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 GBPm GBPm
------------------------------------- ------------- ------------- -------- ---------
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 GBPm GBPm
------------------ ------------- ------------- --------- --------
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 GBPm GBPm
----------------------------------- ------------- ------------- --------- --------
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 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 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 Beatty in 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
first first 2022
half half year
GBPm GBPm GBPm
------------------------------------------------------------- ------- ------- -------
Order book (performance measure) 16,442 17,672 17,390
Share of orders included within the Group's joint
Less: ventures and associates (2,938) (3,572) (3,275)
Estimated orders under framework agreements included
Less: in the order book disclosure - (106) (25)
Transaction price allocated to remaining performance
Add: obligations in Infrastructure Investments 1,903 1,791 2,009
------ ----------------------------------------------------- ------- ------- -------
Transaction price allocated to remaining performance
obligations for the Group (statutory measure) 15,407 15,785 16,099
------------------------------------------------------------- ------- ------- -------
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 Provision in relation to 2023 first half
statutory Intangible rectification works in performance
results amortisation London measures
GBPm GBPm GBPm GBPm
--------------------------- ---------------- -------------- -------------------------- ---------------------------
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
------------------------------------------
2023 first half Provision in relation to 2023 first half
statutory Intangible rectification performance
Profit/(loss) from results amortisation works in London measures
operations GBPm GBPm GBPm GBPm
--------------------------- ---------------- -------------- -------------------------- ---------------------------
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
statutory Intangible 2022 first half performance
results amortisation UK deferred tax assets measures
GBPm GBPm GBPm GBPm
----------------------------- ---------------- -------------- ----------------------- ----------------------------
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
---------------------------------------
2022 first half
statutory Intangible 2022 first half performance
Profit/(loss) from results amortisation UK deferred tax assets measures
operations GBPm GBPm GBPm GBPm
----------------------------- ---------------- -------------- ----------------------- ----------------------------
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
statutory Intangible Release of Heery UK deferred tax 2022 performance
results amortisation provision assets revaluation measures
GBPm GBPm GBPm GBPm GBPm
---------------------- ----------- -------------- ---------------------- ---------------------- -----------------
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
-------------------------------------------
2022
statutory Intangible 2022 performance
results amortisation Release of Heery provision measures
Profit/(loss) from operations GBPm GBPm GBPm GBPm
------------------------------- ----------- -------------- --------------------------- -----------------
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
first 2022 2022
half first half year
GBPm GBPm GBPm
------------------------------------------------------- ------ ----------- -----
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
Fair value (loss)/gain on investment asset
Add: (^) (1) 5 6
Less: Non-recourse borrowings finance cost(^) (4) (4) (9)
Impairment of subordinated debt receivable
Less: (^) - (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
GBPm GBPm GBPm
----------------------------------------------------------- ----------- ----------- -----
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 2022
first first 2022
half half year
GBPm GBPm GBPm
--------------------------------------------------------------- ------ ------ -----
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 (GBP13m): 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) (GBP31m 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 (GBP27m 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 (GBP8m): 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
(GBP5m): 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 2023 2022 2022 2022 2022
first half first half first half first half year year
(statutory) Adjustment (performance) (statutory) Adjustment (performance) (statutory) Adjustment (performance)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ---------- ------------- ----------- ---------- ------------- ----------- ---------- -------------
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 GBP695m (2022: first half GBP811m;
full-year GBP804m).
Using a statutory measure (inclusive of non-recourse elements
and lease liabilities) gives average net cash of GBP379m (2022:
first half GBP391m; full-year GBP430m).
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 GBP1.27bn
at the half-year (2022: first half GBP1.30bn; full-year GBP1.29bn).
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
first first 2022
half half year
GBPm GBPm GBPm
------------------------------------------------------ ------- ------- ------
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 division (40) (27) (30)
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
first first half 2022
half GBPm year
GBPm GBPm
--------------------------------------------------------------- ------- ------------ ------
Statutory measure of the Investments portfolio (as
above) 579 627 563
Difference arising from the Directors' valuation
being measured on a 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 690 669 728
--------------------------------------------------------------- ------- ------------ ------
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 (GBPm)
----- ----- ------
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 (GBPbn)
----- ----- ------
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).
INDEPENT 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
----------------------------------- ------------------------------------- -----------------------------------
Non-underlying Non-underlying Non-underlying
Underlying items Underlying items Underlying items
items (1) (Note 8) Total items (1) (Note 8) Total items (1) (Note 8) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- ---------- -------------- ------- ---------- -------------- --------- ---------- -------------- -------
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 of
interests
in investments 22 - 22 22 - 22 35 - 35
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).
