Company Announcements

Balfour Beatty 2022 half year results

Source: RNS
RNS Number : 2401W
Balfour Beatty PLC
17 August 2022
 

 

BALFOUR BEATTY PLC RESULTS FOR THE HALF YEAR ENDED 1 JULY 2022

17 August 2022                  

 

Strong financial performance including increase in underlying PFO. Board expectations upgraded for the full year    

 

Highlights

·           42% increase in underlying profit from operations (PFO) at £85 million (2021: £60 million)

·           10% increase in order book at £17.7 billion (FY 2021: £16.1 billion); provides clear short- and medium-term visibility

·           Increase in Directors' valuation of the Investments portfolio at £1.3 billion (FY 2021: £1.1 billion)

·           Increase in half year average net cash at £811 million (FY 2021: £671 million)

·           68% increase in underlying basic EPS at 12.9 pence per share (2021: 7.7 pence per share)

·           17% increase in recommended half year dividend at 3.5 pence per share (2021: 3.0p)

·           Support Services upgraded to the top end of its 6-8% industry standard margin target range for full year

 

(£ million unless otherwise specified)

HY 2022


HY 2021

Underlying2

Total


Underlying2


Total

Revenue1

4,147

4,147


4,154


4,154

Profit from operations

85

82


60


40

Pre-tax profit

86

83


55


35

Profit for the period

80

98


51


52

Basic earnings per share

12.9p

15.7p


7.7p


7.8p

Dividends per share


3.5p




3.0p










HY 2022


FY 2021


 HY 2021

Order book1,2

£17.7bn


£16.1bn


£16.1bn

Directors' valuation of Investments portfolio

£1.3bn


£1.1bn


£1.1bn

Net cash - recourse

742


790


625

Net cash - non-recourse3

(242)


(243)


 (318)

Average net cash - recourse

811


671


611

 

Leo Quinn, Balfour Beatty Group Chief Executive, said: "With the Group well-positioned to capitalise on the growing infrastructure market, underpinned by its unique capability and balance sheet strength, the upgrade to the full year performance gives the Board further confidence in future capital returns."

Notes:

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

3 Non-recourse net borrowings are cash and debt that are ringfenced within certain infrastructure investments project companies

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 17 August 2022. 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

 



 

2022 HALF YEAR RESULTS ANNOUNCEMENT

 

·   GROUP CHIEF EXECUTIVE'S OVERVIEW

·   RESULTS OVERVIEW

·   DIVISIONAL OPERATING REVIEWS

·   MEASURING OUR FINANCIAL PERFORMANCE

 

GROUP CHIEF EXECUTIVE'S OVERVIEW

Executive Summary

Balfour Beatty's transformation into a sustainable, well-balanced Group is demonstrated by its strong financial performance in the first six months of 2022. The Group's diversified portfolio - both geographically in the UK, US and Hong Kong; and operationally across Construction Services, Support Services and Infrastructure Investments - and balance sheet strength, have provided the resilience to maintain its expert capabilities and market positions through the challenges of the last two years. Balfour Beatty emerges with a larger order book, including a higher proportion of long term and lower risk contracts, and all business units delivering expectations. In both the short and medium term, this provides clear visibility to deliver significant returns from profitable managed growth and cash generation.

The need to drive post-pandemic economic recovery has led governments in the Group's three chosen markets to boost spending on infrastructure and sustainability. This significant expansion of state-backed infrastructure provides a positive operating landscape for the Group. Given its proven track record of delivering world-class projects, Balfour Beatty is particularly well-placed to benefit from the growing focus on infrastructure which can mitigate climate change. Net zero targets dictate a redesign of energy infrastructure from renewable electricity generation and storage, smart grids and carbon capture to hydrogen and nuclear.

At the same time, new global challenges have arisen, in the form of higher energy and raw materials prices, inflation and knock-on wage pressures and supply chain issues. Against this backdrop, the Group's financial and operational strengths and its mix and nature of order book provide stability, while its leadership and disciplined processes ensure proactive management of performance.

Financial Summary

In the first half of 2022, the Group reported underlying profit from operations of £85 million which represents a 42% increase on the prior year (2021: £60 million). UK Construction has returned to profitability and Support Services showed improved performance on the prior year after adjusting for one-off items in the first half of 2021. US Construction, Gammon and Infrastructure Investments all performed in line with expectations, with profit from operations slightly above the first half of 2021.

Balfour Beatty's profitable managed growth is being underpinned by sustainable cash generation. In the first half of the year, the Group's average net cash continued to increase, after the share buyback programme, to £811 million (FY 2021: £671 million). In addition, the Directors' valuation of the Investments portfolio increased to £1.3 billion (FY 2021: £1.1 billion) due to an exchange rate benefit, higher inflation indexation leading to an increase in value on some projects and the upward revaluation of the Purdue University asset.

Looking ahead, the Group's £17.7 billion order book (FY 2021: £16.1 billion) increased 10% in the period, or 4% at constant exchange rate (CER), and provides clear short- and medium-term visibility. Balfour Beatty's focus on selectively bidding for contracts where it holds expert capability and can achieve improved contract terms has resulted in a higher quality order book with enhanced risk protection. 

Given the positive momentum in the business, the transformed portfolio and a favourable market outlook, the Board has confidence in its capacity to deliver significant future shareholder returns. The latest tranche in Balfour Beatty's multi-year share buyback programme, of £150 million for 2022, is progressing well and is expected to complete during the year. In addition, the Board is today recommending an interim dividend of 3.5 pence per share, a 17% increase on prior year (2021: 3.0 pence per share).

 

 

 

Operational update

Construction Services: Balfour Beatty's market-leading position in the UK infrastructure market is built on its unmatched scale and vertically integrated capability for delivering major projects, and increasingly this is its principal focus. At HS2 Area North, in July, a 2,000 tonne tunnel boring machine completed its one mile journey underneath an ancient Warwickshire wood. The machine which started boring under Long Itchington wood in December last year is the first tunnel breakthrough on the London to Birmingham route.  At Old Oak Common, good progress is being made on the main box construction with D-wall and piling works now well advanced. All three track and overhead catenary system bids have been submitted to HS2 as part of the BBVT joint venture (Balfour Beatty Rail, VINCI ETF and TSO) with award expected in January 2023. At Hinkley Point C, the first of the intake heads capping the cooling water system tunnels at the new nuclear power station was recently lowered beneath the waves during a tandem lifting operation and at Thames Tideway good progress has been made on the secondary lining to both the main tunnel and the connection tunnel.

US Construction continues to perform well. Significant milestones have been achieved on three material ongoing projects: in March, as part of the Green Line Extension Constructors joint venture, Balfour Beatty successfully completed one of two lines along the new 4.7-mile light-rail on Massachusetts Bay Transportation Authority (MBTA)'s Green Line Extension; in April, Balfour Beatty, as part of the LINXS Constructors joint venture, successfully completed the Los Angeles International Airport's 2.25-mile Automated People Mover train guideway superstructure for Los Angeles World Airports; and in June, Balfour Beatty, as part of Colorado River Constructors joint venture team, successfully set the first bridge beams that support widening activities east of US 290 and SH 71 "Y" interchange in Austin on the Texas Department of Transportation's Oak Hill Parkway project.

At Gammon, Balfour Beatty's 50:50 joint venture with Jardine Matheson based in Hong Kong, project execution and work winning remain strong despite the impact of the pandemic in Hong Kong during the first six months of 2022. Gammon continues to make good progress at Hong Kong Airport where it is delivering the structures for the Automatic People Mover and Baggage Handling System in addition to working on the Terminal 2 expansion. The Central Kowloon Route project where Gammon is constructing buildings and carrying out mechanical and electrical works is also progressing well.

Support Services: Following the strategic repositioning of Support Services (power, plant, road and rail maintenance), the business is now characterised by profitable recurring revenues underpinned by long-term contracts. The power and rail maintenance businesses continue to perform strongly and together have now completed the Eleclink project, providing a 1GW electricity interconnector between France and England through the Channel Tunnel. At Hinkley Point C, Balfour Beatty continues erecting 116 new T-pylons along a 57-kilometer route in Somerset to connect six million homes and businesses in the surrounding area with low-carbon electricity that will be generated from the new nuclear power station. As part of the same project, Balfour Beatty is also currently jointing and testing 400kV cables under the Mendip Hills Area of Outstanding Natural Beauty with energisation expected in the second half of 2022.

Infrastructure Investments: The Group continues to invest in attractive new opportunities, each expected to meet its investment hurdle rates. In the period, Balfour Beatty invested £17 million in new and existing projects with one new multifamily housing project added to the portfolio. Balfour Beatty also continues to sell assets, timed to maximise benefit to shareholders. In the period, one multifamily housing project was sold and in August the Purdue University sale was completed. Since Balfour Beatty Communities' (Communities) settlement with the US Department of Justice (DoJ) in December 2021, an independent compliance monitor, which formed part of the agreed resolution, has now been confirmed and appointed by the DoJ.

Inflation: Balfour Beatty continues to see inflationary pressures across the Group's construction and infrastructure markets both in relation to labour and materials. Whilst the Group is not immune to these pressures, Balfour Beatty is currently mitigating these risks through contractual protection and early buyout using the Group's scale and supply chain management and does not expect a material impact on the full year results 

In investments, many infrastructure assets, including Balfour Beatty's PFI schemes, have an explicit revenue link to inflation in the concession contracts. Others, such as student accommodation and multi-family housing projects, have indirect inflation-linked income through a rental pricing mechanism, providing inflation protection.

Infrastructure markets

Despite the current global economic uncertainty, Balfour Beatty's chosen markets all have a favourable outlook. As a key lever of economic growth, the construction and infrastructure sectors remain central to government planning in the Group's core markets. At the same time, new infrastructure - HS2, low carbon wind power, energy efficient buildings, carbon capture, new nuclear, highways, airports, and rail electrification - will all play a leading role in stimulating investment growth from which Balfour Beatty is well placed to benefit.

The UK Government's National Infrastructure Strategy (NIS) sets out its plans to transform infrastructure to drive economic recovery, levelling up and meeting the UK's net zero emissions target by 2050. The £650 billion of funding over ten years for developments in roads, railways, power networks, schools, hospitals and telecommunications represents an increase of around £110 billion compared to the status quo. Included within the NIS are budgets for some of the Group's key customers such as National Highways and Network Rail. The award and delivery of this work will be underpinned by UK Government's Construction Playbook, which sets out a shared ambition between government and industry for the sector to deliver public works in a more modern and efficient way.

In the US, the US$1.2 trillion bipartisan Infrastructure Investment and Jobs Act (IIJA) includes around US$634 billion of funding to upgrade roads, bridges, public transport and energy projects over the next five years. This represents an 108% increase compared to the FAST Act that was in effect from 2016 to 2020. There have also been positive announcements at state level, such as Texas's decade-long US$85bn Unified Transport Plan, which includes federal and state funding for highway, bridge, transit, airport, ferry, bicycle and pedestrian projects.

Gammon has a material share of the Hong Kong market and is well positioned to benefit from the social and economic infrastructure outlook in the region following the Government's announced ambition in its February 2021 budget to increase spending materially to around HK$1 trillion over the next decade. Major expansions of Hong Kong Airport and the MTR subway system have commenced, whilst social infrastructure programmes to develop hospitals and housing are also well underway.

In Support Services, the markets for power, plant, road and rail maintenance are all positive. In power, the proposed RIIO-T2 spend period (2021-2026) includes £30 billion for investment in energy networks and potential for a further £10 billion on green energy projects. The highways maintenance market is forecast to see significant investment with the announcement of an additional £2.7 billion in funding for road patching, increasing local council budgets by around 50% over the four years. The rail maintenance market also has a positive trajectory with an additional £10 billion of funding for maintenance and renewals as part of Network Rail's current CP6 control period (2019-2024).

