BALFOUR BEATTY PLC HALF YEAR RESULTS

Balfour Beatty PLC
16 August 2023
 

 

BALFOUR BEATTY PLC RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2023

16 August 2023                  

Strong first half performance from earnings-based businesses

On track for full year expectations


Leo Quinn, Balfour Beatty Group Chief Executive, said: "We continue to deliver from the scale and breadth of our lower risk order book, which, during this period of high inflation and interest rates, underpins the financial results reported today and our expectations for the full year.

"Looking beyond 2023, we have positioned Balfour Beatty strongly with unique capabilities and a sector-leading balance sheet, to capitalise on national plans to transform critical infrastructure, particularly in the energy and transport markets. This provides the Board with confidence in both profitable managed growth and in our capacity to deliver significant future shareholder returns."

Strong first half performance with continuing momentum from earnings-based businesses

·        Revenue up 9% to £4.5 billion (2022: £4.1 billion)

·        Underlying profit from operations (PFO) from earnings-based businesses up 12% to £95 million (2022: £85 million)

·        Group PFO down 6% due to timing of disposals and lower Infrastructure Investments profit

·         Underlying profit before tax up 13% and underlying EPS up to 13.0 pence per share (2022: 12.9 pence)

Geographically and operationally diversified portfolio providing resilience 

·           Construction Services: PFO up 33% to £65 million with margin increased to 1.7% (2022: 1.4%) 

·         Support Services: PFO 17% lower with margins at 6.5% (2022: 7.2%), full year expected towards top of 6-8% range

·           Infrastructure Investments: Directors' valuation maintained at £1.3 billion (FY 2022: £1.3 billion)

Balance sheet strength and consistent cash flow supporting shareholder returns 

·           £150 million share buyback on track to complete in Q4

·           £58 million of total dividends to be paid in 2023, with the half year dividend maintained at 3.5 pence per share

·           Average net cash of £695 million (FY 2022: £804 million)

Large, lower risk order book and unique capabilities give confidence for future returns

·           £16.4 billion order book underpins short to medium term outlook (FY 2022: £17.4 billion)

·           Unique capabilities aligned to significant future opportunities in UK energy and transport markets

On track for full year expectations

·           Earnings-based businesses PFO expected to be broadly in line with 2022

·           Growing pipeline giving confidence for the long term outlook


(£ million unless otherwise specified)

HY 2023


HY 2022

Underlying2

Total


Underlying2


Total

Revenue1

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 book1

£16.4bn


£17.4bn


£17.7bn

Directors' valuation of Investments portfolio

£1.3bn


£1.3bn


£1.3bn

Net cash - recourse3

710


815


742

Average net cash - recourse3

695


804


811

 

 

Segment analysis

HY 2023


HY 2022

Revenue1

PFO2,#

PFO

margin2


Revenue1

PFO2,#

PFO

margin2

£m

£m

%


£m

£m

%

UK Construction

1,516

30

2.0%


1,237

18

    1.5%  

US Construction

1,736

21

1.2%


1,766

21

1.2%

Gammon

583

14

2.4%


411

10

2.4%

Construction Services

3,835

65

1.7%


3,414

49

1.4%

Support Services

463

30

6.5%


499

36

7.2%

Earnings-based businesses

4,298

95

2.2%

 

3,913

85

2.2%

Infrastructure Investments

229

2



234

17


Corporate activities

-

(17)



-

(17)


Total

4,527

80



4,147

85


 

Notes:

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

3 Excluding non-recourse net borrowings, which comprise cash and debt ringfenced within certain infrastructure investments project companies

# Underlying profit from operations, or PFO, as defined in the Measuring our financial performance section

A reconciliation of the Group's performance measures to its statutory results is provided in the Measuring our financial performance section

 

 

Investor and analyst enquiries:

Jim Ryan

Tel. +44 (0)7858 368527

jim.ryan@balfourbeatty.com

 

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 £95 million (2022: £85 million), with improved profitability from UK Construction, steady delivery from US Construction and higher Gammon profit, partially offset by a lower Support Services contribution. Underlying profit from operations for the Group reduced to £80 million (2022: £85 million), with the momentum in earnings-based businesses offset by lower underlying profit in Infrastructure Investments and the timing of disposals, which are planned for the second half of 2023.

Balfour Beatty's average net cash reduced in the first half to £695 million (FY 2022: £804 million), largely due to the working capital outflow forecast at the 2022 year end and £87 million of share buybacks. The Directors' valuation of the Investments portfolio remained stable at £1.3 billion (FY 2022: £1.3 billion), as increases from new investment and the unwind of discounting were offset by the weakening of the US dollar against sterling and increased forecast costs in the US military housing portfolio.

The Group's £16.4 billion order book (FY 2022: £17.4 billion) reduced by 6% in the period, or 3% at constant exchange rates (CER), due to both progress on major projects in the UK and Hong Kong and the impact of economic conditions delaying US commercial office projects going to contract. Overall, Balfour Beatty's focus on selectively bidding for contracts where it holds expert capability and can achieve improved contract terms has resulted in a lower risk order book. 

Given the Group's order book, the opportunities identified in its chosen markets and its competitive strengths, the Board has confidence in its capacity to deliver significant future shareholder returns. The current tranche of Balfour Beatty's multi-year share buyback programme, £150 million for 2023, is progressing well and is expected to complete during the fourth quarter of 2023. In addition, the Board has declared an interim dividend of 3.5 pence per share (2022: 3.5 pence).

Construction Services: operational progress in all geographies

UK Construction: Positive momentum continued in the first half, with strong delivery contributing to a 67% increase in underlying profit from operations. The Group's market-leading position in the UK infrastructure market is built on its unmatched scale and vertically integrated capability for delivering major projects. These include: Hinkley Point C, where the marine work is progressing well and remains on schedule to be completed in the second half of 2023; HS2 Area North, where the 2,000 tonne tunnel boring machine completed its second one mile journey underneath an ancient Warwickshire wood, marking the culmination of a three-year operation, from site set-up to the completion of the second breakthrough; and Old Oak Common, where the diaphragm walls and piling to the HS2 Box have been completed and concrete works are progressing at pace. In March, The Department for Transport announced delays to parts of the HS2 project and various highways schemes, driven by Government funding restrictions. Having worked through the change order on HS2 and rebalanced the workload, the Group sees no material change to its forecasts.

US Construction: The business completed a number of buildings projects in the first half, including a three-storey classroom building at Sierra College in Sacramento, California, which is one of the early successes in the further diversification of its US buildings footprint. By targeting additional cities in states with existing Balfour Beatty offices, and broader end-markets in some regions where the business is already active, new opportunities are being identified. As part of the LINXS Constructors joint venture at Los Angeles International Airport, the Group successfully energised the West Central Terminal Station at the International terminal, with all stations and maintenance facilities now energised. The Group also completed the construction of the US$300 million Tertiary Treatment Facilities project at the EchoWater Project in California.

Balfour Beatty continues to have a larger presence in buildings than civils in the US, with performance varying across the Group's chosen markets in difficult macroeconomic conditions. The education market in California remains strong, as does the federal market in the Mid-Atlantic, while hospitality and aviation markets in the Southeast continue to be a growth area for the buildings business. In the Northwest, the tech downturn is likely to be a medium term challenge, and as such, the business is pivoting to new end-markets. The major impact from the inflationary pressures and rising interest rates are delays to commercial real-estate projects in Texas. With US inflation dropping to below 3% in June, the buildings business has started to see early indicators of the pressure easing.

For US civils, the Group has yet to see an impact from the US Government's Infrastructure Investment and Jobs Act and Inflation Reduction Act on the volume of projects coming to its chosen geographies and markets. Balfour Beatty remains cautious in its approach to complex civils contracts in the US, as the combination of fixed-price contractual terms and the self-perform nature of the work gives limited scope to mitigate inflation and schedule risk.

Gammon: Balfour Beatty's Hong Kong based 50:50 joint venture with Jardine Matheson continues to perform consistently, with a strong share of both the buildings and civils markets, for which the market outlook is positive. Although inflation in Hong Kong is still lower than in the UK and US, the elevated level of construction activity in the region has increased the demand for labour, resulting in higher salaries. Consequently, voluntary attrition remains a challenge.

Work continues at Hong Kong Airport, where Gammon is delivering the tunnel structures for the Automatic People Mover and Baggage Handling System from Terminal 2 to Terminal 2C in addition to working on the Terminal 2 expansion. The steel roof of Terminal 2 is taking shape in parallel with the building services and finishing works inside the terminal building. Good progress is being made at the Central Kowloon Route project, where Gammon is constructing buildings, tunnelling and carrying out mechanical and electrical works, with the excavation of the last section of the tunnel close to completion. The diaphragm wall construction for Ang Mo Kio Station and Tunnels, one of Gammon Singapore's Land Transport Authority design and build projects, is also progressing well. 

Support Services: strong growth prospects across the portfolio

Support Services is focused on power, plant, road and rail maintenance and is characterised by profitable recurring revenues and underpinned by long term contracts. In the first half, the road maintenance business commenced both of its key 2022 awards, with the £176 million eight-year contract for highways services for Buckinghamshire County Council starting in April and the £297 million seven-year contract for the maintenance of highways assets and the delivery of infrastructure services across East Sussex starting in May.

The power business continues to perform strongly, delivering key transmission and distribution infrastructure throughout the UK, including phase two of National Grid's London Power Tunnels, where cable installation has recently started in 32km of underground tunnels between Wimbledon in the South West of London and Crayford in the South East. In June, SSEN Transmission's first major project under the RIIO T2 framework was energised after Balfour Beatty installed 148 new steel-lattice towers across a 45km stretch from Port Ann substation near Lochgilphead to the substation at Crossaig, supporting a major milestone in SSEN Transmission's wider strategy to deliver a network for net zero emissions across the north of Scotland. The Power business also completed the 116 T-pylon structures for the Hinkley Connection Project. The 400kV underground cabling section is now connected to the new line of T-pylons and also energised and transporting electricity. This is an important step in National Grid's project to connect six million homes and businesses in the South West to homegrown, low carbon energy.

The UK Government has announced a programme to accelerate the delivery of strategic transmission upgrades by at least three years, with an ambition to cut delivery times in half, due to the necessity of upgrading the UK's electricity transmission and distribution network. As a result, the Group's power transmission and distribution team is bidding for record levels of work and in August was selected as one of ten preferred bidders on SSEN Transmission's c. £10 billion Accelerated Strategic Transmission Investment (ASTI) framework.

The UK markets for road and rail maintenance remain positive. The highways maintenance market is part way through a five-year £2.7 billion scheme for road patching, which has increased local council budgets by around 50%. There are also several Local Authority contracts, like those won by Balfour Beatty for Buckinghamshire and East Sussex in 2022, coming to market in the coming years for which the Group is well positioned. The rail maintenance market also has a positive trajectory with the UK Government's commitment to invest £44 billion (as set out in the Statement of Funds Available (SoFA)) in operations, maintenance and renewal for the period 2024-2029 as part of Network Rail's Control Period 7 (CP7) strategic business plan.

Infrastructure Investments: pursuing opportunities in attractive markets

In the first half, Balfour Beatty invested £24 million in new and existing projects with one new US student accommodation project in Tallahassee, Florida, added to the portfolio. Construction of the Vanderbilt University student accommodation project is approaching completion, with student rentals starting in the Fall 2023 semester. The Group remains preferred bidder on two UK student accommodation projects and has reached financial close on the William & Mary University project in Virginia, for which construction will start in the second half of 2023.