2023
first 2022 2022
half first half year
unaudited unaudited audited
Notes pence pence 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 2022 first half
unaudited unaudited 2022 year audited
------------------------- ------------------------- -------------------------
Share
Share Share of
of joint of joint joint
ventures ventures ventures
and and and
Group associates Total Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ----------- ----- ----- ----------- ----- ----- ----------- -----
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
PPP
Fair value financial
revaluations - 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 GBPnil.
Condensed Group Statement of Changes in Equity
For the half-year ended 30 June 2023
Other reserves
Share
of joint
ventures'
Called-up Share Capital and PPP Currency Non-
share premium Redemption associates' Hedging financial translation Other Retained controlling
capital account Reserve reserves reserves assets reserve (u) profits interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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
---------------- --------- ------- ---------- ----------- -------- --------- ----------- ----- -------- ----------- -----
(u) Other reserves include GBP22m of special reserve.
(+) Movements relating to share-based payments include GBPnil
tax credit (2022: first half GBPnil; full-year: GBP2m) recognised
directly within retained profits.
Condensed Group Balance Sheet
At 30 June 2023
2023 2022 2022
first first year
half half audited
unaudited unaudited GBPm
Notes GBPm GBPm
------------------------------------------------------------ ----- ---------- -------------- --------
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
2023 2022
first first 2022
half half year
unaudited unaudited audited
Notes GBPm GBPm GBPm
--------------------------------------------------------------- ----- ---------- ---------- -----------
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 - joint ventures and associates
from: - 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)
- intangible assets - infrastructure
Purchases of: 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
- investments in joint ventures
Disposals of: - 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 - infrastructure investments
relating to: assets 17.4 30 5 8
- other 17.4 29 132 130
Repayments of loans relating to: - infrastructure
investments assets 17.4 (4) (3) (7)
- 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 GBP16.4bn 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 GBP375m revolving credit facility, which was set to expire in
October 2024, replacing it with a new GBP475m 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
2023 2022 2022
1 July 31 Dec
2022 2022
- 30 - 30
first first June June
half half year 2023 2023
GBP1 buys unaudited unaudited audited % change % change
---------- ----------- ---------- -------- ---------- ---------
US$ 1.23 1.29 1.24 (4.7)% (0.8)%
HK$ 9.66 10.12 9.72 (4.5)% (0.6)%
---------- ----------- ---------- -------- ---------- ---------
Closing rates
2023 2022 2022
1 July 31 Dec
2022 2022
- 30 - 30
first first June June
half half year 2023 2023
GBP1 buys unaudited unaudited audited % change % change
---------- ----------- ---------- -------- ---------- ---------
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
Construction Support Infrastructure Corporate
For the half-year ended 30 June Services Services Investments activities Total
2023 unaudited GBPm GBPm GBPm GBPm GBPm
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 development in London (12) - - - (12)
----------------------------------------------------------- ------------ -------- -------------- ---------- -----
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
Construction Support Infrastructure Corporate
For the half-year ended 1 July Services Services Investments activities Total
2022 unaudited GBPm GBPm GBPm GBPm GBPm
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
For the year ended 31 December Services Services Investments activities Total
2022 audited GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------- -------------- ----------- -------
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
Construction Support Infrastructure Corporate
Services Services Investments activities Total
As at 30 June 2023 unaudited GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------- -------------- ----------- -------
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
------------------------- ------- ----- ----- ----- -------
Construction Support Infrastructure Corporate
Services Services Investments activities Total
As at 1 July 2022 unaudited GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------- -------------- ----------- -------
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
------------------ ------- ----- ----- ----- -------
Construction Support Infrastructure Corporate
Services Services Investments activities Total
As at 31 December 2022 audited GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------- -------------- ----------- -------
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
Services Services Investments activities Total
GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- ------------ --------- -------------- ----------- -----
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 associates - - 70 - 70
----------------------------------------------- ------------ --------- -------------- ----------- -----
3.4 Infrastructure Investments
Share
Share of Share
of joint joint of
ventures ventures joint
and and ventures
associates associates and
Group 2023 Total Group 2022 Total associates
2023 first 2023 2022 first 2022 Group 2022 Total
Underlying first half first first half first 2022 year 2022
profit/(loss) half unaudited half half unaudited half year audited year
from unaudited (+) unaudited unaudited (+) unaudited audited (+) audited
operations (1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- ----------- ---------- ---------- ----------- ---------- -------- ----------- --------
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 Typical Nature, timing of satisfaction of performance obligations
of assets contract and significant payment terms
length
-------------- ---------------- ------------------------------------------------------------------------
Buildings 12 to 36 The Group constructs buildings which include commercial,
months 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 The Group provides construction services to three main
for small-scale types of infrastructure assets: highways, railways and
infrastructure other large-scale infrastructure assets such as waste,
works water and energy plants.