Balfour Beatty's competitive expertise to finance, develop, build and maintain infrastructure puts the Group in a strong position to capitalise on new investment opportunities; notably in US P3 projects and student accommodation. The IIJA brings forth several factors that stimulate P3 activity in the US, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) and an increase in the limit of Private Activity Bonds, positively impacting the pipeline of P3 projects. Infrastructure Investments is well positioned in the student accommodation market where future cash flows are supported by a growing number of students and partnerships with universities in both the UK and the US. The strong demand in the secondary market continues to exceed supply and Balfour Beatty will selectively sell assets to maximise value from its portfolio.

Outlook

In the first six months of 2022, Balfour Beatty has delivered a strong financial performance. UK Construction remains on track to deliver industry standard margins of 2-3% for the 2022 full year and US Construction is anticipated to continue to deliver in the 1-2% margin target range.

At Support Services, the business is already performing towards the upper end of its 6-8% industry standard margin target range and is now expected to be at the top of this range for the full year. Furthermore, full year profit from investment disposals is now expected to be in the range of £55 to £65 million. Driven by this performance and also the strength of the order book, the Board expects underlying profit from operations to be ahead of its previous expectations.

Full year average net cash is now expected to be in the range of £740 to £780 million, which includes the share buyback and further working capital outflows in the second half of the year.

In the medium term, the need to drive post-pandemic economic recovery has led governments in the Group's three chosen markets to boost spending on infrastructure and sustainability. This has resulted in a Group order book of £17.7 billion which provides clear visibility to deliver profitable managed growth and sustainable cash generation. With Balfour Beatty's businesses well-positioned in markets with excellent opportunities, underpinned by the strength of its balance sheet and Investments portfolio, the Board expects to drive further profitable managed growth and significant shareholder returns in 2023.

 



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 as Balfour Beatty demonstrated its resilience in the face of macro uncertainties. Underlying revenue was flat (4% down at CER) at £4,147 million (2021: £4,154 million) as an increase at Construction Services was offset by the expected decrease at Support Services. Statutory revenue, which excludes joint ventures and associates, was £3,602 million (2021: £3,611 million).

Construction Services underlying revenue was up 2% (2% down at CER) at £3,414 million (2021: £3,336 million). Support Services revenue decreased by 10% to £499 million (2021: £555 million) as higher volumes at power were more than offset by a reduction in gas and water following the Group's decision to withdraw from this sector.

Underlying profit / (loss) from operations2

 HY 2022

£m

 HY 2021

£m

UK Construction

18

(23)

US Construction

21

20

Gammon

10

9

Construction Services

49

6

Support Services

36

54

Earnings-based businesses

85

60

Infrastructure Investments pre-disposals operating profit

10

8

Infrastructure Investments gain on disposals

7

7

Corporate activities

(17)

(15)

Total

85

60

2 Before non-underlying items (Note 8)

In the first half of the year, underlying profit from operations increased 42% to £85 million. Significantly, UK Construction returned to profit following write-downs on private sector property projects in central London in the first half of 2021. Support Services also improved period on period after adjusting for approximately £20 million on one-off items in the first half of 2021. US Construction, Gammon and Infrastructure Investments all performed in line with expectations, with profit from operations slightly above the first half of 2021. Statutory profit from operations was £82 million (2021: £40 million).

Net finance income at £1 million (2021: £5 million cost) improved as a result of higher cash balances. Underlying pre-tax profit was £86 million (2021: £55 million). The taxation charge on underlying profits at £6 million (2021: £4 million), led to an underlying profit after tax of £80 million (2021: £51 million). Total statutory profit after tax for the period was £98 million (2021: £52 million), as a result of the net effect of non-underlying items.

The underlying basic earnings per share was 12.9 pence (2021: 7.7 pence), which, along with a non-underlying gain per share of 2.8 pence per share (2021: 0.1 pence), gave a total basic earnings per share of 15.7 pence (2021: 7.8 pence).

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 credit of £18 million for the period (2021: £1 million). Items included a £20 million tax credit for recognition of additional UK deferred tax assets resulting from pension actuarial gains and a £2 million net of tax charge relating to the amortisation of acquired intangible assets.

Cash flow performance

The total cash movement in the half year resulted in a £48 million decrease (2021: £44 million increase) in the Group's period end net cash position to £742 million (FY 2021: £790 million), excluding non-recourse net borrowings. Operating cash flows were ahead of profit from operations. As expected, working capital started to unwind in the first half of the year and there was also a £47 million outflow for the 2022 share buyback programme.     

Cash flow performance

HY 2022

£m

HY 2021

£m

Operating cash flows

100

64

Working capital (outflow)/inflow

(45)

123

Pension deficit payments+

(29)

(29)

Cash from operations

26

158

Lease payments (including interest paid)

(29)

(32)

Dividends from joint ventures and associates

33

12

Capital expenditure

(13)

(16)

Share buybacks

(47)

(97)

Infrastructure Investments



- disposal proceeds

12

20

- new investments

(17)

(8)

Other

(13)

7

Net cash movement

(48)

44

Opening net cash*

790

581

Closing net cash*

742

625

*  Excluding infrastructure investments (non-recourse) net borrowings

Excludes £5 million dividends received in 2022 in relation to Investments asset disposals within joint ventures and associates

+  Including £1 million (2021: £1 million) of regular funding

 

Working capital

As expected, in the first half of 2022, the Group had a net working capital outflow of £45 million (2021: £123 million inflow), with the outflow in trade and other payables partially offset by the inflow in trade and other receivables.

    

Working capital flows^

HY 2022

£m

HY 2021

£m

Inventories

(5)

11

Net contract assets

(4)

113

Trade and other receivables

32

6

Trade and other payables

(73)

(5)

Provisions

5

(2)

Working capital inflow^

(45)

123

^ Excluding impact of foreign exchange and disposals

 

Including the impact of foreign exchange and non-operating items, negative (i.e. favourable) current working capital increased to £1,136 million (FY 2021: £1,118 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 2022: 15.8%; FY 2021: 15.6%) 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 of 2022 improved substantially to £811 million (FY 2021: £671 million; HY 2021: £611 million). The Group's net cash position at the half year, excluding non-recourse net borrowings, was £742 million (FY 2021: £790 million; HY 2021 £625 million).

Non-recourse net borrowings, held in Infrastructure Investments entities consolidated by the Group, were £242 million (FY 2021: £243 million; HY 2021: £318 million). The balance sheet also included £137 million for lease liabilities (FY 2021: £129 million; HY 2021: £126 million). Statutory net cash at half year was £363 million (FY 2021: £418 million; HY 2021: £181 million).

Share buyback

In 2021, Balfour Beatty commenced and completed a £150 million share buyback programme. All 50,334,350 shares purchased in the 2021 buy back were cancelled in June 2022. On 11 March 2022, Balfour Beatty commenced a subsequent £150 million share buyback programme. In the period, the Group purchased around 19 million shares for a total consideration of £48 million. These shares are currently held in treasury with no voting rights. The current share buyback programme is expected to complete by the end of 2022.

Banking facilities

The Group's £375 million sustainability linked loan (SLL) facility extends to October 2024. Under the terms of the loan, the Group is incentivised to deliver annual measurable performance improvement in three key areas: carbon emissions, social value generation,

and an independent Environmental, Social and Governance (ESG) rating score as determined by Sustainalytics, an ESG research, ratings and data provider for institutional investors and companies. Performance in these three areas will be monitored during the lifetime of the facility and depending on the outcomes achieved, a credit margin reduction or increase will be applicable. The purpose of the facility is to provide liquidity from a set of core relationship banks to support Balfour Beatty in its activities. In the first half of the year this facility remained undrawn.

Refinancing  

In the first half, the Group raised US$158 million of debt in the form of new US Private Placement (USPP) notes on terms and conditions materially the same as the existing USPP notes. The new debt is comprised of US$35 million of notes maturing in 2027 at a fixed coupon of 6.31%, US$80 million of notes maturing in 2029 at a fixed coupon of 6.39% and US$43 million of notes maturing in 2032 at a fixed coupon of 6.45%. This new funding will be used towards the repayment of the USPP notes that mature in March 2023. The refinancing exercise has extended the debt maturity profile of the Group.             

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 foreseeable future and, for this reason, have continued to adopt the going concern basis in preparing the half year condensed Group financial statements. Further detail is provided in Note 1.3 Going Concern.

Pensions

Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have committed to a journey plan approach to managing the BBPF whereby the BBPF is aiming to reach self-sufficiency by 2027. The next formal triennial funding valuation is due with effect from 31 March 2022 with discussions between the Group and the Trustees to agree this triennial valuation underway.

As a result of an acceleration mechanism agreed previously between the Group and the trustees in addition to discussions in light of Balfour Beatty's share buyback programme, the Group is expected to make deficit contributions to the BBPF of £38 million in 2022 and £18 million in 2023.

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 £361 million (FY 2021: £231 million) as measured on an IAS 19 basis, with the surpluses on the BBPF (£393 million) and RPS (£14 million) partially offset by deficits on other schemes (£46 million). The increase in the period is primarily due to an increase in the yields on corporate bonds.

Dividend

The Board is committed to a sustainable ordinary dividend which is expected to grow over time. Following uncertainty caused by the pandemic, the dividend was re-introduced in March 2021 at a targeted pay-out ratio of 40% of underlying profit after tax excluding gain on disposal of Infrastructure Investments assets. 

The Board has announced an interim dividend of 3.5 pence for 2022, 17% higher than the prior year (2021: 3.0 pence) and 67% higher than the corresponding pre-pandemic dividend for 2019 (2020: Nil; 2019: 2.1 pence). 



 

DIVISIONAL FINANCIAL REVIEWS

 

CONSTRUCTION SERVICES

Underlying revenue at £3,414 million was up 2% (2021: £3,336 million), a 2% decrease at CER, as revenue in the US and Hong Kong benefited from exchange rate movements. Underlying profit from operations increased to £49 million (2021: £6 million) as UK Construction returned to profitability, whilst US Construction and Gammon were both slightly ahead of the prior period. The order book increased 12% in the period to £15.3 billion (FY 2021: £13.6 billion), a 5% increase at CER as both the US and Gammon won significant contracts in the period.

Construction Services

HY 2022


HY 2021


FY 2021

Revenue1

PFO

Order book1


Revenue1

PFO

Order book1


Order book1

£m

£m

£bn


£m

£m

£bn


£bn

UK Construction

1,237

18

5.8


1,262

(23)

6.2


5.6

US Construction

1,766

21

6.3


1,697

20

5.0


5.4

Gammon

411

10

3.2


377

9

2.3


2.6

Underlying2

3,414

49

15.3


3,336

6

13.5


13.6

Non-underlying

-

(1)

-


-

(14)

-


-

Total

3,414

48

15.3


3,336

(8)

13.5


13.6

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 the UK decreased by 2% to £1,237 million (2021: £1,262 million) with higher volumes at HS2 more than offset by lower volumes from buildings and the deferral of a number of highway projects.

Significantly UK Construction returned to profit in the period with £18 million of underlying profit from operations (2021: £23 million loss). The result in the first half of 2022 is slightly ahead of the first half of 2019 (last clean comparison given the impact of COVID-19 resulted in UK Construction recording a loss in the first half of 2020) and represents a 1.5% profit from operations margin. It is expected that for the full year UK Construction will return to its 2-3% industry standard margin target.   