In US military housing, the Group completed the demolition works at Fort Carson as part of a proposed multi-phase project that enables the construction of new townhomes at the base. Work has now begun on the preparation phase. The Group continues to work with the independent compliance monitor, who was appointed by the Department of Justice in 2021 and commenced work in 2022.

Balfour Beatty continues to invest in attractive new opportunities. In challenging market conditions, the Group maintains its disciplined approach to investments and disposals with each expected to meet its investment hurdle rates. The Group's current focus is on investment opportunities in:

-  Student accommodation: Across the UK and US, demand for student accommodation remains strong as universities continue to improve their facilities to attract students.

-   Residential: Balfour Beatty continues to see attractive US multifamily housing come to market, providing ample opportunity to invest profitably in the regeneration of these properties.

-    US P3: The US has become an increasingly exciting market for public-private partnerships, and, to date, 41 states (plus DC) have passed legislation allowing P3 projects.

-   Energy transition: As the UK's energy mix transitions to more renewable sources, and the UK adopts more sustainable transport such as electric vehicles, there are opportunities for private sector investment.

 

Momentum in UK energy security and transition

Balfour Beatty's end to end capabilities position it well to capitalise on the market opportunities in UK energy security and transition infrastructure. In addition to the RIIO-T2 spend period (2021-2026), which includes £30 billion for investment in energy networks and potential for a further £10 billion on green energy projects, the UK Government has committed significant investment through its Powering Up Britain programme. Published in March 2023, the plans set out energy transition and security strategies under which major infrastructure projects are already being brought to market in areas such as offshore wind, carbon capture, nuclear and hydrogen production. The Group's end to end capabilities across UK Construction and Support Services position it strongly to participate in these structural opportunities, for example:


-     The £20 billion ASTI fund supports the accelerated delivery of strategic electricity transmission network upgrades needed to meet the Government's 2030 renewable electricity generation ambitions. The Group's two key power transmission and distribution customers are involved in 25 of the 26 funded projects.

-     The £20 billion funding allocated to the development of carbon capture and hydrogen production technologies is creating opportunities such as Net Zero Teesside, a first-of-a-kind integrated power and carbon capture project, for which the Group was involved in the recent front-end engineering and design study.

-     In July, the UK Government stated that up to £20 billion could be spent on the development and construction of small nuclear reactors. In 2022, Balfour Beatty signed an agreement with Holtec Britain and Hyundai Engineering and Construction to support the planning advancement for the construction of Holtec's SMR-160 pressurised light-water nuclear reactors in the UK, with the Group acting as the main construction partner.

 

Outlook

In the first half of 2023, Balfour Beatty has delivered a strong financial performance and continues to expect full year 2023 PFO from its earnings-based businesses to be broadly in line with the 2022 full year, with further incremental growth in UK Construction profitability and Support Services delivering towards the top end of its 6-8% targeted margin range. Gains on disposal are still expected to be in the range of £15 - £30 million, with full year 2023 underlying profit after tax also expected to be in line with the Board's expectations.

2023 full year average net cash is now expected to be in the range of £650 - £700 million, which includes the share buyback, dividends and further working capital outflows in the second half of the year. The 2023 full year working capital unwind is expected to be in the range of £75 - £125 million.

The longer-term outlook for the Group remains positive. The strong, lower risk order book, combined with the opportunities identified in the Group's chosen markets, give the Board confidence in Balfour Beatty's continued ability to deliver profitable managed growth and sustainable cash generation, and in turn significant future shareholder returns.


RESULTS OVERVIEW

Unless otherwise stated, all commentary in this section and the Divisional financial reviews is on an underlying basis.

Throughout this report, Balfour Beatty has presented financial performance measures which are used to manage the Group's performance. These financial performance measures are chosen to provide a balanced view of the Group's operations and are considered useful to investors as these measures provide relevant information on the Group's past or future performance, position or cash flows. These measures are also aligned to measures used internally to assess business performance in the Group's budgeting process and when determining compensation. An explanation of the Group's financial performance measures and appropriate reconciliations to its statutory measures are provided in the Measuring Our Financial Performance section. Non-underlying items are the cause of the differences between underlying and statutory profitability. Additionally, underlying revenue includes the Group's share of revenue in joint ventures and associates.

Group financial summary

The Group's results in the first half of the year show a strong performance against a backdrop of challenging economic conditions. Revenue increased by 9% (6% at CER) to £4,527 million (2022: £4,147 million) driven by an increase in Construction Services. Statutory revenue, which excludes joint ventures and associates, was £3,811 million (2022: £3,602 million).

Construction Services revenue was up 12% (9% at CER) to £3,835 million (2022: £3,414 million) driven by higher HS2 volumes in the UK and increased activity at the major airport projects in Hong Kong. Support Services revenue decreased by 7% to £463 million (2022: £499 million) due in part to the timing of power projects.

Underlying profit / (loss) from operations2

 HY 2023

£m

 HY 2022

£m

UK Construction

30

18

US Construction

21

21

Gammon

14

10

Construction Services

65

49

Support Services

30

36

Earnings-based businesses

95

85

Infrastructure Investments pre-disposals operating profit

2

10

Infrastructure Investments gain on disposals

-

7

Corporate activities

(17)

(17)

Total underlying profit from operations

80

85

2 Before non-underlying items (Note 8)

In the first half, underlying profit from operations decreased by 6% to £80 million (2022: £85 million), with an £8 million reduction in Infrastructure Investments pre-disposal profit from operations due largely to increased costs relating to the independent compliance monitor's work across the US military housing portfolio. All 2023 disposals are expected in the second half. In the earnings-based businesses, improved Construction Services profitability was partially offset by a lower Support Services contribution. Statutory profit from operations was £65 million (2022: £82 million).

Net finance income of £17 million (2022: £1 million) improved as a result of higher interest rates. Underlying pre-tax profit was £97 million (2022: £86 million). The taxation charge on underlying profits increased to £23 million (2022: £6 million) as there were no additional deferred tax assets for UK tax losses recognised. This resulted in underlying profit after tax of £74 million (2022: £80 million). Total statutory profit after tax for the period was £63 million (2022: £98 million), as a result of the net effect of non-underlying items.

Underlying basic earnings per share was 13.0 pence (2022: 12.9 pence), which, along with a non-underlying loss per share of 1.9 pence (2022: gain of 2.8 pence), gave a total basic earnings per share of 11.1 pence (2022: 15.7 pence). This included the benefit from the basic weighted average number of ordinary shares reducing to 567 million (2022: 629 million) as a result of the Group's share buyback programme.

Non-underlying items

The Board believes non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. 

Non-underlying items after taxation were a net charge of £11 million for the period (2022: net credit of £18 million). Items included a £9 million post-tax charge in relation to an increase to a provision, which was recognised in 2021 for stone cladding rectification works, updated to current price expectations, and a £2 million post-tax charge relating to the amortisation of acquired intangible assets. Further detail is provided in Note 8.

Cash flow performance

The total cash movement in the first half resulted in a £105 million decrease (2022: £48 million) in the Group's period end net cash position to £710 million (FY 2022: £815 million), excluding non-recourse net borrowings. Operating cash flows were ahead of profit from operations. As expected, there was a working capital unwind in the first half and there was also an £87 million outflow for the current tranche of the multi-year share buyback programme.     

Cash flow performance

HY 2023

£m

HY 2022

£m

Operating cash flows

112

110

Working capital outflow

(42)

(55)

Pension deficit payments+

(13)

(29)

Cash from operations

57

26

Lease payments (including interest paid)

(31)

(29)

Dividends from joint ventures and associates

27

33

Capital expenditure

(30)

(13)

Share buybacks

(87)

(47)

Infrastructure Investments



- disposal proceeds

-

12

- new investments

(24)

(17)

Other

(17)

(13)

Net cash movement

(105)

(48)

Opening net cash*

815

790

Closing net cash*

710

742

*  Excluding infrastructure investments (non-recourse) net borrowings

+  Including £1 million (2022: £1 million) of regular funding

 

Working capital

As expected, the Group had a net working capital outflow of £42 million (2022: £55 million) in the first half. This reduction in the negative working capital position was a net result of several movements including outflows relating to major US Construction projects and Support Services projects.   


Working capital flows^

HY 2023

£m

HY 2022

£m

Inventories

(27)

(5)

Net contract assets

(158)

(4)

Trade and other receivables

(51)

22

Trade and other payables

169

(73)

Provisions

25

5

Working capital outflow^

(42)

(55)

^ Excluding impact of foreign exchange and disposals

 

Including the impact of foreign exchange and non-operating items, negative (i.e. favourable) current working capital decreased to £1,144 million (FY 2022: £1,167 million). In the medium term, the Group expects negative working capital as a percentage of revenue to be in line with its historical long term average of 11-13% (HY 2023: 15.0%; FY 2022: 15.3%) with the range continuing to be dependent on contract mix and the timing of project starts and completions. 

 

Net cash/borrowings

The Group's average net cash in the first half reduced to £695 million (FY 2022: £804 million; HY 2022: £811 million). The Group's net cash position at the half year, excluding non-recourse net borrowings, was £710 million (FY 2022: £815 million; HY 2022 £742 million).

Non-recourse net borrowings, held in Infrastructure Investments entities consolidated by the Group, were £259 million (FY 2022: £242 million; HY 2022: £242 million). The balance sheet also included £135 million for lease liabilities (FY 2022: £132 million; HY 2022: £137 million). Statutory net cash at half year was £316 million (FY 2022: £441 million; HY 2022: £363 million).

Share buyback

On 3 January 2023, Balfour Beatty commenced an initial £50 million tranche of its 2023 share buyback programme, which was subsequently increased, following the release of its 2022 full year results, to £150 million on 20 March 2023. In the first half, the Group purchased 24 million shares for a total consideration of £87 million. These shares are currently held in treasury with no voting rights. This tranche of the multi-year share buyback programme is expected to complete in the fourth quarter of 2023.

Banking facilities

In June 2023, the Group completed the refinancing of its core £375 million revolving credit facility, which was set to expire in October 2024, replacing it with a new £475 million facility that will expire in June 2027 (the RCF). The RCF has an extension option for a further year to June 2028, with the agreement of the lending banks, and its terms and conditions are materially the same as the prior facility. The RCF is a Sustainability Linked Loan, retaining the KPIs that featured in the prior facility. The RCF ensures the Group will retain strong liquidity support from a diverse banking group over the next five years.

 

In March 2023, the Group repaid US$209 million of US Private Placement (USPP) notes as they fell due. The repayment was funded primarily from the proceeds of debt issuance arranged in 2022, specifically US$158 million of new USPP notes issued in June 2022 (US$35 million 6.31% notes maturing in June 2027, US$80 million 6.39% notes maturing in June 2029 and US$43 million 6.45% notes maturing in June 2032) and a new bilateral committed facility, which expires in December 2024 and was fully utilised through a US$36 million drawdown in March 2023. This bilateral facility has an extension option for a further three years subject to certain specific conditions that were met on the completion of the refinancing of the Group's core facility in June 2023. As at the end of the period the Group had not triggered the bilateral facility's extension option.

 

Going concern

The Directors have considered the Group's medium term cash forecasts and conducted stress-test analysis on these projections in order to assess the Group's ability to continue as a going concern. Having also made appropriate enquiries, the Directors consider it reasonable to assume that the Group has adequate resources to continue for the period of at least 12 months from the date of approval of the condensed financial statements and, for this reason, have continued to adopt the going concern basis. Further detail is provided in Note 1.3 Going Concern.

