Balfour Beatty (LON:BBY) has demonstrated strong performance in the first half of 2024, with its earnings-based businesses driving significant growth in profitability and cash generation. Despite challenges, the Group remains on track to meet full-year expectations, supported by a robust order book and continued momentum in key growth markets. With a strategic focus on complex infrastructure projects and a reinforced commitment from the UK Government to critical national infrastructure, Balfour Beatty is well-positioned to continue delivering substantial returns to its shareholders.
Delivering earnings growth and continued shareholder returns
On track to achieve full year expectations
Leo Quinn, Balfour Beatty Group Chief Executive, said: “The Group’s earnings-based businesses have continued their growth trajectory in the first half of 2024, driving an increase in Group profitability and cash generation, and making great strides in securing the work that will drive further profitable growth in 2025 and beyond.
“The outlook for the Group’s chosen growth markets, where we hold unique capabilities in delivering complex infrastructure projects, remains encouraging, including in the UK with the new Government reinforcing commitments to critical national infrastructure. Balfour Beatty’s prospects across these markets provide the Board with confidence that the Group will continue to deliver significant and attractive shareholder returns in the coming years.”
Continued growth from the earnings-based businesses
· Revenue1 up 3% to £4.7 billion (2023: £4.5 billion) driven by increases at Support Services and Gammon
· Underlying profit from operations (PFO) from earnings-based businesses up 6% to £101 million (2023: £95 million)
· Underlying Group PFO of £77 million (2023: £80 million) down 4% due to increased Infrastructure Investments costs
· Underlying EPS up 18% to 15.3 pence per share (2023: 13.0 pence)
Diversified portfolio delivering consistency and earnings growth
· Construction Services: PFO up 3% to £67 million with growth in UK
· Support Services: PFO up 13% to £34 million, full year expected towards top of 6-8% targeted margin range
· Infrastructure Investments: £7 million loss in first half; £20 – £30 million gain on disposals forecast for second half
Significant momentum in growth markets
· Material new work initiated with SSEN, National Grid, BP, Rolls-Royce and other key customers in 2024
· £16.6 billion order book (FY2023: £16.5 billion) and first half results underpinning 2024 earnings growth
· Earnings growth accelerating in 2025, with good progress made in chosen markets
Balance sheet and cash flow strength supporting continuing attractive shareholder returns
· Average net cash3 of £735 million (FY2023: £700 million)
· Directors valuation of the Investments portfolio increased 5% to £1.3 billion (FY2023: £1.2 billion)
· Half year dividend increased by 9% to 3.8 pence per share (2023: 3.5p)
· £60 million of total dividends to be paid in 2024 and £100 million share buyback on track to complete in year
| (£ million unless otherwise specified) | HY 2024 | HY 2023 | ||||
| Underlying2 | Total | Underlying2 | Total | |||
| Revenue1 | 4,677 | 4,677 | 4,527 | 4,527 | ||
| Profit from earnings-based businesses | 101# | 116 | 95# | 82 | ||
| Profit from operations | 77# | 91 | 80# | 65 | ||
| Pre-tax profit | 98 | 112 | 97 | 82 | ||
| Profit for the period | 81 | 96 | 74 | 63 | ||
| Basic earnings per share | 15.3p | 18.1p | 13.0p | 11.1p | ||
| Dividends per share | 3.8p | 3.5p | ||||
| HY 2024 | FY 2023 | HY 2023 | ||||
| Order book1 | £16.6bn | £16.5bn | £16.4bn | |||
| Directors’ valuation of Investments portfolio | £1.3bn | £1.2bn | £1.3bn | |||
| Net cash – recourse3 | 785 | 842 | 710 | |||
| Average net cash – recourse3 | 735 | 700 | 695 | |||
| Segment analysis | HY 2024 | HY 2023 | |||||
| Revenue1 | PFO2,# | PFOmargin2 | Revenue1 | PFO2,# | PFOmargin2 | ||
| £m | £m | % | £m | £m | % | ||
| UK Construction | 1,458 | 34 | 2.3% | 1,516 | 30 | 2.0% | |
| US Construction | 1,703 | 18 | 1.1% | 1,736 | 21 | 1.2% | |
| Gammon | 714 | 15 | 2.1% | 583 | 14 | 2.4% | |
| Construction Services | 3,875 | 67 | 1.7% | 3,835 | 65 | 1.7% | |
| Support Services | 554 | 34 | 6.1% | 463 | 30 | 6.5% | |
| Earnings-based businesses | 4,429 | 101 | 2.3% | 4,298 | 95 | 2.2% | |
| Infrastructure Investments | 248 | (7) | 229 | 2 | |||
| Corporate activities | (17) | – | (17) | ||||
| Total | 4,677 | 77 | 4,527 | 80 | |||
Notes:
1 Including share of joint ventures and associates
2 Before non-underlying items (Note 8)
3 Excluding non-recourse net borrowings, which comprise cash and debt ringfenced within certain infrastructure investments project companies
# Underlying profit from operations, or PFO, as defined in the Measuring our financial performance section
A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section
2024 HALF YEAR RESULTS ANNOUNCEMENT
· GROUP CHIEF EXECUTIVE’S OVERVIEW
· RESULTS OVERVIEW
· DIVISIONAL FINANCIAL REVIEWS
· MEASURING OUR FINANCIAL PERFORMANCE
GROUP CHIEF EXECUTIVE’S OVERVIEW
Executive summary
Balfour Beatty’s strong operational performance in the first half of the year has further underpinned the Board’s expectations of earnings growth in 2024, accelerating in 2025. The profit from operations achieved by the Group’s earnings-based businesses has grown by 6% following improved delivery at UK Construction and increased volumes at Support Services and Gammon. Good progress has been made in securing the work required to deliver the Board’s medium term growth ambitions and the Directors’ valuation of the Investments portfolio has increased to £1.3 billion.