24 to 60 Highways represent the Group's activities in constructing
months for motorways in the UK, US and Hong Kong. This includes activities
large-scale such as design and construction of roads, widening of existing
complex motorways or converting existing motorways. The main customers
construction 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 Nature, timing of satisfaction of performance obligations and
assets 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 Nature, timing of satisfaction of performance obligations and
services 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 The Group provides real estate management services such as property
services 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
United United Rest of
Kingdom States world Total
Segment Primary geographical markets GBPm GBPm GBPm GBPm
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share of joint
Services ventures and associates 1,516 1,736 583 3,835
---------------
Group revenue 1,516 1,718 - 3,234
--------------------------------------------------- --------- -------------- --------- -------------- -----
Support Revenue including share of joint
Services ventures and associates 461 - 2 463
---------------
Group revenue 461 - 2 463
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share of joint
Investments ventures and associates 68 158 3 229
---------------
Group revenue 18 95 1 114
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total Revenue including share of joint
revenue ventures and associates 2,045 1,894 588 4,527
---------------------------------------------- -------------- --------- -------------- -----
Group revenue 1,995 1,813 3 3,811
Revenue by types of assets Buildings Infrastructure Utilities Other Total
Segment serviced GBPm GBPm GBPm GBPm GBPm
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share
Services 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
Services of joint ventures and associates - 289 158 16 463
---------------
Group revenue - 289 158 16 463
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share
Investments of joint ventures and associates 141(+) 78 9 1 229
---------------
Group revenue 113(+) 1 - - 114
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total Revenue including share
revenue of joint ventures and associates 1,985 2,017 503 22 4,527
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Group revenue 1,689 1,614 487 21 3,811
--------------------------------------------------- --------- -------------- --------- -------------- -----
Construction Support Infrastructure
Services Services Investments Total
Timing of revenue recognition GBPm GBPm GBPm GBPm
---------------------------------------------------- --------- -------------- --------- -------------- -----
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 GBP25m including share of joint
ventures and associates or GBP10m 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
United United Rest of
Kingdom States world Total
Segment Primary geographical markets GBPm GBPm GBPm GBPm
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share of joint
Services ventures and associates 1,237 1,766 411 3,414
---------------
Group revenue 1,237 1,758 - 2,995
--------------------------------------------------- --------- -------------- --------- -------------- -----
Support Revenue including share of joint
Services ventures and associates 495 - 4 499
---------------
Group revenue 495 - 3 498
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share of joint
Investments ventures and associates 82 149 3 234
---------------
Group revenue 29 79 1 109
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total Revenue including share of joint
revenue ventures and associates 1,814 1,915 418 4,147
---------------------------------------------- -------------- --------- -------------- -----
Group revenue 1,761 1,837 4 3,602
Revenue by types of assets Buildings Infrastructure Utilities Other Total
Segment serviced GBPm GBPm GBPm GBPm GBPm
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share
Services 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
Services of joint ventures and associates - 300 187 12 499
---------------
Group revenue - 300 186 12 498
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share
Investments of joint ventures and associates 141(+) 86 7 - 234
---------------
Group revenue 107(+) 2 - - 109
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total Revenue including share
revenue of joint ventures and associates 1,910 1,758 467 12 4,147
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Group revenue 1,709 1,436 445 12 3,602
--------------------------------------------------- --------- -------------- --------- -------------- -----
Construction Support Infrastructure
Services Services Investments Total
Timing of revenue recognition GBPm GBPm GBPm GBPm
---------------------------------------------------- --------- -------------- --------- -------------- -----
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 GBP29m including share of joint
ventures and associates or GBP8m 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
Revenue by primary geographical Kingdom States world Total
markets GBPm GBPm GBPm GBPm
---------------------------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share of joint
Services 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
Services ventures and associates 982 - 7 989
---------------
Group revenue 982 - 6 988
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share of joint
Investments ventures and associates 151 304 5 460
---------------
Group revenue 53 179 - 232
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total Revenue including share of joint