Pensions

Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have committed to a journey plan approach to managing the BBPF whereby the BBPF is aiming to reach self-sufficiency by 2027. The Company and the trustees agreed the 31 March 2022 formal valuation in the first half of 2023. Under the agreed principles of the valuation, Balfour Beatty will pay deficit contributions to the BBPF of £24 million in 2023, £24 million in 2024 and £6 million in 2025. The Company and the trustees are making good progress with plans to reduce the overall risk in the scheme and the Company has agreed that additional amounts will become payable at £2 million per month from March 2025 if the BBPF's performance is materially different from that expected. The next formal triennial funding valuation is due with effect from 31 March 2025.

Following the formal triennial funding valuation of the Railways Pension Scheme (RPS) as at 31 December 2019, the Group agreed to continue to make deficit contributions of £6 million per annum which should reduce the funding deficit to zero by 2025.

The Group's balance sheet includes net retirement benefit assets of £174 million (FY 2022: £223 million) as measured on an IAS 19 basis, with the surpluses on the BBPF (£176 million) and RPS (£34 million) partially offset by deficits on other schemes (£36 million).

Dividend

The Board is committed to a sustainable ordinary dividend which is expected to grow over time, targeted at a pay-out ratio of 40% of underlying profit after tax excluding gain on disposal of Investments assets. As announced at the time of the 2022 full year results, going forward, the Board expects the interim dividend to be roughly one third of the prior year's full year dividend. Aligned to this, the Board has declared an interim dividend of 3.5 pence for 2023

 

DIVISIONAL FINANCIAL REVIEWS

 

CONSTRUCTION SERVICES

Underlying revenue at £3,835 million was up 12% (2022: £3,414 million), a 9% increase at CER, with higher volumes in the UK and Gammon. Underlying profit from operations increased to £65 million (2022: £49 million) due to improved profitability in UK Construction and higher volumes at Gammon. The order book reduced by 8% (5% at CER) in the period to £13.8 billion (FY 2022: £15.0 billion), due to a combination of progress on major projects in the UK and Hong Kong and the economic climate delaying US commercial office projects going to contract.

Construction Services

HY 2023


HY 2022


FY 2022

Revenue1

PFO

Order book1


Revenue1

PFO

Order book1


Order book1

£m

£m

£bn


£m

£m

£bn


£bn

UK Construction

1,516

30

5.9


1,237

18

5.8


6.1

US Construction

1,736

21

5.3


1,766

21

6.3


6.0

Gammon

583

14

2.6


411

10

3.2


2.9

Underlying2

3,835

65

13.8


3,414

49

15.3


15.0

Non-underlying

-

(13)

-


-

(1)

-


-

Total

3,835

52

13.8


3,414

48

15.3


15.0

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

A reconciliation of the Group's performance measures to its statutory results is provided in the Measuring our financial performance section

 

UK Construction: Revenue in UK Construction increased by 23% to £1,516 million (2022: £1,237 million) driven primarily by higher volumes at HS2.

UK Construction profitability continued to improve, with increased volumes at HS2 and improved project delivery contributing to £30 million of underlying profit from operations (2022: £18 million). This represents a 2.0% PFO margin (2022: 1.5%), with the full year PFO margin for UK Construction expected to be above the 2.1% delivered in the 2022 full year.

The UK Construction order book decreased by 3% to £5.9 billion (FY 2022: £6.1 billion). Over 95% of the UK Construction order book is from public sector and regulated industry clients.

US Construction: Revenue in US Construction decreased by 2% (6% at CER) to £1,736 million (2022: £1,766 million). US Construction recorded a £21 million underlying profit from operations in the period, representing a 1.2% PFO margin, both of which were in line with the first half of 2022. The business is anticipated to deliver a 1-2% PFO margin for the 2023 full year.

The US Construction order book decreased 12% (5% at CER) to £5.3 billion (FY 2022: £6.0 billion), with the economic conditions contributing to delays in projects going to contract, especially in the commercial office sector. Work winning has been strong across most geographies, and a US buildings growth strategy to target additional cities in states with an existing Balfour Beatty presence and broader end-markets in some regions where the business is already active, has delivered some early success. New additions to the order book in the first half include a US$242 million design-build highways contract in North Carolina and US$230 million of data centres in the US Northwest. Furthermore, Balfour Beatty has been selected for projects at airports in North Carolina and California, which are included in a high level of work for the coming years which has been awarded. This work is not included in the order book until the client proceeds to contract.

Gammon: The Group's share of Gammon's revenue increased by 42% (36% at CER) to £583 million (2022: £411 million) driven by an increase in major civils volumes, including the Terminal 2 expansion at Hong Kong Airport. Underlying profit increased to £14 million (2022: £10 million) representing a 2.4% profit margin.

The Group's 50% share of Gammon's order book decreased by 10% (7% at CER) to £2.6 billion (FY 2022: £2.9 billion) with the accelerated utilisation of the order book partially offset by new orders, including a HK$3.7 billion contract to construct a new development at Cyberport, which is the largest Fintech community in Hong Kong, from a wholly owned company of the Hong Kong Special Administrative Region Government.

SUPPORT SERVICES            

The Support Services business provides power, plant, road and rail maintenance and is characterised by profitable recurring revenues underpinned by long term frameworks targeting PFO margin of 6-8%.

Support Services revenue decreased by 7% to £463 million (2022: £499 million), mainly due to the timing of power projects. Underlying profit from operations at £30 million (2022: £36 million) was lower than the prior period due to the reduced revenue and the commencement of two new major road maintenance contracts, which typically incur additional costs in the start-up phase. This has reduced the PFO margin to 6.5% in the period (2022: 7.2%), however the power, road and rail maintenance businesses all continue to perform well, and Support Services is expected to deliver towards the top end of its targeted 6-8% margin range for the 2023 full year. 

The Support Services order book increased by 8% to £2.6 billion (FY 2022: £2.4 billion). During the first half, the road maintenance business added the £297 million East Sussex contract to the order book and the power business won a £42 million contract with National Grid to design and build a new 400 kV substation as well as two new terminal towers for the Little Horsted Substation Grid Supply Point.

Support Services

  HY 2023

HY  2022

Order book1 (£bn)

2.6

2.4

Revenue1 (£m)

463

499

Profit from operations2 (£m)

30

36

Non-underlying items (£m)

-

-

Statutory profit from operations (£m)

30

36

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

A reconciliation of the Group's performance measures to its statutory results is provided in the Measuring our financial performance section

 

INFRASTRUCTURE INVESTMENTS

Underlying pre-disposals profit from operations in the period decreased to £2 million (2022: £10 million) due largely to increased costs relating to the independent compliance monitor's work across the US military housing portfolio, and a £3 million reduction in the Group's share of profits from UK joint ventures due to higher interest rates on the subordinated debt provided by the Group which is offset by an increase in net investment income.  

No disposals were made in the first half (2022: £7 million gain on disposals), with the Group forecasting a gain on disposals in the second half of 2023 in the range of £15 - £30 million. Underlying profit from operations was £2 million (2022: £17 million). 

Net investment income of £12 million (2022: £7 million) included the £3 million benefit from higher interest rates on the subordinated debt provided by the Group to joint ventures and contributed to underlying profit before tax of £14 million (2022: £24 million).

Balfour Beatty continues to invest in attractive new opportunities, each expected to meet its investment hurdle rates. In the first half, the Group invested £24 million in new and existing projects, with one new student accommodation project in Tallahassee, Florida, added to the portfolio.

Infrastructure Investments

HY 2023

 £m

HY 2022

 £m

Pre-disposals operating profit2

2

                10

Gain on disposals2

-

                7

Profit from operations2

2

                17

Net investment income~

12

7

Profit before tax2

14

24

Non-underlying items

(2)

(2)

Statutory profit before tax

12

22

 

2 Before non-underlying items (Note 8)

~ Subordinated debt interest receivable, net interest receivable on PPP financial assets and non-recourse borrowings, fair value (loss)/gain on investment asset and impairment to subordinated debt receivable and accrued interest

A reconciliation of the Group's performance measures to its statutory results is provided in the Measuring our financial performance section

 

Directors' valuation

The Directors' valuation decreased 2% to £1,269 million (FY 2022: £1,291 million). The portfolio is now 54% weighted towards the US (FY 2022: 58%). The number of projects in the portfolio increased to 60 (FY 2022: 59).

Movement in value FY 2022 to HY 2023

£m

FY 2022

Equity invested

Distributions received

Sales proceeds

Unwind of discount

Operational performance

FX

HY 2023



UK

548

3

(13)

-

18

22

-

578


US

743

21

(20)

-

24

(38)

(39)

691


Total

1,291

24

(33)

-

42

(16)

(39)

1,269


 

Balfour Beatty invested £24 million (2022: £17 million) in new and existing projects. During the first half the Group added one new investment: a student accommodation project in Tallahassee, Florida.

Cash yield from distributions amounted to £33 million (2022: £36 million). There were no asset disposals in the first half (2022: £12 million).

Unwind of discount at £42 million (2022: £42 million) is a function of moving the valuation date forward by six months with the result that future cash flows are discounted by six fewer months.

Operational performance movements resulted in a £16 million decrease (2022: £93 million increase). The operational performance movements in the UK portfolio were primarily due to a revaluation of a student accommodation project due to higher than forecast rental increases, and an increase in short term interest rates. In the US portfolio, the main driver of the decrease was increased forecast insurance costs in the US military housing portfolio, while forecast costs relating to the independent compliance monitor's work were also increased.

The foreign exchange movement was a £39m decrease (2022: £86 million increase), as sterling appreciated against the US dollar in the period.

Methodology and assumption changes

For the 2022 year end valuation, a third-party valuation expert independently reviewed the portfolio and the Directors' valuation was consistent with their conclusions. The valuation methodology used for the 2023 half year Directors' valuation is unchanged from that used for the 2022 year end valuation.

The methodology for valuing most of the investments in the portfolio remains the discounted cash flow (DCF) method. Under this methodology cash flows for each project are forecast based on historical and present performance, future risks and macroeconomic forecasts. They also factor in secondary market assumptions. These cash flows are then discounted using different discount rates, which are based on the risk and maturity of individual projects and reflect secondary market transaction experience. The main exception to the use of DCF is for US multi-family housing projects which, due to the perpetual nature of the assets and the depth and liquidity of the rental housing market, are valued based on periodic broker reports for each property.

UK discount rates range from 6.75% to 8.75% depending on the maturity and risk of each project and the implied weighted average discount rate for the UK portfolio is 7.9% (FY 2022 7.9%). A 1% change in the discount rate would change the valuation of the UK portfolio by approximately £59 million. US discount rates range between 6% and 10.5% and the implied US weighted average discount rate is 7.9% (FY 2022: 7.9%). A 1% change in the discount rate would change the valuation of the US portfolio by approximately £78 million.

The portfolio remains positively correlated to inflation. A 1% change in the long term inflation rate in the UK portfolio would change the valuation by approximately £31 million and a 1% change in the long term rental growth rate in the US portfolio would change the valuation by approximately £86 million.

 

As in previous periods, the Directors' valuation may differ significantly from the accounting book value of investments shown in the financial statements, which are produced in accordance with International Financial Reporting Standards (IFRS) rather than using a discounted cash flow approach. A full reconciliation is provided in section i) of the Measuring Our Financial Performance section.