The UK Construction order book increased 4% to £5.8 billion (FY 2021: £5.6 billion). Over 90% of the UK Construction order book is from public sector and regulated industry clients. 

US Construction: Revenue in the US increased by 4% (3% decrease at CER) to £1,766 million (2021: £1,697 million). US Construction recorded a £21 million underlying profit from operations in the period (2021: £20 million) slightly ahead of the prior year, which represents a 1.2% profit from operations margin. US Construction is anticipated to deliver a 1-2% margin for the 2022 full year.

The US Construction order book increased 17% (5% at CER) to £6.3 billion (FY 2021: £5.4 billion) as tendering activity returned to pre-pandemic levels. In May, Balfour Beatty was awarded a US$698 million design and construct contract at Fort Meade, Maryland, by the US Army Corps of Engineers. In July, the Group won multiple contracts totalling around US$200 million to construct essential K-12 school, justice and federal projects across California. Although nationwide forecasts show a relatively flat overall construction market, Balfour Beatty is positioned in regions that are expected to outperform the national forecast as demographic trends continue to favour the Group's chosen states in the medium term. 

Gammon: The Group's share of revenue increased by 9% (3% at CER) to £411 million (2021: £377 million). Underlying profit was slightly ahead of the prior period at £10 million (2021: £9 million) despite the impact of the pandemic in Hong Kong during the first half of 2022 being higher than in other geographies in which the Group operates. The Gammon order book increased by 23% (9% at CER) to £3.2 billion (FY 2021: £2.6 billion) following the award of two significant construction contracts in the period: two new government buildings for the Architectural Services Department and five residential towers, located in Kowloon, Hong Kong.  

SUPPORT SERVICES            

Following the strategic repositioning of Support Services (power, plant, road and rail maintenance), the business is now characterised by profitable recurring revenues underpinned by long-term frameworks targeting an industry standard margin of 6-8% (HY 2022: 7.2%).

Support Services revenue decreased by 10% to £499 million (2021: £555 million) as higher volumes at power were more than offset by a reduction in gas and water following the Group's decision to withdraw from this sector. Underlying profit from operations at £36 million (2021: £54 million) was higher than the prior period when adjusted for approximately £20 million on one-off items in the first half of 2021. Continued strong performance in power, road and rail maintenance has contributed to a 7.2% margin in the period. 

The order book decreased 2% in the period to £2.4 billion (FY 2021: £2.5 billion). In the first half the rail maintenance business agreed the year four work programme with Network Rail at around £120 million as part of the 10-year Central Rail Systems Alliance track renewals programme and won a £50 million contract to deliver essential upgrade works to London Underground's Piccadilly line. In July, the road maintenance business won a £176 million eight-year contract to deliver highways services for Buckinghamshire County Council.

Support Services

  HY 2022

HY  2021

Order book1 (£bn)

2.4

            2.6

Revenue1 (£m)

499

            555

Profit from operations2 (£m)

36

            54

Non-underlying items (£m)

-

(5)

Statutory profit from operations (£m)

36

49

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 operating profit in the period increased to £10 million (2021: £8 million) as a result of increasing returns on projects as income increases with inflation. In June, the Group sold a 319-unit multifamily housing project in Houston, Texas for £12 million, realising a gain on disposal of £7 million (2021: £7 million). Underlying profit from operations was £17 million (2021: £15 million). 

Subsequent to the half year, Balfour Beatty sold its share of the Purdue University student accommodation project, for net proceeds of US$62 million, generating a profit on disposal of US$47 million. The demand for infrastructure assets from the secondary market continues to exceed supply and Balfour Beatty will maximise shareholder value through selective disposal of assets from its portfolio.

When including net interest income of £7 million (2021: £5 million), the underlying profit before tax increased to £24 million (2021: £20 million).

Following Balfour Beatty Communities' (Communities) settlement with the U.S. Department of Justice (DoJ) in December 2021, the Group has continued to focus on improving operations to support the safety, health and wellbeing of its service member residents and their families. An independent compliance monitor, which formed part of the resolution with the DoJ, has now been confirmed and appointed by the DoJ. Following the U.S. Permanent Subcommittee on Investigations (PSI) hearing in April 2022 and the Subcommittee's formal report, the U.S. Army is carrying out an investigation of the findings of the Subcommittee regarding the management of its operations at Fort Gordon, Georgia. Communities has provided a formal rebuttal to the PSI in relation to its report, which it has shared with the Army.

Communities is continuing to pursue opportunities for further infrastructure investment in its military housing portfolio in conjunction with its service branch partners. In July, the U.S. Army and Communities announced the start of demolition at Fort Carson as part of a proposed multi-phased project that would see the construction of new townhomes at the base. Elsewhere, other infrastructure initiatives include an energy modernization project which resulted in 1,000 homes receiving efficiency upgrades to reduce consumption and carbon emissions, and a rooftop solar program bringing more than 10 MW of photovoltaic systems to five U.S. Navy housing communities.

Infrastructure Investments

HY 2022

 £m

HY 2021

 £m

Pre-disposals operating profit2

                10

                8

Gain on disposals2

                7

                7

Profit from operations2

                17

                15

Net investment income~

7

5

Profit before tax2

24

20

Non-underlying items

(2)

(1)

Statutory profit before tax

22

 

19

 

2 Before non-underlying items (Note 8)

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

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 increased to £1,296 million (FY 2021: £1,106 million) in the first half of the year, due to an exchange rate benefit as the pound weakened, higher inflation than forecast which led to an increase in value on some projects and the revaluation of the student accommodation project at Purdue University. The number of projects in the portfolio remained at 64 (FY 2021: 64).

Movement in value: December 2021 to June 2022

£m

FY  

2021

Equity   invested

Distributions received

Sales   proceeds

Unwind of discount

Operational performance 

Foreign exchange

HY       2022

UK

474

1

(14)

-

17

41

-

519

US

632

16

              (22)

(12)

25

52

86

777

Total

1,106

17

                (36)

(12)

42

93

86

1,296

 

The Group invested £17 million (2021: £8 million) in new and existing projects. One new project was added: a multifamily housing project in San Antonio, Texas. One project was sold: a multifamily housing project in Houston, Texas. The Group sold its stake in the Purdue University student accommodation project in August, after the half year period and as such the asset is included in the Directors' valuation at its sales price.

Cash yield from distributions amounted to £36 million (2021: £32 million). Unwind of discount at £42 million (2021: £41 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 was positive £93 million (2021: £2 million decrease) and includes £52m higher inflation indexation which led to an increase in value on some projects and the revaluation of the Purdue University project. The exchange rate movement was £86 million as the dollar appreciated against sterling in the period. 

The methodology used for the Directors' valuation is unchanged, producing a valuation that reflects market value and which therefore changes with movements in the market. Cash flows for each project are forecast based on historical and present performance, future risks and macroeconomic forecasts and which also factor in current market assumptions. These cash flows are then discounted using different discount rates based on the risk and maturity of individual projects and reflecting secondary market transaction experience. 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 2022

Value by sector

Sector

HY 2022

FY 2021

HY 2022

FY 2021


No. projects

No. projects

£m

£m

Roads

12

12

170

158

Healthcare

2

2

119

108

Student accommodation

5

5

117

95

OFTOs

3

3

47

44

Waste and biomass

2

2

48

46

Other 

3

3

18

23

UK total

27

27

519

474

US military housing

21

21

561

491

Student accommodation and PPP

4

4

116

72

Residential housing

12

12

100

69

US total

37

37

777

632

Total

64

64

1,296

1,106

Value by phase

Phase

HY 2022

FY 2021

HY 2022

FY 2021


No. projects

No. projects

£m

£m

Operations

60

60

1,262

1,070

Construction 

3

3

30

34

Preferred bidder

1

1

4

2

Total

64

64

1,296

 1,106

Value by income type

Income type

HY 2022

FY 2021

HY 2022

FY 2021


No. projects

No. projects

£m

£m

Availability based

17

17

341

311

Demand - operationally proven (2 years or more)

41

39

736

580

Demand - early stage (less than 2 years)

6

8

219

215

Total

64

64

1,296

1,106

 

Discount rates applied to the UK portfolio range between 7% and 9.5% depending on project risk and maturity. The implied weighted average discount rate for the UK portfolio is 8.1% (FY 2021 8.1%). Discount rates applied to the US portfolio range between 7.5% and 10.6%. The implied weighted average discount rate is 8.2% (FY 2021: 8.3%). Consistent with other infrastructure funds, Balfour Beatty's experience is that there is limited correlation between the discount rates used to value PPP, and similar infrastructure investments, and long-term interest rates. In the event that interest rates increase in response to rising inflation, the impact of any increase in discount rates would be mitigated by the positive correlation between the value of the UK portfolio and changes in inflation. A 1% change in the discount rate would change the value of the UK portfolio by approximately £55 million. A 1% change in the discount rate would change the value of the US portfolio by approximately £79 million.



 

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 entity 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

16 August 2022



 

Forward-looking statements

This report may include certain forward-looking statements, beliefs or opinions, including statements with respect to Balfour Beatty's business, financial condition and results of operations.

 

These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by Balfour Beatty

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

 

A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in UK and US government policies, spending and procurement methodologies, failure in Balfour Beatty's health, safety or environmental policies and those factors set out under Principal Risks on pages 105 to 112 of the Annual Report and Accounts 2021.

 

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 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 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 International Accounting Standards and in accordance with UK-adopted International Financial Reporting Standards (IFRSs) 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 192 of the Annual Report and Accounts 2021.

 

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 2021. 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  


2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

Order book (performance measure)

17,672

16,095

16,057

Less:

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

(3,572)

(2,636)

(2,974)

Less:

Estimated orders under framework agreements included in the order book disclosure

(106)

(130)

(60)

Add:

Transaction price allocated to remaining performance obligations in Infrastructure Investments

1,791

1,681

1,664

Transaction price allocated to remaining performance obligations for the Group (statutory measure)

15,785

15,010

14,687

 

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 1 July 2022 statutory results to performance measures

 

 

Non-underlying items

 

 

2022 first half unaudited
statutory
results
£m

Intangible
amortisation
£m

UK deferred tax assets

£m

2022 first half unaudited 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

Gain on disposals of interests in investments

-

-

-

-

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 unaudited
statutory
results
£m

Intangible
amortisation
£m

UK deferred tax asset

£m

2022 first half unaudited 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 half-year ended 2 July 2021 statutory results to performance measures

 

 

Non-underlying items

 

 

2021 first half unaudited
statutory
results
£m

Repayment of grant income in relation to UK Job Retention Scheme

£m

Intangible
amortisation
£m

Release of PB accrual

£m

UK deferred tax asset

£m

2021 first half unaudited performance
measures
£m

 

 



 

 

 

Revenue including share of joint ventures and associates (performance)

4,154

-

-

-

-

4,154

Share of revenue of joint ventures and associates

(543)

-

-

-

-

(543)

Group revenue (statutory)

3,611

-

-

-

-

3,611

Cost of sales

(3,471)

-

-

-

-

(3,471)

Gross profit

140

-

-

-

-

140

Gain on disposals of interests in investments

7

-

-

-

-

7

Amortisation of acquired intangible assets

(2)

-

2

-

-

-

Other net operating expenses

(123)

19

-

(1)

-

(105)

Group operating profit

22

19

2

(1)

-

42

Share of results of joint ventures and associates

18

-

-

-

-

18

Profit from operations

40

19

2

(1)

-

60

Investment income

22

-

-

-

-

22

Finance costs

(27)

-

-

-

-

(27)

Profit before taxation

35

19

2

(1)