The Group’s outlook for each of its four chosen growth markets of UK energy transition and security, UK transport, UK defence and US buildings has improved year to date, driven by a combination of bidding success and improved economic and political stability, particularly in the UK. The new Labour Government has committed to grow the UK economy, and has highlighted proposed investment in energy and transport infrastructure, the leveraging of private investment, planning reform and upskilling the UK’s workforce as key components of their plan to achieve this. They have also pledged to increase defence spending over time. This direction of travel is positive for Balfour Beatty in the medium term.
Also in the UK, lower inflation is positive for all contractors, and Balfour Beatty has strengthened its position in its key markets by securing work with Scottish and Southern Electricity Networks (SSEN), National Grid, BP, Rolls-Royce and other key customers. In the US, the buildings business has grown both its revenue and order book in the first half, despite the inflationary and interest rate backdrop, demonstrating the importance of the Group’s geographic and client diversification. As a result of this diversification, the outcome of the upcoming US election is not expected to have a material impact on the business.
The Group’s £16.6 billion order book, which grew slightly in the first half, remains significant across Balfour Beatty’s diverse geographic footprint of UK, US and Hong Kong and continues to give clear visibility in the short and medium term. Given the Group’s focus on robust governance and disciplined bidding, the order book comprises a portfolio of projects that the Group believes has the appropriate contractual terms and conditions for the risk undertaken. In addition, the level of work that has been awarded to the Group but not yet contracted (and therefore not yet in the Group’s order book) has increased sharply in the period, including a number of the major schemes which the Group won in the first half, that are being contracted on a phased basis.
In June, Balfour Beatty launched its evolved Sustainability Strategy, extending its focus to six areas which encompass climate change, nature positive, resource efficiency, supply chain integrity, community engagement and employee diversity, equity, and inclusion. As part of the evolved strategy, the Company has brought forward its UK based target to create £3 billion of social value by 2025 (previously 2030) as well as initiating new net zero targets as its understanding of the scale of the challenge has evolved. The Group has revised its net zero target for Scope 1 and 2 emissions to 2045, and Scope 3 to 2050, both originally set for 2040. The targets have been validated by the Science Based Targets initiative and underpinned by an industry-leading, fully transparent UK carbon reduction plan.
Financial summary
In the first half of 2024, the Group reported underlying profit from operations from its earnings-based businesses of £101 million (2023: £95 million), with improved profitability from UK Construction and higher volumes at Support Services and Gammon, partially offset by a lower US Construction contribution. Underlying profit from operations for the Group reduced to £77 million (2023: £80 million), with the increase from the earnings-based businesses offset by a loss in Infrastructure Investments, due to a write off of capitalised bidding costs and higher military housing costs in relation to the independent compliance monitor’s ongoing work. At a PFO level, and prior to disposals, Infrastructure Investments remains profitable when excluding the costs associated with the monitor’s work. As expected, no Infrastructure Investment disposals were completed in the first half of the year (2023: nil).
Balfour Beatty’s financial strength remains a competitive differentiator. The Group’s average net cash increased to £735 million in the first half (FY 2023: £700 million), while the Directors’ valuation of the Investments portfolio increased to £1.3 billion (FY 2023: £1.2 billion), and refinancing in the first half of the year has further extended the Group’s debt maturity profile.
Given the Group’s strong order book, the opportunities in the energy, transport and defence sectors in the UK and the Group’s chosen buildings sectors in the US, and its competitive strengths, the Board has confidence in its capacity to deliver significant and attractive future shareholder returns. The current tranche of Balfour Beatty’s multi-year share buyback programme, £100 million for 2024, is progressing well and is on track to complete by the end of the year. In addition, the Board has declared an interim dividend of 3.8 pence per share (2023: 3.5 pence).