Portfolio valuation June 2023

Value by sector

Sector

 HY 2023

FY 2022

HY 2023

 FY 2022


No. projects

No. projects

£m

£m

Roads

12

12

171

171

Healthcare

2

2

136

126

Student accommodation

5

5

144

128

Energy transition

5

5

103

101

Other

2

2

24

22

UK total

26

26

578

548

US military housing

21

21

551

615

Student accommodation and other PPP

4

3

76

59

Residential housing

9

9

64

69

US total

34

33

691

743

Total

60

59

1,269

1,291

 

Value by phase

Phase

HY 2023

 FY 2022

 HY 2023

FY 2022


No. projects

No. projects

£m

£m

Operations

56

55

1,213

1,239

Construction 

3

3

51

47

Preferred bidder

1

1

5

5

Total

60

59

1,269

1,291

 

Value by income type

Income type

HY 2023

 FY 2022

 HY 2023

FY 2022


No. projects

No. projects

£m

£m

Availability based

17

17

364

353

Demand - operationally proven (2+ years)

37

36

709

761

Demand - early stage (less than 2 years)

6

6

196

177

Total

60

59

1,269

1,291

 

  Responsibility statement of the Directors in respect of the half-yearly financial report

 

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK;

·      the interim management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R 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 Beattyin good faith based on the information available to it at the date of this report and reflect the beliefs and expectations of Balfour Beatty. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

 

A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in UK and US Government policies, spending and procurement methodologies, failure in Balfour Beatty's health, safety or environmental policies and those factors set out under Principal Risks on pages 89 to 96 of the Annual Report and Accounts 2022.

 

No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved, and projections are not guarantees of future performance. Forward-looking statements speak only as at the date of this report and Balfour Beatty and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this report. No statement in this report is intended to be, or intended to be construed as, a profit forecast or profit estimate or to be interpreted to mean that Balfour Beatty plc's earnings per share for the current or future financial years will necessarily match or exceed the historical earnings per share for Balfour Beatty plc. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

 

MEASURING OUR FINANCIAL PERFORMANCE

Providing clarity on the Group's alternative performance measures

Following the issuance of the Guidelines on Alternative Performance Measures (APMs) by the European Securities and Markets Authorities (ESMA) in June 2015, the Group has included this section in this report with the aim of providing transparency and clarity on the measures adopted internally to assess performance.

Throughout this report, the Group has presented financial performance measures which are considered most relevant to Balfour Beatty and are used to manage the Group's performance.  These financial performance measures are chosen to provide a balanced view of the Group's operations and are considered useful to investors as these measures provide relevant information on the Group's past or future performance, position, or cash flows.

The APMs adopted by the Group are also commonly used in the sectors it operates in and therefore serve as a useful aid for investors to compare Balfour Beatty's performance to its peers.

The Board believes that disclosing these performance measures enhances investors' ability to evaluate and assess the underlying financial performance of the Group's operations and the related key business drivers.

These financial performance measures are also aligned to measures used internally to assess business performance in the Group's budgeting process and when determining compensation.

Equivalent information cannot be presented by using financial measures defined in the financial reporting framework alone.

Readers are encouraged to review this report in its entirety.

Performance measures used to assess the Group's operations

Underlying profit from operations (PFO)

Underlying PFO is presented before non-underlying items, finance costs and investment income and is the key measure used to assess the Group's performance in the Construction Services and Support Services segments. This is also a common measure used by the Group's peers operating in these sectors.

 

This measure reflects the returns to the Group from services provided in these operations that are generated from activities that are not financing in nature and therefore an underlying pre-finance cost measure is more suited to assessing underlying performance.

 

Underlying profit before tax (PBT)

The Group assesses performance in its Infrastructure Investments segment using an underlying PBT measure. This differs from the underlying PFO measure used to measure the Group's Construction Services and Support Services segments because in addition to margins generated from operations, there are returns to the Investments business which are generated from the financing element of its projects.

 

These returns take the form of subordinated debt interest receivable, interest receivable on PPP financial assets, and fair value gains on certain investment assets, which are included in the Group's income statement in investment income. These are then offset by the finance cost incurred on the non-recourse debt associated with the underlying projects, fair value losses on certain investment assets and any impairment of subordinated debt receivables and accrued interest, which are included in the Group's income statement in finance costs.

 

Operating cash flow (OCF)

The Group uses an internally defined measure of OCF to measure the performance of its earnings-based businesses and subsequently to determine the amount of incentive awarded to employees in these businesses under the Group's Annual Incentive Plan (AIP). This measure also aligns to one of the vesting conditions attributable to the Group's PSP awards.

Measuring the Group's performance

The following measures are referred to in this report when reporting performance, both in absolute terms and also in comparison to earlier periods:

 

Statutory measures

Statutory measures are derived from the Group's reported financial statements, which have been prepared in accordance with UK-adopted international accounting standards (IFRS) and in conformity with the requirements of the Companies Act 2006.

 

Where a standard allows certain interpretations to be adopted, the Group has applied its accounting policies consistently. These accounting policies can be found on pages 187 to 193 of the Annual Report and Accounts 2022.

 

The Group's statutory measures take into account all of the factors, including those that it cannot influence (principally foreign currency fluctuations) and also non-recurring items which do not reflect the ongoing underlying performance of the Group.

Performance measures

In assessing its performance, the Group has adopted certain non-statutory measures because, unlike its statutory measures, these cannot be derived directly from its financial statements. The Group commonly uses the following measures to assess its performance:

a) Order book

The Group's disclosure of its order book is aimed to provide insight into its pipeline of work and future performance. The Group's order book is not a measure of past performance and therefore cannot be derived from its financial statements.

 

The Group's order book comprises the unexecuted element of orders on contracts that have been secured. Where contracts are subject to variations, only secured contract variations are included in the reported order book.

 

Where contracts fall under framework agreements, an estimate is made of orders to be secured under that framework agreement. This is based on historical trends from similar framework agreements delivered in the past and the estimate of orders included in the order book is that which is probable to be secured.

 

In accordance with IFRS 15 Revenue from Contracts with Customers, the Group is required to disclose the remaining transaction price allocated to performance obligations not yet delivered. This can be found in Note 4.3 in the Annual Report and Accounts 2022. This is similar to the Group's order book disclosure, however it differs for the following reasons:


·    the Group's order book includes its share of orders that are reported within its joint ventures and associates. In line with section (e), the Board believes that including orders that are within the pipeline of its joint ventures and associates better reflects the size of the business and the volume of work to be carried out in the future. This differs from the statutory measure of transaction price to be allocated to remaining performance obligations which is only inclusive of secured revenue from the Group's subsidiaries.

·    as stated above, for contracts that fall under framework agreements, the Group includes in its order book an estimate of what the orders under these agreements will be worth. Under IFRS 15, each instruction under the framework agreement is viewed as a separate performance obligation and is included in the statutory measure of the remaining transaction price when received but estimates for future instructions are not.

·    the Group's order book does not include revenue to be earned in its Infrastructure Investments segment as the value of this part of the business is driven by the Directors' valuation of the Investments portfolio. Refer to section (i).

  

Reconciliation of order book to transaction price to be allocated to remaining performance obligations  


2023

first half
£m

2022

first half
£m

2022

year
£m

Order book (performance measure)

16,442

17,672

17,390

Less:

Share of orders included within the Group's joint ventures and associates

(2,938)

(3,572)

(3,275)

Less:

Estimated orders under framework agreements included in the order book disclosure

-

(106)

(25)

Add:

Transaction price allocated to remaining performance 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
statutory
results
£m

Intangible
amortisation
£m

Provision in relation to rectification works in London

£m

2023 first half performance
measures
£m

 

 


 

 

Revenue including share of joint ventures and associates (performance)

4,527

-

-

4,527

Share of revenue of joint ventures and associates

(716)

-

-

(716)

Group revenue (statutory)

3,811

-

-

3,811

Cost of sales

(3,631)

-

12

(3,619)

Gross profit

180

-

12

192

Amortisation of acquired intangible assets

(3)

3

-

-

Other net operating expenses

(134)

-

-

(134)

Group operating profit

43

3

12

58

Share of results of joint ventures and associates

22

-

-

22

Profit from operations

65

3

12

80

Investment income

38

-

-

38

Finance costs

(21)

-

-

(21)

Profit before taxation

82

3

12

97

Taxation

(19)

(1)

(3)

(23)

Profit for the period

63

2

9

74

Reconciliation of the half-year ended 30 June 2023 statutory results to performance measures by segment


 

Non-underlying items

 

Profit/(loss) from operations

2023 first half
statutory
results
£m

Intangible
amortisation
£m

Provision in relation to rectification

works in London

£m

2023 first half performance
measures
£m

Segment

 

 

 

 

Construction Services

52

1

12

65

Support Services

30

-

-

30

Infrastructure Investments

-

2

-

2

Corporate activities

(17)

-

-

(17)

Total

65

3

12

80



 

Reconciliation of the half-year ended 1 July 2022 statutory results to performance measures

 

 

Non-underlying items

 

 

2022 first half
statutory
results
£m

Intangible
amortisation
£m

UK deferred tax assets

£m

2022 first half performance
measures
£m

 

 


 

 

Revenue including share of joint ventures and associates (performance)

4,147

-

-

4,147

Share of revenue of joint ventures and associates

(545)

-

-

(545)

Group revenue (statutory)

3,602

-

-

3,602

Cost of sales

(3,429)

-

-

(3,429)

Gross profit

173

-

-

173

Amortisation of acquired intangible assets

(3)

3

-

-

Other net operating expenses

(117)

-

-

(117)

Group operating profit

53

3

-

56

Share of results of joint ventures and associates

29

-

-

29

Profit from operations

82

3

-

85

Investment income

25

-

-

25

Finance costs

(24)

-

-

(24)

Profit before taxation

83

3

-

86

Taxation

15

(1)

(20)

(6)

Profit for the period

98

2

(20)

80

Reconciliation of the half-year ended 1 July 2022 statutory results to performance measures by segment


 

Non-underlying items

 

Profit/(loss) from operations

2022 first half
statutory
results
£m

Intangible
amortisation
£m

UK deferred tax assets

£m

2022 first half performance
measures
£m

Segment

 

 

 

 

Construction Services

48

1

-

49

Support Services

36

-

-

36

Infrastructure Investments

15

2

-

17

Corporate activities

(17)

-

-

(17)

Total

82

3

-

85

 



 

Reconciliation of the year ended 31 December 2022 statutory results to performance measures

 

 

 

 

Non-underlying items

 

 

2022
statutory
results

 £m

Intangible
amortisation

 £m

Release of Heery provision

£m

UK deferred tax assets revaluation

£m

2022 performance
measures

 £m

 

 




 

Revenue including share of joint ventures and associates (performance)

8,931

-

-

-

8,931

Share of revenue of joint ventures and associates

(1,302)

-

-

-

(1,302)

Group revenue (statutory)

7,629

-

-

-

7,629

Cost of sales

(7,202)

-

-

-

(7,202)

Gross profit

427

-

-

-

427

Amortisation of acquired intangible assets

(6)

6

-

-

-

Other net operating expenses

(251)

-

(2)

-

(253)

Group operating profit

170

6

(2)

-

174

Share of results of joint ventures and associates

105

-

-

-

105

Profit from operations

275

6

(2)

-

279

Investment income

50

-

-

-

50

Finance costs

(38)

-

-

-

(38)

Profit before taxation

287

6

(2)

-

291

Taxation

-

1

-

(2)

(1)

Profit for the year

287

7

(2)

(2)

290

 

Reconciliation of the year ended 31 December 2022 statutory results to performance measures

 

 

Non-underlying items

 

Profit/(loss) from operations

2022
statutory
results

£m

Intangible
amortisation

£m

Release of Heery provision

£m

2022 performance
measures

£m

Segment

 



 

Construction Services

150

1

(2)

149

Support Services

83

-

-

83

Infrastructure Investments

76

5

-

81

Corporate activities

(34)

-

-

(34)

Total

275

6

(2)

279

 

c) Underlying profit before tax

As explained, the Group's Infrastructure Investments segment is assessed on an underlying profit before tax (PBT) measure. This is calculated as follows:


2023

first half
£m

2022

first half
£m

2022

year
£m

Underlying profit from operations (section (b) and Note 3)

2

17

81

Add:

Subordinated debt interest receivable^

16

12

27

Add:

Interest receivable on PPP financial assets^

1

1

2

Add:

Fair value (loss)/gain on investment asset^

(1)

5

6

Less:

Non-recourse borrowings finance cost^

(4)

(4)

(9)

Less:

Impairment of subordinated debt receivable^

-

(3)

-

Less:

Impairment of accrued interest^

-

(4)

(2)

Underlying profit before tax (performance)

14

24

105

Non-underlying items (section (b) and Note 3)

(2)

(2)

(5)

Statutory profit before tax

12

22

100

^ Refer to Note 6 and Note 7.