-

55

Taxation

17

(4)

-

-

(17)

(4)

Profit for the period

52

15

2

(1)

(17)

51

 

Reconciliation of the half-year ended 2 July 2021 statutory results to performance measures by segment

 

 

Non-underlying items

 

Profit/(loss) from operations

2021 first half unaudited
statutory
results
£m

Repayment of grant income in relation to UK Job Retention Scheme

£m

Intangible
amortisation
£m

Release of PB accrual

£m

UK deferred tax asset

£m

2021 first half unaudited performance
measures
£m

Segment

 



 

 

 

Construction Services

(8)

13

1

-

-

6

Support Services

49

5

-

-

-

54

Infrastructure Investments

14

-

1

-

-

15

Corporate activities

(15)

1

-

(1)

-

(15)

Total

40

19

2

(1)

-

60

 



 

Reconciliation of the year ended 31 December 2021 statutory results to performance measures

 

 

 

 

 

Non-underlying items

 

 

2021
statutory
results

 £m

Intangible
amortisation

 £m

Repayment of grant income in relation to UK Job Retention Scheme

£m

Release of Heery provision

£m

Provision in relation to rectification works in London

£m

Release of PB accrual

£m

Settlement charge following resolution with DoJ

£m

UK deferred tax asset

£m

2021 performance
measures

 £m

 

 








 

Revenue including share of joint ventures and associates (performance)

8,263

-

-

-

-

-

17

-

8,280

Share of revenue of joint ventures and associates

(1,078)

-

-

-

-

-

-

-

(1,078)

Group revenue (statutory)

7,185

-

-

-

-

-

17

-

7,202

Cost of sales

(6,904)

-

-

-

42

-

-

-

(6,862)

Gross profit

281

-

-

-

42

-

17

-

340

Gain on disposals of interests in investments

26

-

-

-

-

-

-

-

26

Amortisation of acquired intangible assets

(5)

5

-

-

-

-

-

-

-

Other net operating expenses

(262)

-

19

(6)

-

(1)

24

-

(226)

Group operating profit

40

5

19

(6)

42

(1)

41

-

140

Share of results of joint ventures and associates

57

-

-

-

-

-

-

-

57

Profit from operations

97

5

19

(6)

42

(1)

41

-

197

Investment income

39

-

-

-

-

-

-

-

39

Finance costs

(49)

-

-

-

-

-

-

-

(49)

Profit before taxation

87

5

19

(6)

42

(1)

41

-

187

Taxation

52

(1)

(4)

1

(8)

-

(4)

(29)

7

Profit for the year

139

4

15

(5)

34

(1)

37

(29)

194

 



 

Reconciliation of the year ended 31 December 2021 statutory results to performance measures

 

 

Non-underlying items

 

 

Profit/(loss) from operations

2021
statutory
results

£m

Intangible
amortisation

£m

Repayment of grant income in relation to UK Job Retention Scheme

£m

Release of

Heery provision

£m

Provision in relation to rectification works in London

£m

Release of PB accrual

£m

Settlement charge following resolution with DoJ

£m

UK deferred tax asset

£m

2021 performance
measures

£m

Segment

 








 

Construction Services

30

-

13

(6)

42

-

-

-

79

Support Services

97

-

5

-

-

-

-

-

102

Infrastructure Investments

3

5

-

-

-

-

41

-

49

Corporate activities

(33)

-

1

-

-

(1)

-

-

(33)

Total

97

5

19

(6)

42

(1)

41

-

197

 

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:


2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

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

17

15

49

Add:

Subordinated debt interest receivable^

12

12

23

Add:

Interest receivable on PPP financial assets^

1

4

5

Add:

Fair value gain on investment asset^

5

5

9

Less:

Non-recourse borrowings finance cost^

(4)

(7)

(11)

Less:

Impairment of subordinated debt receivable^

(3)

(9)

(4)

Less:

Impairment of accrued interest^

(4)

-

(10)

Underlying profit before tax (performance)

24

20

61

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

(2)

(1)

(46)

Statutory profit before tax

22

19

15

^ 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.

 

2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

Statutory basic earnings per ordinary share

15.7

7.8

21.3

Amortisation of acquired intangible assets net of tax

0.3

0.3

0.6

Other non-underlying items net of tax

(3.1)

(0.4)

7.8

Underlying basic earnings per ordinary share (performance)

12.9

7.7

29.7

 



 

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


2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

Cash generated from operating activities (statutory)

19

157

353

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

29

29

42

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

(29)

(32)

(59)

Add: Operational dividends received from joint ventures and associates

33

12

60

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

5

12

1

Less: Operating cash flows relating to non-recourse activities

(6)

(1)

(5)

Operating cash flow (OCF) (performance)

51

177

392

 

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 (£29m): the Group has excluded pension payments which are included in the Group's statutory measure of cash flows from operating activities from its internal OCF measure as these primarily relate to deficit funding of the Group's main pension fund, Balfour Beatty Pension Fund (BBPF). The payments made for the deficit funding are in accordance with an agreed journey plan with the trustees of the BBPF and are not directly linked to the operational performance of the Group.

 

Repayment of lease liabilities (including lease interest payments) (£29m 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 (£33m 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 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 (£5m): 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 (£6m): the Group's OCF measure is specifically targeted to drive performance improvement in the Group's earnings-based businesses and therefore any operating cash flows relating to non-recourse activities are removed from this measure. Under IFRS, there is no distinction between recourse and non-recourse cash flows.

 

g) Recourse net cash/borrowings

The Group also measures its performance based on its net cash/borrowings position at the year end. This is analysed using only elements that are recourse to the Group. Non-recourse elements are cash and debt that are ringfenced within certain infrastructure concession project companies. In addition, lease liabilities recognised on the Group's balance sheet are deemed to be debt in nature under statutory measures.   

 

The Group has excluded these elements from its measure of net cash as they are excluded from the definition of net debt set out in the Group's borrowing facilities.

 

Net cash/borrowings reconciliation

 

2022

first half unaudited
(statutory)
£m

Adjustment
£m

2022

first half unaudited
(performance)
£m

 

2021

first half unaudited
(statutory)
£m

Adjustment
£m

2021

first half unaudited
(performance)
£m


2021

year

audited
(statutory)
£m

Adjustment
£m

2021

year

audited
(performance)
£m

Total cash within the Group

1,110

(20)

1,090


833

(21)

812

 

1,033

(17)

1,016

Cash and cash equivalents

 

 

 





 




- infrastructure concessions

20

(20)

-


21

(21)

-

 

17

(17)

-

- other

1,090

-

1,090


812

-

812

 

1,016

-

1,016

Total debt within the Group

(747)

399

(348)


(652)

465

(187)

 

(615)

389

(226)

Borrowings - non-recourse loans

(262)

262

-


(339)

339

-

 

(260)

260

-

  - other

(348)

-

(348)


(187)

-

(187)

 

(226)

-

(226)

Lease liabilities

(137)

137

-


(126)

126

-

 

(129)

129

-

Net cash

363

379

742


181

444

625

 

418

372

790

h) Average net cash/borrowings

The Group uses an 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 £811m (2021: first half £611m; full-year £671m).

 

Using a statutory measure (inclusive of non-recourse elements and lease liabilities) gives average net cash of £391m (2021: first half £160m net cash; full-year net £279m cash).

 

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 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 this portfolio.



 

i) Directors' valuation of the Investments portfolio continued

The Directors have valued the Investments portfolio at £1.3bn at the half-year (2021: first half £1.08bn; full-year £1.11bn). 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

 

2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

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

654

686

599

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

(27)

(26)

(24)

Comparable statutory measure of the Investments portfolio under IFRS

627

660

575

 

Comparison of the statutory measure of the Investments portfolio to its performance measure

 

2022

first half unaudited
£m

2021

first half unaudited
£m

2021

year

audited
£m

Statutory measure of the Investments portfolio (as above)

627

660

575

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

669

419

531

Directors' valuation (performance measure)

1,296

1,079

1,106

 

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 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:

 

2022 statutory growth compared to performance growth

 

Construction Services

 

 

 

 

UK

US

Gammon

Total

Support Services

Infrastructure Investments

Total

Revenue (£m)








2022 first half statutory

1,237

1,758

-

2,995

498

109

3,602

2021 first half statutory

1,262

1,688

-

2,950

538

123

3,611

Statutory growth (%)

(2%)

4%

-

2%

(7%)

(11%)

-%









2022 first half performance^

1,237

1,766

411

3,414

499

234

4,147

2021 first half performance retranslated^

1,262

1,817

400

3,479

555

275

4,309

Performance CER growth (%)

(2%)

(3%)

3%

(2%)

(10%)

(15%)

(4%)









Order book (£bn)








2022 first half 

5.8

6.3

3.2

15.3

2.4

-

17.7

2021 year

5.6

5.4

2.6

13.6

2.5

-

16.1

Growth (%)

4%

17%

23%

12%

(2%)

-

10%









2022 first half

5.8

6.3

3.2

15.3

2.4

-

17.7

2021 year retranslated

5.6

6.0

3.0

14.6

2.4

-

17.0

CER growth (%)

4%

5%

9%

5%

(2%)

-

4%

^ 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 1 July 2022 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 1 July 2022 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. 

 

 

Paul Sawdon

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London E14 5GL

16 August 2022

Condensed Group Income Statement

For the half-year ended 1 July 2022             



2022 first half unaudited

 

2021 first half unaudited


2021 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


4,147

-

4,147

 

4,154

-

4,154


8,280

(17)

8,263

 

Share of revenue of joint ventures and associates

5.1

(545)

-

(545)

 

(543)

-

(543)


(1,078)

-

(1,078)

 

Group revenue


3,602

-

3,602

 

3,611

-

3,611


7,202

(17)

7,185

 

Cost of sales


(3,429)

-

(3,429)

 

(3,471)

-

(3,471)


(6,862)

(42)

(6,904)

 

Gross profit/(loss)


173

-

173

 

140

-

140


340

(59)

281

 

Gain on disposals of interests in investments


-

-

-

 

7

-

7


26

-

26

 

Amortisation of acquired intangible assets


-

(3)

(3)

 

-

(2)

(2)


-

(5)

(5)

 

Other net operating (expenses)


(117)

-

(117)

 

(105)

(18)

(123)


(226)

(36)

(262)

 

Group operating profit/(loss)


56

(3)

53

 

42

(20)

22


140

(100)

40

 

Share of results of joint ventures and associates excluding gain on disposals of interests in investments


22

-

22

 

18

-

18


48

-

48

 

Gain on disposals of interests in investments


7

-

7

 

-

-

-


9

-

9

 

Share of results of joint ventures and associates

5.1

29

-

29

 

18

-

18


57

-

57

 

Profit/(loss) from operations


85

(3)

82

 

60

(20)

40


197

(100)

97

 

Investment income

6

25

-

25

 

22

-

22


39

-

39

 

Finance costs

7

(24)

-

(24)

 

(27)

-

(27)


(49)

-

(49)

 

Profit/(loss) before taxation


86

(3)

83

 

55

(20)

35


187

(100)

87

 

Taxation

9

(6)

21

15

 

(4)

21

17


7

45

52

 

Profit/(loss) for the period


80

18

98

 

51

1

52


194

(55)

139

 

Attributable to


 

 

 

 








 

Equity holders


81

18

99

 

52

1

53


195

(55)

140

 

Non-controlling interests

 

(1)

-

(1)

 

(1)

-

(1)


(1)

-

(1)

 

Profit/(loss) for the period


80

18

98

 

51

1

52


194

(55)

139

 

1 Before non-underlying items (Note 8).

 