revenue ventures and associates 3,894 3,954 1,083 8,931
---------------------------------------------- -------------- --------- -------------- -----
Group revenue 3,796 3,824 9 7,629
Buildings Infrastructure Utilities Other Total
Revenue by types of assets serviced GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------- --------- -------------- --------- -------------- -----
Construction Revenue including share
Services 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
Services of joint ventures and associates 5 625 349 10 989
---------------
Group revenue 5 625 348 10 988
--------------------------------------------------- --------- -------------- --------- -------------- -----
Infrastructure Revenue including share
Investments of joint ventures and associates 291 (+) 154 15 - 460
---------------
Group revenue 229 (+) 3 - - 232
--------------------------------------------------- --------- -------------- --------- -------------- -----
Total
reven Revenue including share
ue of joint ventures and associates 4,174 3,739 1,003 15 8,931
--------------- ----------------------------------- --------- -------------- --------- -------------- -----
Group revenue 3,621 3,029 964 15 7,629
--------------------------------------------------- --------- -------------- --------- -------------- -----
Construction Support Infrastructure
Services Services Investments Total
Timing of revenue recognition GBPm GBPm GBPm GBPm
---------------------------------------------------- --------- -------------- --------- -------------- -----
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 GBP49m including share of joint
ventures and associates or GBP16m 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
first first 2022
half half year
unaudited unaudited audited
GBPm GBPm GBPm
----------------------- ---------- ---------- --------
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
first first 2022
half half year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------------------ ---------- ---------- --------
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
2022
2023 first 2022
first half half year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------ ----------- ---------- --------
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
first first 2022
half half year
unaudited unaudited audited
GBPm GBPm GBPm
---------------------------------------------------------------------------------------------- --------- --------- -------
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 -
- accrued
interest - 4 2
--------- --------- -------
21 24 38
--------- --------- -------
8 Non-underlying items
2023 2022 2022
first first year
half half audited
unaudited unaudited GBPm
GBPm GBPm
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 development in London (12) - -
- 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):
3 - -
* tax on provision recognised for rectification works
to be caried out on a 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 through non-underlying - - 2
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 GBP2m (2022: first half GBP2m; full-year GBP5m);
and customer relationships GBP1m (2022: first half GBP1m; full-year
GBP1m).
The charge was recognised in the following segments:
Construction Services GBP1m (2021: first half GBP1m; full-year
GBP1m) and Infrastructure Investments GBP2m (2022: first half
GBP2m; full-year GBP5m).
8.2.1 In 2021, the Group recognised a provision of GBP42m 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
GBP12m 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
GBP12m 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 GBP3m.
8.3.2 The remaining non-underlying items charged against the
Group's operating profit gave rise to a tax credit of GBP1m mainly
on amortisation of acquired intangible assets (2022: first half
GBP1m; full-year GBP1m charge).
9 Taxation
Non-
underlying
Underlying items
items (Note
2023 8) Total
first 2023 2023 2022
half first first first 2022
unaudited half half half year
(1) unaudited unaudited unaudited audited
GBPm GBPm GBPm GBPm GBPm
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
GBP20m has been credited (2022: first half GBP5m charged; full-year
GBP44m credited) directly to other comprehensive income,
comprising: a deferred tax credit of GBP18m for subsidiaries (2022:
first half GBP20m charge; full-year GBP19m credit) and a deferred
tax credit in respect of joint ventures and associates of GBP2m
(2022: first half GBP15m credit; full-year GBP25m credit). A tax
credit of GBPnil (2022: first half GBPnil; full-year GBP2m credit)
has been recognised directly in equity relating to share-based
payments.
10 Earnings per share
2023 first 2022 first
half unaudited half unaudited 2022 year audited
Basic Diluted Basic Diluted Basic Diluted
Earnings GBPm GBPm GBPm GBPm GBPm GBPm
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 2022 first
half unaudited half unaudited 2022 year audited
Basic Diluted Basic Diluted Basic Diluted
Earnings per share 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 2022 first
half unaudited half unaudited 2022 year audited
Per
share Amount Per share Amount Per share Amount
pence GBPm pence GBPm pence GBPm
-------- -----------
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 GBP40m 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 GBP39m 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
Accumulated
impairment Carrying
Cost losses amount
GBPm GBPm GBPm
--------------------------------- ----- ----------- --------
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 GBPnil; full-year GBPnil).
A full detailed impairment review will be conducted on all CGUs
as at 31 December 2023.