 

d) Underlying earnings per share

In line with the Group's measurement of underlying performance, the Group also presents its earnings per share (EPS) on an underlying basis. The table below reconciles this to the statutory earnings per share.

 

2023

first half
£m

2022

first half
£m

2022

year
£m

Statutory basic earnings per ordinary share

11.1

15.7

46.9

Amortisation of acquired intangible assets after tax

0.3

0.3

1.2

Other non-underlying items after tax

1.6

(3.1)

(0.6)

Underlying basic earnings per ordinary share (performance)

13.0

12.9

47.5

e) Revenue including share of joint ventures and associates (JVAs)

The Group uses a revenue measure which is inclusive of its share of revenue generated from its JVAs. As the Group uses revenue as a measure of the level of activity performed by the Group, the Board believes that including revenue that is earned from its JVAs better reflects the size of the business and the volume of work carried out and more appropriately compares to PFO.

 

This differs from the statutory measure of revenue which presents Group revenue from its subsidiaries.

 

A reconciliation of the statutory measure of revenue to the Group's performance measure is shown in the tables in section (b). A comparison of the growth rates in statutory and performance revenue can be found in section (j).

 

f)  Operating cash flow (OCF)

The table below reconciles the Group's internal performance measure of OCF to the statutory measure of cash generated from operating activities as reported in the Group's Statement of Cash Flows.

 

Reconciliation from statutory cash generated from operations to OCF


2023  first half
£m

2022

first half
£m

2022

year
£m

Cash generated from operating activities (statutory)

48

19

168

Add back: Pension payments including deficit funding (Note 18)

13

29

43

Less: Repayment of lease liabilities (including lease interest payments)

(31)

(29)

(58)

Add: Operational dividends received from joint ventures and associates

27

33

89

Add back: Cash flow movements relating to non-operating items

8

5

(12)

Less: Operating cash flows relating to non-recourse activities

(5)

(6)

(11)

Operating cash flow (OCF) (performance)

60

51

219

 

The Group includes/excludes these items to reflect the true cash flows generated from or used in the Group's operating activities:

 

Pension payments including deficit funding (£13m): the Group has excluded pension payments which are included in the Group's statutory measure of cash flows from operating activities from its internal OCF measure as these primarily relate to deficit funding of the Group's main pension fund, Balfour Beatty Pension Fund (BBPF). The payments made for deficit funding are in accordance with an agreed journey plan with the trustees of the BBPF and are not directly linked to the operational performance of the Group.

 

Repayment of lease liabilities (including lease interest payments) (£31m outflow): the payments made for the Group's leasing arrangements are included in the Group's OCF measure as these payments are made to third-party suppliers for the lease of assets that are used to deliver services to the Group's customers, and hence to generate revenue. Under IFRS, these payments are excluded from the Group's statutory measure of cash flows from operating activities as these are considered debt in nature under accounting standards.

 

Operational dividends received from joint ventures and associates (£27m inflow): dividends received from joint ventures and associates which are generated from non-disposal activities are included in the Group's OCF measure as these represent cash returns to the Group from cash flows generated from operating activities within joint ventures and associates. Under IFRS, these returns are classified as investing activities.

 

Cash flow movements relating to non-operating items (£8m): the Group's OCF measure excludes certain working capital movements that are not directly attributable to the Group's operating activities.

 

f)  Operating cash flow (OCF) continued

Operating cash flows relating to non-recourse activities (£5m): the Group's OCF measure is specifically targeted to drive performance improvement in the Group's earnings-based businesses and therefore any operating cash flows relating to non-recourse activities are removed from this measure. Under IFRS, there is no distinction between recourse and non-recourse cash flows.

g) Recourse net cash/borrowings

The Group also measures its performance based on its net cash/borrowings position at the period end. This is analysed by excluding elements that are non-recourse to the Group as well as lease liabilities.

Non-recourse elements are cash and debt that are ring-fenced within certain infrastructure concession project companies and are excluded from the definition of net debt set out in the Group's borrowing facilities. In addition, lease liabilities which are deemed to be debt in nature under statutory measures are also excluded from the Group's definition of net cash/borrowings as these are viewed to be operational in nature reflecting payments made in exchange for use of assets.

Net cash/borrowings reconciliation

 

2023

first half
(statutory)
£m

Adjustment
£m

2023

first half
(performance)
£m

 

2022

first half
(statutory)
£m

Adjustment
£m

2022

first half
(performance)
£m


2022

year
(statutory)
£m

Adjustment
£m

2022

year
(performance)
£m

Total cash within the Group

927

(27)

900


1,110

(20)

1,090

 

1,179

(19)

1,160

Cash and cash equivalents

 

 

 





 




- infrastructure concessions

27

(27)

-


20

(20)

-

 

19

(19)

-

- other

900

-

900


1,090

-

1,090

 

1,160

-

1,160

Total debt within the Group

(611)

421

(190)


(747)

399

(348)

 

(738)

393

(345)

Borrowings - non-recourse loans

(286)

286

-


(262)

262

-

 

(261)

261

-

  - other

(190)

-

(190)


(348)

-

(348)

 

(345)

-

(345)

Lease liabilities

(135)

135

-


(137)

137

-

 

(132)

132

-

Net cash

316

394

710


363

379

742

 

441

374

815

h) Average net cash/borrowings

The Group uses average net cash/borrowings measure as this reflects its financing requirements throughout the period. The Group calculates its average net cash/borrowings based on the average of opening and closing figures for each month through the period.

 

The average net cash/borrowings measure excludes non-recourse cash and debt and lease liabilities, and this performance measure shows average net cash of £695m (2022: first half £811m; full-year £804m).

 

Using a statutory measure (inclusive of non-recourse elements and lease liabilities) gives average net cash of £379m (2022: first half £391m; full-year £430m).

 

i) Directors' valuation of the Investments portfolio

The Group uses a different methodology to assess the value of its Investments portfolio. As described in the Directors' valuation section, the Directors' valuation for most of the investments in the portfolio has been undertaken using forecast cash flows for each project on an asset by asset basis, based on progress to date and market expectations of future performance. These cash flows have been discounted using different discount rates depending on project risk and maturity, reflecting secondary market transaction experience. As such, the Board believes that this measure better reflects the potential returns to the Group from those investments.


i) Directors' valuation of the Investments portfolio continued

The Directors have valued the Investments portfolio at £1.27bn at the half-year (2022: first half £1.30bn; full-year £1.29bn). The Directors' valuation will differ from the statutory carrying value of these investments, which are accounted for using the relevant standards in accordance with IFRS rather than a discounted cash flow approach.

 

Reconciliation of the net assets of the Infrastructure Investments segment to the comparable statutory measure of the Investments portfolio included in the Directors' valuation

 

2023

first half
£m

2022

first half
£m

2022

year
£m

Net assets of the Infrastructure Investments segment (refer to Note 3.2)

619

654

593

Less: Net assets not included within the Directors' valuation - Housing 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

first half
£m

2022

first half
£m

2022

year
£m

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 (£m)








2023 first half statutory

1,516

1,718

-

3,234

463

114

3,811

2022 first half statutory

1,237

1,758

-

2,995

498

109

3,602

Statutory growth

23%

(2)%

-

8%

(7)%

5%

6%









2023 first half performance^

1,516

1,736

583

3,835

463

229

4,527

2022 first half performance retranslated^

1,237

1,853

430

3,520

499

241

4,260

Performance CER growth

23%

(6)%

36%

9%

(7)%

(5)%

6%









Order book (£bn)








2023 first half 

5.9

5.3

2.6

13.8

2.6

-

16.4

2022 year

6.1

6.0

2.9

15.0

2.4

-

17.4

Growth

(3)%

(12)%

(10)%

(8)%

8%

-

(6)%









2023 first half

5.9

5.3

2.6

13.8

2.6

-

16.4

2022 year retranslated

6.1

5.6

2.8

14.5

2.4

-

16.9

CER growth

(3)%

(5)%

(7)%

(5)%

8%

-

(3)%

^ Performance revenue is underlying revenue including share of revenue from joint ventures and associates as set out in section (e).

 

INDEPENDENT REVIEW REPORT TO BALFOUR BEATTY PLC 

Conclusion 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the period ended 30 June 2023 which comprises the Condensed Group Income Statement, Condensed Group Statement of Comprehensive Income, Condensed Group Statement of Changes in Equity, Condensed Group Balance Sheet, Condensed Group Statement of Cash Flows and the related explanatory notes. 

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the period ended 30 June 2023 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   

 

Basis for conclusion 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

 

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of conclusion section of this report, nothing has come to our attention that causes us to believe that the Directors have inappropriately adopted the going concern basis of accounting, or that the Directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group will continue in operation.

 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

 

The annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK. 

 

In preparing the condensed set of financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

Our responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

 

 

Mike Barradell

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London E14 5GL

15 August 2023

Condensed Group Income Statement

For the half-year ended 30 June 2023         



2023 first half unaudited

 

2022 first half unaudited


2022 year audited

 


Notes

Underlying

items1

£m

Non-underlying items

(Note 8)

£m

Total

£m

 

Underlying

items1

£m

Non-underlying items

(Note 8)

£m

Total

£m


Underlying

 items1

£m  

Non-underlying

items

(Note 8)

£m

Total

£m 

 

 





 








 

Revenue including share of joint ventures and associates


4,527

-

4,527

 

4,147

-

4,147


8,931

-

8,931

 

Share of revenue of joint ventures and associates

5.1

(716)

-

(716)

 

(545)

-

(545)


(1,302)

-

(1,302)

 

Group revenue


3,811

-

3,811

 

3,602

-

3,602


7,629

-

7,629

 

Cost of sales


(3,619)

(12)

(3,631)

 

(3,429)

-

(3,429)


(7,202)

-

(7,202)

 

Gross profit/(loss)


192

(12)

180

 

173

-

173


427

-

427

 

Amortisation of acquired intangible assets


-

(3)

(3)

 

-

(3)

(3)


-

(6)

(6)

 

Other net operating (expenses)/income


(134)

-

(134)

 

(117)

-

(117)


(253)

2

(251)

 

Group operating profit/(loss)


58

(15)

43

 

56

(3)

53


174

(4)

170

 

Share of results of joint ventures and associates excluding gain on disposals 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).