Notes

2022

first half unaudited

 pence

2021

first half unaudited

pence

2021

year

 audited

 pence

 

Earnings per ordinary share



 


 

- basic

10

15.7

7.8

21.3

 

- diluted

10

15.6

7.7

21.1

 



 



 

Dividends per ordinary share proposed for the period

11

3.5

3.0

9.0

 



 

Condensed Group Statement of Comprehensive Income

For the half-year ended 1 July 2022             


2022 first half unaudited

 

2021 first half unaudited


2021 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

69

29

98

 

34

18

52


82

57

139

Other comprehensive income/(loss) for the period

 

 

 

 








Items which will not subsequently be reclassified to the income statement

 

 

 

 








Actuarial gains on retirement benefit net assets

103

-

103

 

46

-

46


98

7

105

Tax on above

(20)

-

(20)

 

(12)

-

(12)


(22)

(1)

(23)


83

-

83

 

34

-

34


76

6

82

Items which will subsequently be reclassified to the income statement

 

 

 

 








Currency translation differences

20

29

49

 

(3)

(4)

(7)


2

(1)

1

Fair value revaluations

 -

PPP financial assets

(1)

(74)

(75)

 

(3)

(1)

(4)


(3)

(6)

(9)


 -

cash flow hedges

1

15

16

 

8

7

15


8

(6)

2


 -

investments in mutual funds measured at fair value through OCI

(4)

-

(4)

 

3

-

3


3

-

3

Recycling of revaluation reserves to the income statement on disposal^

-

-

-

 

-

(4)

(4)


(3)

(7)

(10)

Tax on above

-

15

15

 

(1)

(6)

(7)


(2)

(2)

(4)


16

(15)

1

 

4

(8)

(4)


5

(22)

(17)

Total other comprehensive income/(loss) for the period

99

(15)

84

 

38

(8)

30


81

(16)

65

Total comprehensive income for the period

168

14

182

 

72

10

82


163

41

204

Attributable to

 

 

 

 








Equity holders

 

 

183

 



83




205

Non-controlling interests

 

 

(1)

 



(1)




(1)

Total comprehensive income for the period

 

 

182

 



82




204

^ 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 1 July 2022






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

£m

Retained

profits

£m

Non-

controlling

interests

£m

Total

£m

At 31 December 2020 audited

345

176

1

65

(32)

30

98

41

612

9

1,345

Total comprehensive income/(loss) for the period

-

-

-

10

8

(4)

(3)

3

69

(1)

82

Ordinary dividends

-

-

-

-

-

-

-

-

(10)

-

(10)

Joint ventures' and associates' dividends

-

-

-

(13)

-

-

-

-

13

-

-

Movements relating to share-based payments

-

-

-

-

-

-

-

(2)

5

-

3

Reserve transfers relating to joint ventures and associates

-

-

-

33

-

-

-

-

(33)

-

-

Purchase of treasury shares

-

-

-

-

-

-

-

-

(100)

-

(100)

At 2 July 2021 unaudited

345

176

1

95

(24)

26

95

42

556

8

1,320

Total comprehensive income/(loss) for the period

-

-

-

31

19

(22)

5

(1)

90

-

122

Ordinary dividends

-

-

-

-

-

-

-

-

(19)

-

(19)

Joint ventures' and associates' dividends

-

-

-

(55)

-

-

-

-

55

-

-

Non-controlling interests' dividends

-

-

-

-

-

-

-

-

-

(1)

(1)

Movements relating to share-based payments

-

-

-

-

-

-

-

4

1

-

5

Reserve transfers relating to joint ventures and associates

-

-

-

1

-

-

-

-

(1)

-

-

Purchase of treasury shares

-

-

-

-

-

-

-

-

(51)

-

(51)

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

-

-

Movements relating to share-based payments

-

-

-

-

-

-

-

(3)

(16)

-

(19)

Purchase of treasury shares

-

-

-

-

-

-

-

-

(48)

-

(48)

Cancellation of ordinary shares

(25)

-

25

-

-

-

-

-

-

-

-

At 1 July 2022 unaudited

320

176

26

49

(5)

3

120

39

720

6

1,454

 

 

 



 

Condensed Group Balance Sheet

At 1 July 2022


Notes

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Non-current assets



 


Intangible assets

 - goodwill

12

877

            806

817


 - other


298

            303

296

Property, plant and equipment


102

92

98

Right-of-use assets


132

121

125

Investment properties


28

30

29

Investments in joint ventures and associates

5.2

493

541

503

Investments


38

30

35

PPP financial assets


28

149

30

Trade and other receivables

14

237

256

249

Retirement benefit assets

18

407

263

321

Deferred tax assets


122

90

120



2,762

2,681

2,623

Current assets


 



Inventories


112

102

104

Contract assets

13.1

215

264

214

Trade and other receivables

14

937

814

865

Cash and cash equivalents

 - infrastructure investments

17.2

20

21

17


 - other

17.2

1,090

812

1,016

Current tax receivable


6

7

7



2,380

2,020

2,223

Total assets


5,142

4,701

4,846

Current liabilities


 



Contract liabilities

13.2

(695)

(611)

(669)

Trade and other payables

15

(1,519)

(1,403)

(1,458)

Provisions

16

(186)

(189)

(174)

Borrowings

 - non-recourse loans

17.3

(6)

(8)

(5)


 - other

17.3

(175)

-

(34)

Lease liabilities


(48)

(45)

(44)

Current tax payable


(12)

(16)

(14)

Derivative financial instruments

21

(1)

(4)

(1)



(2,642)

(2,276)

(2,399)

Non-current liabilities





Contract liabilities

13.2

(15)

(2)

(9)

Trade and other payables

15

(125)

(122)

(117)

Provisions

16

(207)

(153)

(205)

Borrowings

 - non-recourse loans

17.3

(256)

(331)

(255)


 - other

17.3

(173)

(187)

(192)

Lease liabilities


(89)

(81)

(85)

Retirement benefit liabilities

18

(46)

(97)

(90)

Deferred tax liabilities


(134)

(108)

(115)

Derivative financial instruments

21

(1)

(24)

(3)



(1,046)

(1,105)

(1,071)

Total liabilities


(3,688)

(3,381)

(3,470)

Net assets


1,454

1,320

1,376

Equity


 



Called-up share capital


320

345

345

Share premium account


176

176

176

Capital Redemption Reserve


26

1

1

Share of joint ventures' and associates' reserves


49

95

72

Other reserves&


157

139

144

Retained profits


720

556

631

Equity attributable to equity holders of the parent


1,448

1,312

1,369

Non-controlling interests


6

8

7

Total equity


1,454

1,320

1,376

& Other Reserves includes £22m of special reserves (2021: first half £22m; full-year £22m)

Condensed Group Statement of Cash Flows

For the half-year ended 1 July 2022             


Notes

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Cash flows from operating activities



 


Cash from operations

17.1

26

158

354

Income taxes paid


(7)

(1)

           (1)

Net cash from operating activities


19

157

353

Cash flows from/(used in)  investing activities


 



Dividends received from:

- joint ventures and associates - infrastructure investments


26

11

30


- joint ventures and associates - other


12

1

38

Interest received - infrastructure investments - joint ventures


5

4

8

Interest received - infrastructure investments - subsidiaries


-

6

2

Acquisition of businesses, net of cash and cash equivalents acquired

20.1

(3)

(3)

(3)

Purchases of:

- intangible assets - infrastructure investments


-

-

(1)


- intangible assets - other


-

-

(1)


- property, plant and equipment


(13)

(16)

(35)

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


(17)

(7)

(15)

Return of equity from joint ventures and associates


7

-

4

PPP financial assets cash expenditure


(2)

-

(3)

PPP financial assets cash receipts


3

7

10

Disposals of:

- investments in joint ventures - infrastructure investments

20.2

-

21

50


- investments in joint ventures - other

20.2

1

1

1


- subsidiaries net of cash disposed, separation and transaction costs - infrastructure investments

20.2

-

-

16


- property, plant and equipment - other


3

8

10


- other investments


1

4

5

Net cash from investing activities


23

37

116

Cash flows used in financing activities


 



Purchase of ordinary shares

19

(24)

-

-

Purchase of treasury shares

19

(47)

(97)

(151)

Proceeds from new loans

- infrastructure investments

17.4

5

3

8


- other

17.4

132

-

-

Repayments of loans within infrastructure investments

17.4

(3)

(3)

(6)

Repayment of lease liabilities


(27)

(29)

(53)

Ordinary dividends paid

11

-

-

(29)

Other dividends paid - non-controlling interest


-

-

(1)

Interest paid - infrastructure investments


(4)

(7)

(11)

Interest paid - other


(10)

(10)

(23)

Net cash from/(used) in financing activities


22

(143)

(266)

Net increase in cash and cash equivalents


64

51

203

Effects of exchange rate changes


46

(10)

4

Cash and cash equivalents at beginning of period


999

792

792

Cash and cash equivalents at end of period

17.2

1,109

833

999

 



 

Notes to the financial statements

1.1 Basis of accounting

The condensed Group financial statements for the half-year ended 1 July 2022 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 2021, which were prepared in accordance with UK-adopted International Financial Reporting Standards (IFRS) 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 16 August 2022. 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 2021 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 2021 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 191 to 192 of the Annual Report and Accounts 2021.

 

1.3 Going concern

The Directors have acknowledged the guidance Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009 published by the Financial Reporting Council in October 2009 and consider it reasonable to assume that the Group has adequate resources to continue for the foreseeable future and, for this reason, have continued to adopt the going concern basis in preparing the condensed financial statements.

 

The key financial risk factors for the Group remain largely unchanged. The Group's principal risks and the consequent impact these might have on the Group as well as mitigations that are in place are detailed on pages 105 to 112 of the Annual Report and Accounts 2021.

 

The Group's US private placement and committed bank facility 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 1 July 2022, 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 on the Group's ability to continue as a going concern for the period of at least 12 months from the date of approval of the financial statements. This assessment has involved the review of medium-term cash forecasts based on the Group's Three Year Plan. The Directors have also considered the strength of the Group's order book which amounted to £17.7bn at 1 July 2022 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.

 

In June 2022 the Group raised US$158m of new US private placement (USPP) notes on terms and conditions materially the same as the existing USPP notes. US$35m of the new notes mature in June 2027, US$80m mature in June 2029 and the remainder will mature in June 2032. US$259m of existing USPP notes remain outstanding, with US$209m due for repayment in March 2023 and US$50m being due in March 2025. The repayment of the existing USPP notes will be partially funded by the new notes raised in the period. This refinancing has extended the debt maturity profile of the Group with the new debt maturing in 5, 7 and 10 years. The Group does not have any other debt apart from these USPP notes and non-recourse borrowings ringfenced within certain infrastructure investment companies.

 

1.3 Going concern continued

The Group's £375m committed bank facility, which was undrawn throughout the period ended 1 July 2022, remains fully available to the Group until October 2024.

 

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 and 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 three 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.

 

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 foreseeable future and, for this reason, have continued to adopt the going concern basis in preparing the Group's 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:

·  Amendments to the following standards:

−     IFRS 3 Business Combinations

−     IAS 16 Property, Plant and Equipment

−     IAS 37 Provisions, Contingent Liabilities and Contingent Assets

·  Amendments to Annual Improvements 2018 - 2020

 

The above amended standards do 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 1 July 2022:

·  IFRS 17 Insurance Contracts

·  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 and IFRS Practice Statement 2: Disclosure of Accounting Policies

−     IAS 8 Accounting Policies, Changes in Accounting Esimtates 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

 

Assessment of the impact of IFRS 17 Insurance Contracts is currently ongoing. The Directors do not expect the other standards listed above to have a material quantitative effect on the Group and have chosen not to adopt any of the above standards and interpretations earlier than required.