13 Contract balances
13.1 Contract assets
GBPm
At 31 December 2021 audited 214
Currency translation differences 6
Transfers from contract assets recognised at the
beginning of the year to receivables (196)
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 receivables (167)
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
GBPm
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 the year (547)
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 the period (530)
Reclassified to contract assets (Note 13.1) 11
At 30 June 2023 unaudited (664)
14 Trade and other receivables
2023 2022
first first 2022
half half year
unaudited unaudited audited
GBPm GBPm GBPm
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
first 2022
half first 2022
unaudited half year
GBP unaudited audited
m GBPm GBPm
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
provisions provisions provisions Total
GBPm GBPm GBPm GBPm
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 associates
(Note 5) - - 10 10
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
Underlying Total
items Non-underlying Total 2022
2023 items 2023 first Total
first 2023 first half 2022
half unaudited first half unaudited year
(1) half unaudited unaudited (+) audited
17.1 Cash from operations GBPm GBPm GBPm GBPm GBPm
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.
2023 2022
first first 2022
half half year
unaudited unaudited audited
17.2 Cash and cash equivalents GBPm GBPm GBPm
---------- ---------- --------
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
2023 2022
first first 2022
half half year
unaudited unaudited audited
17.3 Analysis of net cash/(borrowings) GBPm GBPm GBPm
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 cost with final maturity between
2023 and 2072 (286) (262) (261)
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
GBP4m (2022: first half GBP10m; full-year GBP3m) 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: GBP86m (2022: first half
GBP217m; full-year GBP194m) within construction project bank
accounts which is used for project specific expenditure; GBP355m
(2022: first-half GBP285m; full-year GBP253m) held in joint
operations which is used for expenditure within the joint operation
projects; and GBP18m (2022: first half GBP20m; full-year GBP19m)
relating to maintenance and other reserve accounts in the
Infrastructure Investments subsidiaries.
Infrastructure
investments Bilateral
non-recourse US private comitted Bank
17.4 Analysis of movements in project finance placement facility overdraft Total
borrowings GBPm GBPm GBPm GBPm GBPm
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
GBP375m revolving credit facility which was set to expire in
October 2024, replacing it with a new GBP475m 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
2023 2022
first first 2022
half half year
Principal actuarial assumptions for the IAS 19 accounting unaudited unaudited audited
valuations of the Group's principal schemes % % %
---------- ---------- --------
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 guaranteed) (^) 3.10 3.10 3.10
(*) 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%).
2023 2022
first first 2022
half half year
unaudited unaudited audited
Amounts recognised in the balance sheet GBPm GBPm GBPm
---------- ---------- --------
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 GBP210m (2022: first half GBP407m; full-year
GBP262m) and the retirement benefit liabilities of GBP36m at 30
June 2023 (2022: first half GBP46m; full-year GBP39m). 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.
2023 2022
first first 2022
half half year
unaudited unaudited audited
Analysis of net assets in the balance sheet GBPm GBPm GBPm
---------- ---------- --------
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 GBP19m (2022:
first half GBP22m; full-year GBP20m) are held by the Group to
satisfy these obligations.
2023 2022
first first 2022
half half year
Movements in the retirement benefit net assets for unaudited unaudited audited
the period GBPm GBPm GBPm
---------- ---------- --------
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
- on obligations from reassessing the
Actuarial movements 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 GBP174m (2022: first half GBP361m; full-year GBP223m) 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 GBP71m (2022: first
half GBP103m net gains; full-year GBP52m 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 GBP71m.
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 GBP2.4m (2022:
first half GBP23.5m; full-year GBP25m) 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 GBP88m (2022: first half GBP48m; full-year
GBP151m) of the Company's distributable profits and the cash paid
in settlement during the period was GBP87m (2022: first half
GBP47m; full-year GBP151m).
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.
2023 2022
first first 2022
half half year
unaudited unaudited audited
Financial instruments at fair value GBPm GBPm GBPm
---------- ---------- --------
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 GBP1m
decrease (2022: first half GBP1m; full-year GBP1m) / GBP1m increase
(2022: first half GBP1m; full-year GBP1m) 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 GBP26m decrease (2022: first half GBP33m; full-year
GBP28m)/GBP27m increase (2022: first half GBP35m; full-year GBP29m)
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 GBP215m (2022: first half GBP197m,
full-year GBP447m). 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.
2022
2023 first 2022
first half half year
unaudited unaudited audited
GBPm GBPm GBPm
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 GBP12m (including
associated fees and stamp duty).
There were no other material post balance sheet events arising
after the reporting date.
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END
IR FLFFRTDIELIV
(END) Dow Jones Newswires
August 16, 2023 02:00 ET (06:00 GMT)
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