 


Notes

2023

first half unaudited

 pence

2022

first half unaudited

pence

2022

year

 audited

 pence

 

Earnings per share



 


 

- basic

10

11.1

15.7

46.9

 

- diluted

10

11.0

15.6

46.3

 



 



 

Dividends per share proposed for the period

11

3.5

3.5

10.5

 






















 

Condensed Group Statement of Comprehensive Income

For the half-year ended 30 June 2023         


2023 first half unaudited

 

2022 first half unaudited


2022 year audited


Group

£m

Share of joint ventures and associates

£m

Total

£m

 

Group

£m

Share of joint ventures and associates

£m

Total

£m


Group

£m

Share of

joint

ventures

 and associates

£m

Total

£m

Profit for the period

41

22

63

 

69

29

98


182

105

287

Other comprehensive (loss)/income for the period

 

 

 

 








Items which will not subsequently be reclassified to the income statement

 

 

 

 








Actuarial (losses)/gains on retirement benefit assets/liabilities

(71)

-

(71)

 

103

-

103


(52)

1

(51)

Tax on above

18

-

18

 

(20)

-

(20)


20

-

20


(53)

-

(53)

 

83

-

83


(32)

1

(31)

Items which will subsequently be reclassified to the income statement

 

 

 

 








Currency translation differences

(16)

(12)

(28)

 

20

29

49


32

23

55

Fair value revaluations

 -

PPP financial assets

(1)

(10)

(11)

 

(1)

(74)

(75)


(3)

(124)

(127)


 -

cash flow hedges

1

2

3

 

1

15

16


3

29

32


 -

investments in mutual funds measured at fair value through OCI

1

-

1

 

(4)

-

(4)


(5)

-

(5)

Recycling of revaluation reserves to the income statement on disposal^

-

-

-

 

-

-

-


-

(3)

(3)

Tax on above

-

2

2

 

-

15

15


(1)

25

24


(15)

(18)

(33)

 

16

(15)

1


26

(50)

(24)

Total other comprehensive (loss)/income for the period

(68)

(18)

(86)

 

99

(15)

84


(6)

(49)

(55)

Total comprehensive (loss)/income for the period

(27)

4

(23)

 

168

14

182


176

56

232

Attributable to

 

 

 

 








Equity holders

 

 

(23)

 



183




233

Non-controlling interests

 

 

-

 



(1)




(1)

Total comprehensive (loss)/income for the period

 

 

(23)

 



182




232

^ Recycling of revaluation reserves to the income statement on disposal has an associated deferred tax credit of £nil.

 

 



 

Condensed Group Statement of Changes in Equity

For the half-year ended 30 June 2023






Other reserves





Called-up

share

capital

£m

Share

premium

account

£m

Capital Redemption Reserve

£m

Share

of joint

ventures'

and

associates'

reserves

£m 

Hedging reserves

£m

PPP financial assets

£m

Currency translation reserve

£m

Other µ

£m

Retained

profits

£m

Non-

controlling

interests

£m

Total

£m

At 31 December 2021 audited

345

176

1

72

(5)

4

100

45

631

7

1,376

Total comprehensive income/(loss) for the period

-

-

-

15

-

(1)

20

(3)

152

(1)

182

Ordinary dividends

-

-

-

-

-

-

-

-

(37)

-

(37)

Joint ventures' and associates' dividends

-

-

-

(38)

-

-

-

-

38

-

-

Purchase of treasury shares

-

-

-

-

-

-

-

-

(48)

-

(48)

Cancellation of ordinary shares

(25)

-

25

-

-

-

-

-

-

-

-

Movements relating to share-based payments+

-

-

-

-

-

-

-

(3)

(16)

-

(19)

At 1 July 2022 unaudited

320

176

26

49

(5)

3

120

39

720

6

1,454

Total comprehensive income/(loss) for the period

-

-

-

41

1

(2)

12

(2)

-

-

50

Ordinary dividends

-

-

-

-

-

-

-

-

(21)

-

(21)

Joint ventures' and associates' dividends

-

-

-

(110)

-

-

-

-

110

-

-

Non-controlling interests' dividends

-

-

-

-

-

-

-

-

-

(1)

(1)

Purchase of treasury shares

-

-

-

-

-

-

-

-

(103)

-

(103)

Cancellation of ordinary shares

(26)

-

26

-

-

-

-

-

-

-

-

Movements relating to share-based payments+

-

-

-

-

-

-

-

4

-

-

4

At 31 December 2022 audited

294

176

52

(20)

(4)

1

132

41

706

5

1,383

Total comprehensive income/(loss) for the period

-

-

-

4

1

(1)

(16)

1

(12)

-

(23)

Ordinary dividends

-

-

-

-

-

-

-

-

(39)

-

(39)

Joint ventures' and associates' dividends

-

-

-

(27)

-

-

-

-

27

-

-

Reserves transfers relating to joint ventures and associates

-

-

-

4

-

-

-

-

(4)

-

-

Purchase of treasury shares

-

-

-

-

-

-

-

-

(88)

-

(88)

Movements relating to share-based payments+

-

-

-

-

-

-

-

(2)

7

-

5

At 30 June 2023 unaudited

294

176

52

(39)

(3)

-

116

40

597

5

1,238

µ Other reserves include £22m of special reserve.

+ Movements relating to share-based payments include £nil tax credit (2022: first half £nil; full-year: £2m) recognised directly within retained profits.

 

Condensed Group Balance Sheet

At 30 June 2023


Notes

2023

first half

unaudited

£m

2022

first half

unaudited

£m

2022

year

audited

£m

Non-current assets



 


Intangible assets

 - goodwill

12

847

            877

876


 - other


282

            298

292

Property, plant and equipment


118

102

104

Right-of-use assets


127

132

127

Investment properties


67

28

27

Investments in joint ventures and associates

5.2

406

493

426

Investments


31

38

40

PPP financial assets


25

28

26

Trade and other receivables

14

287

237

286

Retirement benefit assets

18

210

407

262

Deferred tax assets


181

122

176



2,581

2,762

2,642

Current assets


 



Inventories


140

112

114

Contract assets

13.1

471

215

300

Trade and other receivables

14

890

937

881

Cash and cash equivalents

 - infrastructure investments

17.2

27

20

19


 - other

17.2

900

1,090

1,160

Current tax receivable


10

6

6

Derivative financial instruments

21

1

-

1



2,439

2,380

2,481

Total assets


5,020

5,142

5,123

Current liabilities


 



Contract liabilities

13.2

(662)

(695)

(663)

Trade and other payables

15

(1,770)

(1,519)

(1,595)

Provisions

16

(213)

(186)

(204)

Borrowings

 - non-recourse loans

17.3

(8)

(6)

(30)


 - other

17.3

-

(175)

(173)

Lease liabilities


(50)

(48)

(49)

Current tax payable


(8)

(12)

(8)

Derivative financial instruments

21

-

(1)

-



(2,711)

(2,642)

(2,722)

Non-current liabilities





Contract liabilities

13.2

(2)

(15)

(2)

Trade and other payables

15

(121)

(125)

(141)

Provisions

16

(212)

(207)

(197)

Borrowings

 - non-recourse loans

17.3

(278)

(256)

(231)


 - other

17.3

(190)

(173)

(172)

Lease liabilities


(85)

(89)

(83)

Retirement benefit liabilities

18

(36)

(46)

(39)

Deferred tax liabilities


(146)

(134)

(152)

Derivative financial instruments

21

(1)

(1)

(1)



(1,071)

(1,046)

(1,018)

Total liabilities


(3,782)

(3,688)

(3,740)

Net assets


1,238

1,454

1,383

Equity


 



Called-up share capital


294

320

294

Share premium account


176

176

176

Capital redemption reserve


52

26

52

Share of joint ventures' and associates' reserves


(39)

49

(20)

Other reserves


153

157

170

Retained profits


597

720

706

Equity attributable to equity holders


1,233

1,448

1,378

Non-controlling interests


5

6

5

Total equity


1,238

1,454

1,383









 

Condensed Group Statement of Cash Flows

For the half-year ended 30 June 2023         


Notes

2023

first half

unaudited

£m

2022

first half

unaudited

£m

2022

year

audited

£m

Cash flows from operating activities



 


Cash from operations

17.1

57

26

185

Income taxes paid


(9)

(7)

       (17)

Net cash from operating activities


48

19

168

Cash flows (used in)/from investing activities


 



Dividends received from:

- joint ventures and associates - infrastructure investments


13

26

114


- joint ventures and associates - other


14

12

34


- other investments


4

-

4

Interest received - infrastructure investments - joint ventures


5

5

10

Interest received - infrastructure investments - subsidiaries


16

-

7

Acquisition of businesses


-

(3)

(3)

Purchases of:

- intangible assets - infrastructure investments


-

-

(1)


- property, plant and equipment


(30)

(13)

(31)


- investment properties


(42)

-

-


- other investments


-

-

(7)

Investments in and long-term loans to joint ventures and associates


(7)

(17)

(29)

Return of equity from joint ventures and associates


-

7

34

PPP financial assets cash expenditure


(1)

(2)

(2)

PPP financial assets cash receipts


3

3

5

Disposals of:

- investments in joint ventures - other


-

1

1


- property, plant and equipment - other


1

3

8


- other investments


5

1

2

Net cash (used in)/from investing activities


(19)

23

146

Cash flows used in financing activities


 



Purchase of ordinary shares

19

(2)

(24)

(25)

Purchase of treasury shares

19

(87)

(47)

(151)

Proceeds from new loans relating to:

- infrastructure investments assets

17.4

30

5

8


- other

17.4

29

132

130

Repayments of loans relating to:         - infrastructure investments 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 £16.4bn at 30 June 2023 and will provide a pipeline of secured work over the going concern assessment period. These base case projections indicate that the headroom provided by the Group's strong cash position and the debt facilities currently in place is adequate to support the Group over the going concern assessment period.

At 30 June 2023, the Group's only debt, other than non-recourse borrowings ring-fenced within certain concession companies, comprised US private placement (USPP) notes and its bilateral committed facility. The remaining US$50m USPP notes issued in 2013 will mature in March 2025. The US$158m USPP notes issued in 2022 will mature in tranches in 2027, 2029 and 2032. The Group's bilateral committed facility, which was fully utilised through a US$36m drawdown in March 2023, is due to expire in December 2024 however the facility contains an extension option for a further three years subject to certain specific conditions.


1.3 Going concern continued

In June 2023, the Group also completed the refinancing of its core £375m revolving credit facility, which was set to expire in October 2024, replacing it with a new £475m facility that will expire in June 2027 (the RCF). The RCF contains an extension option for a further year to June 2028, with the agreement of the lending banks, and its terms and conditions are materially the same as the prior facility. The RCF was undrawn at 30 June 2023.

The Directors have stress-tested the Group's base case projections of both cash and profit against key sensitivities which could materialise as a result of adverse changes in the economic environment including a deterioration in commercial or operational conditions. The Group has sensitised its projections against severe but plausible downside scenarios which include:

·   elimination of a portion of unsecured work assumed within the Group's base case projections and a delay of six months for any awarded but not yet contracted work;

·   a deterioration of contract judgements and restriction of a portion of the Group's margins; and

·   delay in the disposal of Investments assets by 12 months.

 

In the severe but plausible downside scenarios modelled, the Group continues to retain sufficient headroom on liquidity throughout the going concern period. Through these downside scenarios, the Group is still expected to be in a net cash position and to remain within its banking covenants through the going concern assessment period.