 

2 Exchange rates

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

 

Average rates

£1 buys

2022

first half

unaudited

2021

first half

unaudited

2021

year

audited

2 July 2021 - 1 July 2022

 % change

31 Dec 2021 - 1 July 2022

% change

US$

1.29

1.38

1.37

(6.5)%

(5.8)%

HK$

10.12

10.75

10.69

(5.9)%

(5.3)%

 

Closing rates

£1 buys

2022

first half

unaudited

2021

first half

unaudited

2021

year

audited

2 July 2021 - 1 July 2022

 % change

31 Dec 2021 - 1 July 2022

% change

US$

1.20

1.38

1.35

(13.0)%

(11.1)%

HK$

9.41

10.73

10.52

(12.3)%

(10.6)%

 

 



 

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 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 associates1

3,414

499

234

-

4,147

Share of revenue of joint ventures and associates1

(419)

(1)

(125)

-

(545)

Group revenue1

2,995

498

109

-

3,602

Group operating profit/(loss)1

38

36

(1)

(17)

56

Share of results of joint ventures and associates1

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 half-year ended 2 July 2021 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Revenue including share of joint ventures and associates1

3,336

555

263

-

4,154

Share of revenue of joint ventures and associates1

(386)

(17)

(140)

-

(543)

Group revenue1

2,950

538

123

-

3,611

Group operating (loss)/profit1

(4)

54

7

(15)

42

Share of results of joint ventures and associates1

10

-

8

-

18

Profit/(loss) from operations1

6

54

15

(15)

60

Non-underlying items:






-  amortisation of acquired intangible assets

(1)

-

(1)

-

(2)

-  other non-underlying items

(13)

(5)

-

-

(18)


(14)

(5)

(1)

-

(20)

(Loss)/profit from operations

(8)

49

14

(15)

40

Investment income





22

Finance costs





(27)

Profit before taxation





35

1 Before non-underlying items (Note 8).

 

   



3 Segment analysis continued

3.1 Income statement - performance by activity

For the year ended 31 December 2021 audited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

Activities

£m

Total

£m

Revenue including share of joint ventures and associates1

6,746

1,066

468

-

8,280

Share of revenue of joint ventures and associates1

(826)

(20)

(232)

-

(1,078)

Group revenue1

5,920

1,046

236

-

7,202

Group operating profit/(loss)1

47

101

25

(33)

140

Share of results of joint ventures and associates1

32

1

24

-

57

Profit/(loss) from operations1

79

102

49

(33)

197

Non-underlying items:






-     amortisation of acquired intangible assets

-

-

(5)

-

(5)

-     settlement charge following resolution with DoJ

-

-

(41)

-

(41)

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

(42)

-

-

-

(42)

-     other net operating expenses

(7)

(5)

-

-

(12)


(49)

(5)

(46)

-

(100)

Profit/(loss) from operations

30

97

3

(33)

97

Investment income





39

Finance costs





(49)

Profit before taxation





87

1 Before non-underlying items (Note 8).

 

3.2 Assets and liabilities by activity

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

 



 

3 Segment analysis continued

3.2 Assets and liabilities by activity continued

As at 2 July 2021 unaudited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Contract assets - current

150

90

24

-

264

Contract liabilities - current

(506)

(104)

(1)

-

(611)

Inventories

51

25

26

-

102

Trade and other receivables - current

683

82

31

18

814

Trade and other payables - current

(1,129)

(188)

(35)

(51)

(1,403)

Provisions - current

(159)

(3)

(17)

(10)

(189)

Working capital*

(910)

(98)

28

(43)

(1,023)

* Includes non-operating items and current working capital.

 

Total assets

 

2,110

482

1,141

968

4,701

Total liabilities

(2,091)

(385)

(455)

(450)

(3,381)

Net assets

19

97

686

518

1,320

 

 







As at 31 December 2021 audited

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Corporate

activities

£m

Total

£m

Contract assets - current

132

60

22

-

214

Contract liabilities - current

(565)

(102)

(2)

-

(669)

Inventories

49

27

28

-

104

Trade and other receivables - current

706

109

31

19

865

Trade and other payables - current

(1,172)

(190)

(87)

(9)

(1,458)

Provisions - current

(149)

(4)

(7)

(14)

(174)

Working capital*

(999)

(100)

(15)

(4)

(1,118)

* Includes non-operating items and current working capital.

 

Total assets

 

2,158

497

997

1,194

4,846

Total liabilities

(2,237)

(390)

(399)

(444)

(3,470)

Net assets

(79)

107

598

750

1,376

 



 

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 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 half-year ended 2 July 2021 unaudited

 

 

 

 

 

Capital expenditure on property, plant and equipment

11

4

-

1

16

Depreciation

16

18

-

6

40

Gain on disposals of interests in investments

-

-

7

-

7

For the year ended 31 December 2021 audited






Capital expenditure on property, plant and equipment

10

8

-

1

19

Capital expenditure on intangible assets

-

-

1

1

2

Depreciation

14

19

2

4

39

Gain on disposals of interests in investments

-

-

26

-

26

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

-

-

9

-

9

 

3.4 Infrastructure Investments

 

 

 

Underlying profit from operations1

Group

2022
first half
unaudited
£m

Share of joint

ventures and

associates

2022

first half

unaudited+

£m

Total

2022
first half
 unaudited
£m

Group

2021
first half
 unaudited
£m

Share of

joint

ventures and

associates

2021
first half
 unaudited
+
£m

Total

2021
first half
 unaudited
£m

Group

2021

year

audited

£m

Share of

joint

ventures and

associates

2021

year

audited+

£m

Total

2021

year

audited

£m

UK^

3

3

6

4

-

4

6

1

7

North America

8

8

16

5

8

13

15

14

29

Gain on disposals of interests in investments

-

7

7

7

-

7

26

9

35


11

18

29

16

8

24

47

24

71

Bidding costs and overheads

(12)

-

(12)

(9)

-

(9)

(22)

-

(22)


(1)

18

17

7

8

15

25

24

49

+ 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. 

For contracts servicing utility assets in the Water network, the Group provides services including clean and waste water mains renewal and repair, metering and treatment facilities. Contracts are typically delivered through framework agreements which are normally granted on a regulatory cycle period of five years for water contracts. Individual instructions delivered under the framework agreements can vary in size and duration but usually last between one to six weeks for smaller projects or up to one to two years for major projects. Each instruction is accounted for as a separate PO. Payments are normally set according to a schedule of rates or are cost reimbursable and may include a pain/gain element.

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 North America portfolio of service concession assets comprising of 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 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

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

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

4 Revenue continued

4.2 Disaggregation of revenue continued

For the half-year ended 2 July 2021 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

1,257

1,695

384

3,336

Group revenue

 

1,257

1,686

7

2,950

Support

Services

Revenue including share of joint ventures and associates

535

-

20

555

Group revenue

 

535

-

3

538

Infrastructure Investments

Revenue including share of joint ventures and associates

98

160

5

263

Group revenue

 

31

92

-

123

Total revenue

Revenue including share of joint ventures and associates

1,890

1,855

409

4,154

Group revenue

 

1,823

1,778

10

3,611

 

 

 

 

 

 

 

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

1,868

1,124

338

6

3,336

Group revenue

1,705

911

328

6

2,950

Support

Services

Revenue including share of joint ventures and associates

-

285

258

12

555

Group revenue

-

285

241

12

538

Infrastructure Investments

Revenue including share of joint ventures and associates

170+

83

8

2

263

Group revenue

121+

-

-

2

123

Total revenue

Revenue including share of joint ventures and associates

2,038

1,492

604

20

4,154

Group revenue

1,826

1,196

569

20

3,611

+ Includes rental income of £21m including share of joint ventures and associates or £10m excluding share of joint ventures and associates.

 

 

 

 

 

 

 

 

Timing of revenue recognition

 

Construction Services

£m

Support

Services

£m

Infrastructure Investments

£m

Total

£m

Over time

 

3,335

554

244

4,133

At a point in time

 

1

1

19

21

Revenue including share of joint venture and associates

3,336

555

263

4,154

Over time

 

2,949

537

104

3,590

At a point in time

 

1

1

19

21

Group revenue

 

2,950

538

123

3,611



 

4 Revenue continued

4.2 Disaggregation of revenue continued

For the year ended 31 December 2021

 

 

 

 

 

 

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

2,589

3,341

816

6,746

Group revenue

 

2,589

3,324

7

5,920

Support

Services

Revenue including share of joint ventures and associates

1,039

-

27

1,066

Group revenue

 

1,039

-

7

1,046

Infrastructure Investments

Revenue including share of joint ventures and associates

165

295

8

468

Group revenue

 

55

181

-

236

Total

revenue

Revenue including share of joint ventures and associates

3,793

3,636

851

8,280

Group revenue

 

3,683

3,505

14

7,202

 

 

 

 

 

 

 

 

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

3,725

2,380

630

11

6,746

Group revenue

3,391

1,907

611

11

5,920

Support

Services

Revenue including share of joint ventures and associates

-

578

469

19

1,066

Group revenue

-

578

449

19

1,046

Infrastructure Investments

Revenue including share of joint ventures and associates

319+

132

15

2

468

Group revenue

232+

3

-

1

236

Total

revenue

Revenue including share of joint ventures and associates

4,044

3,090

1,114

32

8,280

Group revenue

3,623

2,488

1,060

31

7,202

+ Includes rental income of £38m including share of joint ventures and associates or £12m excluding share of joint ventures and associates.

 

 

 

 

 

 

 

 

Timing of revenue recognition

 

Construction

Services

£m

Support

Services

£m

Infrastructure

Investments

£m

Total

£m

Over time

 

6,745

1,064

436

8,245

At a point in time

 

1

2

32

35

Revenue including share of joint ventures and associates

6,746

1,066

468

8,280

Over time

 

5,919

1,044

204

7,167

At a point in time

 

1

2

32

35

Group revenue

 

5,920

1,046

236

7,202

 

 

 

 

 

 

 





 

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

5.1 Income statement

 

2022
first half

unaudited

 £m

2021

first half unaudited

£m

2021

year
audited

£m

Revenue1

545

543

1,078

Operating profit1

24

22

66

Investment income

42

46

89

Finance costs

(35)

(48)

(91)

Profit before taxation1

31

20

64

Taxation

(2)

(2)

(7)

Profit after taxation

29

18

57

1 Before non-underlying items (Note 8).

 

5.2 Balance sheet

 

2022
first half

unaudited

 £m

2021

first half unaudited

£m

2021

year
audited

£m

Intangible assets

- goodwill

33

29

30


- Infrastructure Investments intangible

40

41

41


- other

13

14

13

Property, plant and equipment

33

46

31

Investment properties

333

235

265

Investments in joint ventures and associates

4

3

3

Money market funds

64

84

81

PPP financial assets

1,267

1,479

1,295

Military housing projects

119

103

106

Net borrowings

(990)

(1,100)

(971)

Other net liabilities

(527)

(520)

(498)

Share of net assets of joint ventures and associates

389

414

396

Loans to joint ventures and associates

104

127

107

Total investment in joint ventures and associates

493

541

503

 



 

6 Investment income

 

2022
first half

unaudited

 £m

2021

first half
unaudited

£m

2021

year
audited

£m

Subordinated debt interest receivable

12

12

23

Interest receivable on PPP financial assets

1

4

5

Fair value gain on investment asset

5

5

9

Other interest receivable and similar income

5

-

1

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

2

1

1


25

22

39

 

7 Finance costs 


2022
first half

unaudited

 £m

2021

first half
unaudited

£m

2021

year
audited

£m

Non-recourse borrowings 

 - bank loans and overdrafts

4

7

11

US private placement

 - finance cost

6

5

10

Interest on lease liabilities


2

3

6

Other interest payable

 - committed facilities

1

1

2


 - letter of credit fees

1

1

2


 - other finance charges

3

 

1

4

Impairment of loans to joint ventures and associates - loans

 

3

9

4

                                                                                  - accrued interest

4

-

10


24

27

49

 



 

8 Non-underlying items


2022
first half

unaudited

 £m

2021

first half
unaudited

£m

2021

year
audited

£m

Items (charged against)/credited to profit

 

 


8.1 Amortisation of acquired intangible assets

(3)

(2)

(5)

8.2 Other non-underlying items:

 



-

- grant income repaid in relation to UK Job Retention Scheme

-

(19)

(19)


- settlement charge following resolution with DoJ in relation to handling of work orders within Balfour Beatty Communities 

-

-

(41)


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

-

-

(42)


- release of indemnity provisions relating to sale of Heery International Inc.