Based on the above and having made appropriate enquiries, the Directors consider it reasonable to assume that the Group has adequate resources to continue for the going concern period and, for this reason, have continued to adopt the going concern basis in preparing the condensed financial statements

 

1.4 Adoption of new and revised standards

The following accounting standards, interpretations and amendments have been adopted by the Group in the current period:

·   IFRS 17 Insurance Contracts

·   Amendments to the following standards:

·      IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies

·      IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates

·      IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

·      IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 - Comparative Information

 

The above accounting standard and amended standards did not have a material effect on the Group.

 

1.5 Accounting standards not yet adopted by the Group

The following accounting standards, interpretations and amendments have been issued by the IASB but had either not been adopted by the UK or were not yet effective in the UK at 30 June 2023:

·   Amendments to the following standards:

−      IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current

−      IAS 1 Presentation of Financial Statements: Non-current liabilities with Covenants

−      IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements

−      IAS 12 Income taxes: International Tax Reform - Pillar Two Model Rules

−      IFRS 16 Leases: Lease Liability in a Sale and Leaseback

2 Exchange rates

The following key exchange rates were applied in these financial statements:

 

Average rates

£1 buys

2023

first half

unaudited

2022

first half

unaudited

2022

year

audited

1 July 2022 - 30 June 2023

 % change

31 Dec 2022 - 30 June 2023

% 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

£1 buys

2023

first half

unaudited

2022

first half

unaudited

2022

year

audited

1 July 2022 - 30 June 2023

 % change

31 Dec 2022 - 30 June 2023

% 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

For the half-year ended 30 June 2023 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Revenue including share of joint ventures and associates

3,835

463

229

-

4,527

Share of revenue of joint ventures and associates

(601)

-

(115)

-

(716)

Group revenue

3,234

463

114

-

3,811

Group operating profit/(loss)1

50

30

(5)

(17)

58

Share of results of joint ventures and associates

15

-

7

-

22

Profit/(loss) from operations1

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

For the half-year ended 1 July 2022 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Revenue including share of joint ventures and associates

3,414

499

234

-

4,147

Share of revenue of joint ventures and associates

(419)

(1)

(125)

-

(545)

Group revenue

2,995

498

109

-

3,602

Group operating profit/(loss)1

38

36

(1)

(17)

56

Share of results of joint ventures and associates

11

-

18

-

29

Profit/(loss) from operations1

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).

 

 

For the year ended 31 December 2022 audited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Revenue including share of joint ventures and associates

7,482

989

460

-

8,931

Share of revenue of joint ventures and associates

(1,073)

(1)

(228)

-

(1,302)

Group revenue

6,409

988

232

-

7,629

Group operating profit/(loss)1

129

83

(4)

(34)

174

Share of results of joint ventures and associates

20

-

85

-

105

Profit/(loss) from operations1

149

83

81

(34)

279

Non-underlying items:






-     amortisation of acquired intangible assets

(1)

-

(5)

-

(6)

-     other net operating income

2

-

-

-

2


1

-

(5)

-

(4)

Profit/(loss) from operations

150

83

76

(34)

275

Investment income





50

Finance costs





(38)

Profit before taxation





287

1 Before non-underlying items (Note 8).

 


3 Segment analysis continued

3.2 Assets and liabilities by activity

As at 30 June 2023 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Contract assets - current

365

84

22

-

471

Contract liabilities - current

(571)

(90)

(1)

-

(662)

Inventories

69

30

41

-

140

Trade and other receivables - current

732

94

50

14

890

Trade and other payables - current

(1,474)

(194)

(42)

(60)

(1,770)

Provisions - current

(187)

(3)

(6)

(17)

(213)

Working capital*

(1,066)

(79)

64

(63)

(1,144)

* Includes non-operating items and current working capital.

 

Total assets

 

2,413

481

985

1,141

5,020

Total liabilities

(2,535)

(390)

(366)

(491)

(3,782)

Net (liabilities)/assets

(122)

91

619

650

1,238

 

As at 1 July 2022 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Contract assets - current

125

61

29

-

215

Contract liabilities - current

(571)

(123)

(1)

-

(695)

Inventories

44

38

30

-

112

Trade and other receivables - current

799

89

36

13

937

Trade and other payables - current

(1,249)

(176)

(41)

(53)

(1,519)

Provisions - current

(159)

(3)

(8)

(16)

(186)

Working capital*

(1,011)

(114)

45

(56)

(1,136)

* Includes non-operating items and current working capital.







Total assets

 

2,411

463

1,001

1,267

5,142

Total liabilities

(2,308)

(397)

(347)

(636)

(3,688)

Net assets

103

66

654

631

1,454

 

 

As at 31 December 2022 audited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Contract assets

209

62

29

-

300

Contract liabilities - current

(550)

(112)

(1)

-

(663)

Inventories

50

32

32

-

114

Trade and other receivables - current

730

91

37

23

881

Trade and other payables - current

(1,374)

(171)

(44)

(6)

(1,595)

Provisions - current

(179)

(3)

(8)

(14)

(204)

Working capital*

(1,114)

(101)

45

3

(1,167)

* Includes non-operating items and current working capital.

 












Total assets

 

2,342

443

940

1,398

5,123

Total liabilities

(2,421)

(378)

(347)

(594)

(3,740)

Net (liabilities)/assets

(79)

65

593

804

1,383

 


3 Segment analysis continued

3.3 Other information

 

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

For the half-year ended 30 June 2023 unaudited

 

 

 

 

 

Capital expenditure on property, plant and equipment

4

22

-

4

30

Depreciation

14

25

1

5

45

For the half-year ended 1 July 2022 unaudited

 

 

 

 

 

Capital expenditure on property, plant and equipment

6

6

-

1

13

Depreciation

14

21

1

5

41

Gain on disposals of interests in investments

-

-

7

-

7

For the year ended 31 December 2022 audited






Capital expenditure on property, plant and equipment

13

15

-

3

31

Capital expenditure on intangible assets

-

-

1

-

1

Depreciation

30

41

2

10

83

Gain on disposals of interests in investments within joint ventures and associates

-

-

70

-

70

 

3.4 Infrastructure Investments

 

 

 

Underlying profit/(loss) from operations1

Group

2023
first half
unaudited
£m

Share of joint

ventures and

associates

2023

first half

unaudited+

£m

Total

2023
first half
 unaudited
£m

Group

2022
first half
 unaudited
£m

Share of

joint

ventures and

associates

2022
first half
 unaudited
+
£m

Total

2022
first half
 unaudited
£m

Group

2022

year

audited

£m

Share of

joint

ventures and

associates

2022

year

audited+

£m

Total

2022

year

audited

£m

UK^

-

-

-

3

3

6

3

1

4

North America

4

7

11

8

8

16

18

14

32

Gain on disposals of interests in investments

-

-

-

-

7

7

-

70

70


4

7

11

11

18

29

21

85

106

Bidding costs and overheads

(9)

-

(9)

(12)

-

(12)

(25)

-

(25)


(5)

7

2

(1)

18

17

(4)

85

81

+ The Group's share of the results of joint ventures and associates is disclosed net of investment income, finance costs and taxation.

^ Including Ireland.

1 Before non-underlying items (Note 8).

4 Revenue

4.1 Nature of services provided

4.1.1 Construction Services

The Group's Construction Services segment encompasses activities in relation to the physical construction of assets provided to public and private customers. Revenue generated in this segment is measured over time as control passes to the customer as the asset is constructed. Progress is measured by reference to the cost incurred on the contract to date compared to the contract's end of job forecast (the input method). Payment terms are based on a schedule of value that is set out in the contract and fairly reflect the timing and performance of service delivery. Contracts with customers are typically accounted for as one performance obligation (PO).

Types of assets

Typical contract length

Nature, timing of satisfaction of performance obligations and significant payment terms

Buildings

 

12 to 36 months

The Group constructs buildings which include commercial, healthcare, education, retail and residential assets. As part of its construction services, the Group provides a range of services including design and/or build, mechanical and electrical engineering, shell and core and/or fit-out and interior refurbishment. The Group's customers in this area are a mix of private and public entities.

The contract length depends on the complexity and scale of the building and contracts entered into for these services are typically fixed price.

In most instances, the contract with the customer is assessed to only contain one PO as the services provided by the Group, including those where the Group is also providing design services, are highly interrelated. However for certain types of contracts, services relating to fit-out and interior refurbishment may sometimes be assessed as a separate PO.

Infrastructure

 

1 to 3 months for small-scale infrastructure works

24 to 60 months for large-scale complex construction

The Group provides construction services to three main types of infrastructure assets: highways, railways and other large-scale infrastructure assets such as waste, water and energy plants.

Highways represent the Group's activities in constructing motorways in the UK, US and Hong Kong. This includes activities such as design and construction of roads, widening of existing motorways or converting existing motorways. The main customers are government bodies.

Railway construction services include design and managing the construction of railway systems delivering major multi-disciplinary projects, track work, electrification and power supply. The Group serves both public and private railways including high-speed passenger railways, freight and mixed traffic routes, dense commuter networks, metros and light rail.

Other infrastructure assets include construction, design and build services on large-scale complex assets predominantly servicing the waste, water and energy sectors.

Contracts entered into relating to these infrastructure assets can take the form of fixed-price, cost-plus or target-cost contracts with shared pain/gain mechanisms. Contract lengths vary according to the size and complexity of the asset build and can range from a few months for small-scale infrastructure works to four to five years for large-scale complex construction works.

In most cases, the contract itself represents a single PO where only the design and construction elements are contracted. In some instances, the contract with the customer will include maintenance of the constructed asset. The Group assesses the maintenance element as a separate PO and revenue from this PO is recognised in the Support Services segment. Refer to Note 4.1.2.



4 Revenue continued

4.1 Nature of services provided continued

4.1.2 Support Services

The Group's work in this segment supports existing assets through maintaining, upgrading and managing services across utilities and infrastructure assets. Revenue generated in this segment is measured over time as control passes to the customer as and when services are provided. Progress is measured by reference to the cost incurred on the contract to date compared to the contract's end of job forecast (the input method). Payments are structured as milestone payments set out in the respective contracts.

Types of assets

Nature, timing of satisfaction of performance obligations and significant payment terms

Utilities

 

Within the Group's services contracts, the Group provides support services to various types of utility assets.

For contracts servicing power transmission and distribution assets, the Group constructs and maintains electricity networks, including replacement or new build of overhead lines, underground cabling, cable tunnels and offshore windfarm maintenance. Contracts entered into are normally fixed-price and contract lengths can vary from 12 to 36 months, and up to 20 years for offshore windfarm maintenance contracts. Each contract is normally assessed to contain one PO. However, where a contract contains both a construction phase and a maintenance phase, these are assessed to contain two separate POs. 

Infrastructure

 

The Group provides maintenance, asset and network management and design services in respect of highways, railways and other publicly available assets. The customer in this area of the Group is mainly government bodies. Types of contract include a fixed schedule of rates, fixed-price, target-cost arrangements and cost-plus.

Contract terms range from 1 to 25 years. Where contracts include a lifecycle element, this is accounted for as a separate PO and recognised when the work is delivered.



 

4 Revenue continued

4.1 Nature of services provided continued

4.1.3 Infrastructure Investments

The Group invests directly in a variety of assets, predominantly consisting of infrastructure assets where there are opportunities to manage the asset upon completion of construction. The Group also invests in real estate type assets, in particular private residential and student accommodation assets. Revenue generated in this segment is from the provision of construction, maintenance and management services and also from the recognition of rental income. The Group's strategy is to hold these assets until optimal values are achieved through disposal of mature assets.