-

-

6


- release of accrual relating to sale of Parsons Brinckerhoff

-

1

1


Total other non-underlying items

-

(18)

(95)

Charged against profit before taxation

(3)

(20)

(100)

8.3 Tax credits/(charges):

 




- recognition of deferred tax assets in the UK

20

2

11


- tax on other items above

1

-

-


- impact of tax rate change on deferred tax assets previously recognised through non-underlying

-

15

18


- tax on grant income repaid in relation to UK Job Retention Scheme

-

4

4


- tax on DoJ settlement charge

-

-

4


- tax on rectification works provision

-

-

8


Total tax credit

21

21

45

Non-underlying items credited to/(charged against) profit for the period

18

1

(55)

 

8.1 The amortisation of acquired intangible assets comprises: customer contracts £2m (2021: first half £1m; full-year £4m); and customer relationships £1m (2021: first half £1m; full-year £1m).

 

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

 

8.3.1 In previous periods, significant actuarial gains in the Group's main pension scheme, Balfour Beatty Pension Fund (BBPF), led to the recognition of deferred tax liabilities. This in turn led to the recognition of additional UK deferred tax assets in respect of tax losses which the Group recognised as non-underlying due to the size and nature of the credit. In the first half of 2022, further actuarial gains in the BBPF and Railway Pension Scheme resulted in the recognition of additional UK deferred tax assets in respect of tax losses. The Group recognised the associated £20m tax credit (2021: first half £4m credit; full-year £13m credit) as a non-underlying item along with a £nil tax charge (2021: first half £2m charge; full-year £2m charge) arising from certain of the actuarial losses in the Railways Pension Scheme.

 

8.3.2 The remaining non-underlying items (charged against)/credited to the Group's operating profit gave rise to a tax credit of £1m mainly on amortisation of acquired intangible assets (2021: first half £nil; full-year £nil, mainly on amortisation of acquired intangible assets £1m credit and the release of indemnity provisions relating to the sale of Heery International Inc. £1m charge).

 



 

9 Taxation

 

Underlying

items

2022
first half

unaudited1

 £m

Non-

underlying

items

(Note 8)

2022

first half

unaudited

£m

Total

2022

first half

unaudited

£m

2021

first half
unaudited

£m

2021

year
audited

£m

Total UK tax

(3)

(20)

(23)

(26)

(67)

Total non-UK tax

9

(1)

8

9

15

Total tax charge/(credit) x

6

(21)

(15)

(17)

(52)

 

 

 

 



UK current tax

-

-

-

(3)

(5)

Non-UK current tax

6

-

6

4

5

Total current tax

6

-

6

1

-


 

 

 



UK deferred tax

(3)

(20)

(23)

(23)

(62)

Non-UK deferred tax

3

(1)

2

5

 10

Total deferred tax

-

(21)

(21)

(18)

(52)

 

 

 

 



Total tax charge/(credit)x

6

(21)

(15)

(17)

(52)

1 Before non-underlying items (Note 8).

x Excluding joint ventures and associates.

 

In addition to the Group tax charge above, tax of £6m is charged (2021: first half £19m charge; full-year £27m charge) directly to other comprehensive income, comprising: a deferred tax charge of £20m for subsidiaries (2021: first half £13m charge; full-year £24m charge) and a deferred tax credit in respect of joint ventures and associates of £15m (2021: first half £6m charge; full-year £3m charge).

 

10 Earnings per ordinary share

 

2022 first half unaudited

 

2021 first half unaudited


2021 year audited

Earnings

Basic

£m

Diluted

£m

 

Basic

£m

Diluted

£m


Basic

£m

Diluted

£m

Earnings

99

99

 

53

53


140

140

Amortisation of acquired intangible assets net of tax

2

2

 

2

2


4

4

Other non-underlying items net of tax

(20)

(20)

 

(3)

(3)


51

51

Underlying earnings

81

81

 

52

52


195

195

 


Basic

m

Diluted

M

Basic

m

Diluted

m

Basic

m

Diluted

m

Weighted average number of ordinary shares

629

632

672

676

657

664

 

Earnings per share

Basic

Pence

Diluted

Pence

 

Basic

pence

Diluted

pence


Basic

pence

Diluted

pence

Earnings per ordinary share

15.7

15.6

 

7.8

7.7


21.3

21.1

Amortisation of acquired intangible assets net of tax

0.3

0.3

 

0.3

0.3


0.6

0.6

Other non-underlying items net of tax

(3.1)

(3.1)

 

(0.4)

(0.4)


7.8

7.7

Underlying earnings per ordinary share

12.9

12.8

 

7.7

7.6


29.7

29.4

 

 

 

 

 

 

 

 

11 Dividends on ordinary shares


2022 first half unaudited


2021 first half unaudited


2021 year audited


Per share

pence

Amount

£m


Per share

pence

Amount

£m


Per share

pence

Amount

£m

Proposed dividends for the period









Interim 2021

-

-


3.0

19


3.0

19

Final 2021

-

-


-

-


6.0

38

Interim 2022

3.5

20%


-

-


-

-


3.5

20%


3.0

19


9.0

57

Recognised dividends for the period

 

 







Final 2020

 

-



10



10

Interim 2021

 

-



-



19

Final 2021

 

37



-



-


 

37



10



29

% Amount dependent on number of shares on the register on 28 October 2022.

 

The final 2021 dividend of 6.0 pence per share was paid on 6 July 2022 to holders on the register on 27 May 2022. The ordinary shares were quoted ex-dividend on 26 May 2022.

 

The Board is declaring an interim dividend of 3.5 pence per share, which will be payable on 5 December 2022 to holders on the register on 28 October 2022. The last date for DRIP (Dividend Reinvestment Plan) elections is 14 November 2022.

 

12 Intangible assets - goodwill


Cost

£m

Accumulated

impairment

losses

£m

Carrying

amount

£m

At 31 December 2020 audited

1,036

(225)

811

Currency translation differences

(11)

6

(5)

At 2 July 2021 unaudited

1,025

(219)

806

Currency translation differences

10

1

11

At 31 December 2021 audited

1,035

(218)

817

Currency translation differences

70

(10)

60

At 1 July 2022 unaudited

1,105

(228)

877

 

As at 1 July 2022, the Group performed an assessment to identify indicators of impairment relating to goodwill allocated to cash-generating units (CGUs). This included a review of internal and external indicators of impairment and consideration of the year-to-date performance of the relevant CGUs and any changes in key assumptions.  The outcome of this assessment was that there were no indications of impairment which could reasonably be expected to eliminate the headroom computed at 31 December 2021.  As a result of this assessment no impairment charges were recorded in the first half of 2022 (2021: first half £nil; full-year £nil).

 

A full detailed impairment review will be conducted on all CGUs at 31 December 2022.

 



 

13 Contract balances

13.1 Contract assets


 

£m

At 31 December 2020 audited

288

Transfers from contract assets recognised at the beginning of the year to receivables

(257)

Increase related to services provided in the year

200

Reclassified to contract provisions (Note 16)

(7)

Impairments on contract assets recognised at the beginning of the year

(10)

At 31 December 2021 audited

214

Currency translation differences

7

Transfers from contract assets recognised at the beginning of the year to receivables

(195)

Increase related to services provided in the year

189

At 1 July 2022 unaudited

215

 

13.2 Contract liabilities


 

£m

At 31 December 2020 audited

(526)

Currency translation differences

(4)

Revenue recognised against contract liabilities at the beginning of the year

477

Increase due to cash received, excluding amounts recognised as revenue during the year

(625)

At 31 December 2021 audited

(678)

Currency translation differences

(41)

Revenue recognised against contract liabilities at the beginning of the period

642

Increase due to cash received, excluding amounts recognised as revenue during the period

(633)

At 1 July 2022 unaudited

(710)

 



 

14 Trade and other receivables


2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Current

 

 


Trade receivables

565

522

518

Less: provision for impairment of trade receivables

(3)

(12)

(3)


562

510

515

5

Due from joint ventures and associates

15

12

15

Due from joint operation partners

9

11

12

Contract fulfilment assets

19

14

12

Contract retentions receivable

231

185

215

Accrued income

9

15

13

Prepayments

40

49

42

Due on disposals

-

1

1

Other receivables

52

17

40


937

814

865

Non-current

 



Due from joint ventures and associates

76

69

73

Contract fulfilment assets

19

24

32

Contract retentions receivable

138

161

142

Other receivables

4

2

2


237

256

249

Total trade and other receivables

1,174

1,070

1,114

 

15 Trade and other payables

    

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Current

 

 


Trade and other payables

788

675

748

Accruals

609

590

611

VAT, payroll taxes and social security

85

125

96

Dividends on ordinary shares

37

10

-

Due on acquisitions

-

3

3


1,519

1,403

1,458

Non-current

 



Trade and other payables

107

102

97

Accruals

8

10

10

Due to joint ventures and associates

10

10

10


125

122

117

Total trade and other payables

1,644

1,525

1,575

 

 

 

 



 

16 Provisions

 

Contract

provisions

£m

Employee

provisions

£m

Other

provisions

£m

Total

£m

At 31 December 2020 audited

279

46

25

350

Currency translation differences

(2)

-

-

(2)

Reclassified from accruals

1

-

-

1

Charged/(credited) to the income statement:





- additional provisions

71

6

1

78

- unused amounts reversed

(18)

(5)

(2)

(25)

Utilised during the period

(46)

(6)

(1)

(53)

Reclassified from contract assets

(7)

-

-

(7)

At 2 July 2021 unaudited

278

41

23

342

Currency translation differences

1

-

-

1

Reclassified to accruals

2

-

-

2

Charged/(credited) to the income statement:





- additional provisions

87

5

3

95

- unused amounts reversed

(17)

(3)

(2)

(22)

Utilised during the period

(30)

(7)

(2)

(39)

At 31 December 2021 audited

321

36

22

379

Currency translation differences

8

-

1

9

Reclassified from accruals

5

-

-

5

Charged/(credited) to the income statement:

 

 

 

 

- additional provisions

53

4

1

58

- unused amounts reversed

(13)

-

(1)

(14)

Utilised during the period

(39)

(3)

(2)

(44)

At 1 July 2022 unaudited

335

37

21

393

 



 

17 Notes to the statement of cash flows

17.1 Cash from operations

Underlying items

2022

first half unaudited1

£m

Non-underlying items

2022

first half unaudited

£m

Total

2022

first half unaudited

£m

Total

2021

first half

unaudited

£m

Total

2021

year

audited

£m

Profit/(loss) from operations

85

(3)

82

40

97

Share of results of joint ventures and associates

(29)

-

(29)

(18)

(57)

Depreciation of property, plant and equipment

14

-

14

11

24

Depreciation of right-of-use assets

26

-

26

28

54

Depreciation of investment properties

1

-

1

1

1

Amortisation of other intangible assets

3

3

6

8

18

Pension payments including deficit funding

(29)

-

(29)

(29)

(42)

Movements relating to equity-settled share-based payments

4

-

4

3

7

Gain on disposal of interests in investments

-

-

-

(7)

(26)

Profit on disposal of property, plant and equipment

(3)

-

(3)

(3)

(4)

Other non-cash items

(1)

-

(1)

1

1

Operating cash flows before movements in working capital

71

-

71

35

73

(Increase)/decrease in operating working capital

 

 

(45)

123

281

Inventories

 

 

(5)

11

11

Contract assets

 

 

9

23

74

Trade and other receivables

 

 

32

6

(22)

Contract liabilities

 

 

(13)

90

147

Trade and other payables

 

 

(73)

(5)

43

Provisions

 

 

5

(2)

28

Cash from operations

 

 

26

158

354

1 Before non-underlying items (Note 8).

 

17.2 Cash and cash equivalents

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Cash and deposits

779

614

766

Term deposits

311

198

250

Cash balances within infrastructure investments

20

21

17

Bank overdrafts

(1)

-

(34)


1,109

833

999

 

17.3 Analysis of net cash/(borrowings)

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Cash and cash equivalents (excluding infrastructure investments)

1,090

812

1,016

Bank overdrafts

(1)

-

(34)

US private placement

(347)

(187)

(192)

Net cash excluding infrastructure investments

742

625

790

Non-recourse infrastructure investments project finance loans at amortised cost with final maturity between 2022 and 2072

(262)

(339)

(260)

Infrastructure investments cash and cash equivalents

20

21

17


(242)

(318)

(243)

Net cash

500

307

547

 



 

17 Notes to the statement of cash flows continued

 

Included in cash and cash equivalents is restricted cash of £10m (2021: first-half £10m; full-year: £10m) held by the Group's self-insurance company, Delphian Insurance Company Ltd, which is subject to Isle of Man insurance solvency regulation.

Cash and cash equivalents also include: £217m (2021: first-half: £179m; full-year: £249m) within construction project bank accounts which is used for project specific expenditure; £285m (2021: first-half: £321m; full-year: £261m) held in joint operations which is used for expenditure within the joint operation projects and £20m (2021: first-half: £21m; full-year 17m) relating to maintenance and other reserve accounts in the Infrastructure Investments subsidiaries.

17.4 Analysis of movements in borrowings

Infrastructure investments

non-recourse

project finance

£m

US private placement

£m

Bank overdraft

£m

Total

£m

At 31 December 2020 audited

(339)

(189)

-

(528)

Currency translation differences

-

2

-

2

Proceeds from new loans

(3)

-

-

(3)

Repayments of loans

3

-

-

3

At 2 July 2021 unaudited

(339)

(187)

-

(526)

Currency translation differences

-

(5)

-

(5)

Proceeds from new loans

(5)

-

(34)

(39)

Repayments of loans

3

-

-

3

Disposal of Woodland View Hospital

41

-

-

41

Disposal of North West Fire & Rescue

40

-

-

40

At 31 December 2021 audited

(260)

(192)

(34)

(486)

Currency translation differences

-

(23)

-

(23)

Proceeds from new loans

(5)

(132)

(1)

(138)

Repayments of loans

3

-

34

37

At 1 July 2022 unaudited

(262)

(347)

(1)

(610)

 

In June 2022 the Group raised US$158m of debt in the form of new US private placement (USPP) notes on terms and conditions materially the same as the existing USPP notes. The new debt is comprised of US$35m of notes maturing in June 2027 at fixed coupon of 6.31%, US$80m of notes maturing in June 2029 at fixed coupon of 6.39% and US$43m of notes maturing in June 2032 at fixed coupon of 6.45%. This new funding will be used towards the repayment of the US$259m in USPP notes that remain outstanding, with the next tranche of US$209m being due in March 2023 and the final tranche of US$50m being due in March 2025. The refinancing exercise has extended the debt maturity profile of the Group.

 



 

18 Retirement benefit assets and liabilities

Principal actuarial assumptions for the IAS 19 accounting valuations of the Group's principal schemes

2022

first half

unaudited

%

2021

first half

unaudited

%

2021

year

audited

%

Discount rate on obligations

3.80

1.90

1.90

Inflation rate

- RPI

3.35

3.20

3.40


- CPI*

2.75

2.55

2.80

Future increases in pensionable salary#

2.75

2.55

2.80

Rate of increases in pensions in payment (or such other rate as is guaranteed)^

3.10

2.95

3.10

* Actuarial assumption applied to the Railways Pension Scheme was 2.95% (2021: first half 2.75%; full-year 3.00%).

# Actuarial assumption applied to the Railways Pension Scheme was 2.95% (2021: first half 2.95%; full-year 3.00%).

^ Actuarial assumption applied to the Railways Pension Scheme was 3.10% (2021: first half 2.95%; full-year 3.05%).

 

 

Amounts recognised in the Balance Sheet 

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Present value of obligations

(3,238)

(4,097)

(4,201)

Fair value of plan assets

3,599

4,263

4,432

Net assets in the Balance Sheet+

361

166

231

+ This amount represents the aggregate of the retirement benefit assets of £407m (2021: first half £263m; full-year £321m) and the retirement benefit liabilities of £46m at 1 July 2022 (2020: first half £97m; full-year £90m). These amounts are shown separately on the balance sheet as the Balfour Beatty Pension Fund and the Railway Pension Scheme are in a net surplus position.  

 

Analysis of net assets in the Balance Sheet

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Balfour Beatty Pension Fund

393

263

321

Railways Pension Scheme

14

(52)

(44)

Other schemes*

(46)

(45)

(46)


361

166

231

* Other schemes include the Group's deferred compensation obligations for which investments in mutual funds of £22m (2021: first half £23m, full-year £24m) are held by the Group to satisfy these obligations.

 

 

Movements in the retirement benefit net assets for the period

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

At beginning of period

231

89

89

Currency translation differences

(4)

1

2

Current service cost

(2)

(2)

(5)

Interest cost

(39)

(30)

(61)

Interest income

41

31

62

Actuarial movements

- on obligations from reassessing the difference between RPI and CPI

-

-

(10)


- on obligations from changes to other financial assumptions

921

163

20


- on obligations from experience gains

-

1

1


- on assets

(818)

(118)

87

Contributions from employer

- regular funding

1

 1

3


- ongoing deficit funding

28

28

39

Benefits paid

2

2

4

At end of period+

361

166

231

 

 

 



 

18 Retirement benefit assets and liabilities continued

In January 2020, the Group concluded negotiations with the trustees of the Balfour Beatty Pension Fund (BBPF) on the formal triennial funding valuation as at 31 March 2019. Under this agreement Balfour Beatty and the trustees re-confirmed their commitment to a journey plan approach to managing the BBPF with the Group agreeing to make total cash deficit contributions of £64m from 2021 to 2023, whereby the BBPF is aiming to reach self-sufficiency by 2027. There is an agreed mechanism for accelerating the payment of these contributions set out above if the earnings cover for shareholder returns (both dividends and other capital returns) falls below 2x. As a result of Balfour Beatty's share buyback programme and following discussions between the Group and the trustees, Balfour Beatty agreed to accelerate the above deficit contributions and also make additional deficit contributions of £2m per month from July 2022 until the next triennial funding valuation at 31 March 2022 is completed or September 2023 at the latest. The Group will now make deficit contributions to the BBPF of £38m in 2022 and is expected to make a deficit contribution of £18m in 2023.

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 £6m per annum which should reduce the funding deficit to zero by 2025.

The Group's balance sheet includes net retirement benefit assets of £361m (2021: first half £166m; full-year £231m) as measured on an IAS 19 basis, with surpluses on the BBPF and RPS partially offset by deficits on the other schemes. 

In the first half of 2022, the Group recorded net actuarial gains on its retirement benefit schemes of £103m (2021: first half £46m net gains; full-year £98m net gains) primarily driven by an increase in the discount rate.

The investment strategy of the BBPF and the sensitivity of the Group's retirement benefit obligations and assets to different actuarial assumptions are set out in Note 30 on pages 226 and 221, respectively, of the Annual Report and Accounts 2021.

19 Share capital

During the half-year ended 1 July 2022, 9.4m (2021: first half nil; full-year nil) ordinary shares were purchased for £23.5m (2021: first half £nil; full-year £nil) by the Group's employee discretionary trust to satisfy awards under the Performance Share Plan, the Deferred Bonus Plan and the Restricted Share Plan.

 

The Company commenced the second phase of its share buyback programme in 2022. As at 1 July 2022, the Company had purchased 18.7m of shares for a total consideration of £48m. These shares are currently held in treasury with no voting rights. The purchase of these shares, together with associated fees and stamp duty has utilised £48m of the Company's distributable profits and the cash paid in settlement during the period was £47m.

 

On 7 June 2022 the Company cancelled 50.3m treasury shares purchased as part of the 2021 share buyback programme.  This led to a decrease in called-up share capital of £25m and an increase in the capital redemption reserve.

 

 



 

20 Acquisitions and disposals

20.1 Acquisitions

There were no acquisitions made in the first half of 2022. There were no acquisitions made in 2021.

 

Deferred consideration paid during the period in respect of acquisitions completed in earlier years was £3m (2021: first half £3m; full-year £3m). This related to the Group's acquisition of Centex Construction in 2007.

 

20.2 Disposals

In the first half of 2022, the Group disposed of one Infrastructure Investments asset as detailed below. This disposal was structured as the sale of the Group's equity interest in the entity which owns the asset.

Notes

Disposal date

Asset disposed


Cash

consideration

£m

Net assets

disposed

£m

Underlying

 gain

 £m

20.2.1

30 June 2022

Regard at Med Center   


12

5

7

+ Disposal of joint venture.

 

20.2.1 On 30 June 2022, the Group disposed of its Regard at Med Center multi-family property asset located in Houston, Texas, for

a total cash consideration of £12m. The asset disposal resulted in an underlying gain of £7m being recognised in the Group's share

of joint ventures and associates

 

Deferred consideration received in the period in relation to disposals in earlier years was £1m (2021: first half £2m; full-year £2m). The deferred consideration received in the period related to the Group's disposal of its Middle Eastern joint ventures in 2017.

 

21 Financial instruments

Fair value estimation

The Group holds certain financial instruments on the balance sheet at their fair values. The following hierarchy classifies each class of financial asset or liability in accordance with the valuation technique applied in determining its fair value.

There have been no transfers between these categories in the current period or preceding year.

Financial instruments at fair value

2022

first half

unaudited

£m

2021

first half

unaudited

£m

2021

year

audited

£m

Financial assets

 



Level 1

 



Investments in mutual fund financial assets

22

23

24

Level 3

 



PPP financial assets

28

149

30

Other investment assets

14

5

9

Total assets measured at fair value

64

177

63

 

 



Financial liabilities

 



Level 2

 



Financial liabilities - infrastructure concessions interest rate swaps

(2)

(28)

(4)

Total liabilities measured at fair value

(2)

(28)

(4)

Level 1 - The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities.

The Group holds investments in mutual funds measured at fair value through other comprehensive income which are traded in active markets and valued at the closing market price at the reporting date.

 

 

21 Financial instruments