Types of services

Nature, timing of satisfaction of performance obligations and significant payment terms

Service concessions 

 

The Group operates a UK and US portfolio of service concession assets comprising assets in the roads, healthcare, student accommodation, biomass and waste and offshore transmission sectors. The Group accounts for these assets under IFRIC 12 Service Concession Arrangements.

Where the Group constructs and maintains these assets, the two services are deemed to be separate performance obligations and accounted for separately. If the maintenance phase includes a lifecycle element, this is considered to be a separate PO.

Contract terms can be up to 40 years. The Group recognises revenue over time using the input method. Consideration is paid through a fixed unitary payment charge spread over the life of the contract.

Revenue from this service is presented across Buildings, Infrastructure or Utilities in Note 4.2.

Management services

 

The Group provides real estate management services such as property development and asset management services. Contract terms can be up to 50 years. The Group recognises revenue over time as and when service is delivered to the customer.

Revenue from this service is presented within Buildings in Note 4.2.

Housing development

The Group also develops housing units on land that is owned by the Group. Revenue is recognised on the sale of individual units at the point in time when control of the asset is transferred to the purchaser. This is deemed to be when an unconditional sale is achieved.

Revenue from this service is presented within Buildings in Note 4.2.

 


4 Revenue continued

4.2 Disaggregation of revenue

The Group presents a disaggregation of its underlying revenue according to the primary geographical markets in which the Group operates as well as the types of assets serviced by the Group. The nature of the various services provided by the Group is explained in Note 4.1. This disaggregation of underlying revenue is also presented according to the Group's reportable segments as described in Note 3. 

For the half-year ended 30 June 2023 unaudited

Segment

Primary geographical markets

 

United

Kingdom

£m

United

States

£m

Rest of

world

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

1,516

1,736

583

3,835

Group revenue

 

1,516

1,718

-

3,234

Support

Services

Revenue including share of joint ventures and associates

461

-

2

463

Group revenue

 

461

-

2

463

Infrastructure Investments

Revenue including share of joint ventures and associates

68

158

3

229

Group revenue

 

18

95

1

114

Total revenue

Revenue including share of joint ventures and associates

2,045

1,894

588

4,527

Group revenue

 

1,995

1,813

3

3,811

 

 

 

 

 

 

 

Segment

Revenue by types of assets serviced

Buildings

£m

Infrastructure

£m

Utilities

£m

Other

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

1,844

1,650

336

5

3,835

Group revenue

1,576

1,324

329

5

3,234

Support

Services

Revenue including share of joint ventures and associates

-

289

158

16

463

Group revenue

-

289

158

16

463

Infrastructure Investments

Revenue including share of joint ventures and associates

141+

78

9

1

229

Group revenue

113+

1

-

-

114

Total revenue

Revenue including share of joint ventures and associates

1,985

2,017

503

22

4,527

Group revenue

1,689

1,614

487

21

3,811

 

 

 

 

 

 

 

Timing of revenue recognition

 

Construction Services

£m

Support

Services

£m

Infrastructure Investments

£m

Total

£m

Over time

 

3,832

461

223

4,516

At a point in time

 

3

2

6

11

Revenue including share of joint venture and associates

3,835

463

229

4,527

Over time

 

3,231

461

108

3,800

At a point in time

 

3

2

6

11

Group revenue

 

3,234

463

114

3,811

+ Includes rental income of £25m including share of joint ventures and associates or £10m excluding share of joint ventures and associates.

4 Revenue continued

4.2 Disaggregation of revenue continued

For the half-year ended 1 July 2022 unaudited

Segment

Primary geographical markets

 

United

Kingdom

£m

United

States

£m

Rest of

world

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

1,237

1,766

411

3,414

Group revenue

 

1,237

1,758

-

2,995

Support

Services

Revenue including share of joint ventures and associates

495

-

4

499

Group revenue

 

495

-

3

498

Infrastructure Investments

Revenue including share of joint ventures and associates

82

149

3

234

Group revenue

 

29

79

1

109

Total revenue

Revenue including share of joint ventures and associates

1,814

1,915

418

4,147

Group revenue

 

1,761

1,837

4

3,602

 

 

 

 

 

 

 

Segment

Revenue by types of assets serviced

Buildings

£m

Infrastructure

£m

Utilities

£m

Other

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

1,769

1,372

273

-

3,414

Group revenue

1,602

1,134

259

-

2,995

Support

Services

Revenue including share of joint ventures and associates

-

300

187

12

499

Group revenue

-

300

186

12

498

Infrastructure Investments

Revenue including share of joint ventures and associates

141+

86

7

-

234

Group revenue

107+

2

-

-

109

Total revenue

Revenue including share of joint ventures and associates

1,910

1,758

467

12

4,147

Group revenue

1,709

1,436

445

12

3,602

 

 

 

 

 

 

 

Timing of revenue recognition

 

Construction Services

£m

Support

Services

£m

Infrastructure Investments

£m

Total

£m

Over time

 

3,411

497

215

4,123

At a point in time

 

3

2

19

24

Revenue including share of joint venture and associates

3,414

499

234

4,147

Over time

 

2,992

496

90

3,578

At a point in time

 

3

2

19

24

Group revenue

 

2,995

498

109

3,602

+ Includes rental income of £29m including share of joint ventures and associates or £8m excluding share of joint ventures and associates.

4 Revenue continued

4.2 Disaggregation of revenue continued

For the year ended 31 December 2022 audited

 

 

 

 

 

 

Revenue by primary geographical markets

 

United

Kingdom

£m

United

States

£m

Rest of

world

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

2,761

3,650

1,071

7,482

Group revenue

 

2,761

3,645

3

6,409

Support

Services

Revenue including share of joint ventures and associates

982

-

7

989

Group revenue

 

982

-

6

988

Infrastructure Investments

Revenue including share of joint ventures and associates

151

304

5

460

Group revenue

 

53

179

-

232

Total

revenue

Revenue including share of joint ventures and associates

3,894

3,954

1,083

8,931

Group revenue

 

3,796

3,824

9

7,629

 

 

 

 

 

 

 

 

Revenue by types of assets serviced

Buildings

£m

Infrastructure

£m

Utilities

£m

Other

£m

Total

£m

Construction Services

Revenue including share of joint ventures and associates

3,878

2,960

639

5

7,482

Group revenue

3,387

2,401

616

5

6,409

Support

Services

Revenue including share of joint ventures and associates

5

625

349

10

989

Group revenue

5

625

348

10

988

Infrastructure Investments

Revenue including share of joint ventures and associates

291+

154

15

-

460

Group revenue

229+

3

-

-

232

Total

revenue

Revenue including share of joint ventures and associates

4,174

3,739

1,003

15

8,931

Group revenue

3,621

3,029

964

15

7,629

 

 

 

 

 

 

 

Timing of revenue recognition

 

Construction Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Total

£m

Over time

 

7,475

984

430

8,889

At a point in time

 

7

5

30

42

Revenue including share of joint ventures and associates

7,482

989

460

8,931

Over time

 

6,402

983

202

7,587

At a point in time

 

7

5

30

42

Group revenue

 

6,409

988

232

7,629

+ Includes rental income of £49m including share of joint ventures and associates or £16m excluding share of joint ventures and associates.

 

5 Share of results and net assets of joint ventures and associates

5.1 Income statement

 

2023
first half

unaudited

 £m

2022

first half unaudited

£m

2022

year
audited

£m

Revenue

716

545

1,302

Operating profit

28

24

112

Investment income

49

42

88

Finance costs

(52)

(35)

(87)

Profit before taxation

25

31

113

Taxation

(3)

(2)

(8)

Profit after taxation

22

29

105

 

5.2 Balance sheet

 

2023
first half

unaudited

 £m

2022

first half unaudited

£m

2022

year
audited

£m

Intangible assets

- goodwill

31

33

33


- Infrastructure Investments intangible

39

40

40


- other

12

13

13

Property, plant and equipment

23

33

33

Investment properties

246

333

257

Investments in joint ventures and associates

6

4

5

Money market funds

37

64

26

PPP financial assets

1,195

1,267

1,244

Military housing projects

113

119

119

Net borrowings

(898)

(990)

(952)

Other net liabilities

(514)

(527)

(508)

Share of net assets of joint ventures and associates

290

389

310

Reclassify negative investment to provisions

10

-

10

Loans to joint ventures and associates

106

104

106

Total investment in joint ventures and associates

406

493

426

 


6 Investment income

 

2023
first half

unaudited

 £m

2022

first half
unaudited

£m

2022

year
audited

£m

Subordinated debt interest receivable

16

12

27

Interest receivable on PPP financial assets

1

1

2

Fair value gain on investment asset

-

5

6

Interest received on bank deposits

14

2

8

Other interest receivable and similar income

1

3

2

Net finance income on pension scheme assets and obligations (Note 18)

6

2

5


38

25

50

 

7 Finance costs 


2023
first half

unaudited

 £m

2022

first half
unaudited

£m

2022

year
audited

£m

Non-recourse borrowings 

 - bank loans and overdrafts

4

4

9

US private placement

 - finance cost

6

6

15

Interest on lease liabilities


3

2

6

Fair value loss on investment asset

1

-

-

Other interest payable

 - committed facilities

2

1

2


 - letter of credit fees

1

1

2


 - other finance charges

4

3

2

Impairment of loans to joint ventures and associates - loans

 

-

3

-

                                                                                  - accrued interest

-

4

2


21

24

38

 


8 Non-underlying items


2023
first half

unaudited

 £m

2022

first half
unaudited

£m

2022

year
audited

£m

Items (charged against)/credited to profit

 

 


8.1 Amortisation of acquired intangible assets

(3)

(3)

(6)

8.2 Other non-underlying items:

 




- provision recognised for rectification works to be carried out on a 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):

 




- tax on provision recognised for rectification works to be caried out on a development in London

3

-

-


- 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 £2m (2022: first half £2m; full-year £5m); and customer relationships £1m (2022: first half £1m; full-year £1m).

 

The charge was recognised in the following segments: Construction Services £1m (2021: first half £1m; full-year £1m) and Infrastructure Investments £2m (2022: first half £2m; full-year £5m).

 

8.2.1 In 2021, the Group recognised a provision of £42m in relation to rectification works to be carried out on a development in London which was constructed by the Group between 2013 and 2016. The rectification work includes the replacement of stone panels affixed to the façade of the development to meet performance requirements. The provision was initially calculated in line with a methodology based on an independent expert's assessment of the rectification at that time and included an estimate of costs associated with any potential consequential disruption to the development as a result of these rectification works.

Rectification works are expected to complete in 2024. The most recent assessment carried out at half-year 2023 resulted in a £12m increase in the estimated cost of rectification. The Group initially presented the provision recognised in 2021 in non-underlying due to its size. In line with this presentation, the Group continues to present this within non-underlying. The provision does not include potential recoveries from third parties.

This charge was recognised in the Construction Services segment.

 

8.3.1 As explained in Note 8.2.1, a non-underlying charge of £12m was recognised at half-year 2023 in relation to the rectification works to be carried out on a development in London. This expense gave rise to a tax credit of £3m.

 

8.3.2 The remaining non-underlying items charged against the Group's operating profit gave rise to a tax credit of £1m mainly on amortisation of acquired intangible assets (2022: first half £1m; full-year £1m charge).

 


9 Taxation

 

Underlying

items

2023
first half

unaudited1

 £m

Non-

underlying

items

(Note 8)

2023

first half

unaudited

£m

Total

2023

first half

unaudited

£m

2022

first half
unaudited