Momentum in the Group’s growth markets
In Balfour Beatty’s 2023 full year results announcement, the Group highlighted UK energy, transport and defence and US buildings as its four key growth markets. The increased volume of attractive opportunities in these markets, combined with the Group’s end-to-end capabilities and complex infrastructure project experience, has given the Board confidence in Balfour Beatty’s earnings growth accelerating in 2025. In the first half of 2024, progress has been made in the Group’s pursuits in each of the four areas, with particular momentum in the UK energy market, where both UK Construction and Support Services businesses are well positioned to participate. This includes the strengthening and upgrading of the power transmission network, for which the demand for engineering and construction expertise continues to outweigh supply and funding is secured.
UK energy transition and security: In the year to date the Group has progressed opportunities across a variety of technologies and major clients, including:
– Commenced work on ten Early Contractor Involvement contracts for SSEN as part of their onshore ASTI Pathway to 2030 programme;
– Secured and begun work on a £192 million contract to construct three new substations in Argyll, Scotland for SSEN on the RIIO T2 framework;
– Commenced the detailed design and development phase of SSEN’s £690 million Skye 132kV reinforcement project, with the full construction contract award expected in 2025, subject to planning approval;
– Selected in partnership with Technip Energies and GE Vernova for the next phase of BP and Equinor’s Net Zero Teesside Power project to construct a highly efficient combined-cycle plant, integrated with a state-of-the-art carbon capture plant. Final contract award will be subject to receipt of regulatory clearances and final investment decisions being taken later this year;
– Signed a contract as part of the Civil Works Alliance at Sizewell C to deliver early stage enabling works at the nuclear new-build site in Suffolk.
UK transport: Balfour Beatty was awarded a £185 million contract on the A9 road in Scotland, which will see the Group upgrade six miles of single carriageway to dual carriageway. The A57 road project, awarded to Balfour Beatty in 2020, is the latest in a number of National Highway schemes to overcome development consent order challenges. These legal successes, alongside the Government’s pledge to reform the country’s planning system, indicate that the barriers associated with delivering major infrastructure in the UK should begin to ease over time. The Government has also committed to increasing investment in road maintenance, improving connectivity across cities in the north of England and giving more power to devolved regions to deliver their own transport solutions, all of which align to Balfour Beatty’s road and rail expertise. Furthermore, the proposed restructuring of the UK Rail industry should see greater opportunities for efficiency as the management of track and trains are brought closer together.
UK defence: Balfour Beatty has been selected by Rolls-Royce as a construction partner for the expansion work in Raynesway, Derby, needed to meet the growth in demand from the Ministry of Defence and as a result of the AUKUS agreement. As part of the package of works, which will be executed in stages over the next eight years, Balfour Beatty will deliver infrastructure enabling works, build new manufacturing and office facilities, and redevelop existing industrial buildings on site. This will increase Rolls-Royce’s capacity to manufacture reactor components for nuclear submarines. The UK Government has committed to increasing public investment in defence overtime.
US buildings: The diversification of the US Buildings business is key to its ongoing success and ability to grow revenue and orderbook despite high interest rates. This was reflected by the work won in the first half in areas including education, transportation and government buildings. While the economic backdrop means that the volume of commercial office work in the order book remains lower than in the past, the business continues to grow, and an easing of interest rates should increase the opportunities in the commercial office and other markets in the future. The US Buildings growth strategy of targeting additional cities in states with existing Balfour Beatty offices, and broader end-markets in some regions where the business is already active, continues to deliver successes. In the first half, the Group was awarded the renovation of a civic building in Georgia, airport and theme park projects were won in North Carolina, an autonomous vehicle project begun in Florida, and data centre work was delivered in Washington State.
Construction Services: Strong operational performance
UK Construction: The Group’s market-leading position in the UK infrastructure market is built on its scale and vertically integrated capability for delivering major projects. In the year to date, the division has continued to deliver some of the country’s most significant infrastructure schemes, including: HS2 Area North, where the Balfour Beatty VINCI joint venture has completed the four huge piers of the Curzon 2 bridge, marking a significant construction milestone on the sequence of viaducts that will take high-speed trains in and out of Birmingham; Old Oak Common, where after three years, the Balfour Beatty VINCI SYTRA joint venture completed the excavation of the stations underground box, a vast structure big enough to accommodate the equivalent of 300 Olympic sized swimming pools; Hinkley Point C, where good progress continues to be made on the underground marine works for the new nuclear power station; M25 junction 10, where Balfour Beatty conducted three full weekend closures as part of the improvement scheme at Wisley, the first in the M25’s 38 year history, with works completed ahead of schedule on all occasions.
The division achieved a 2.3% PFO margin during the period (2023: 2.0%), demonstrating further progress in the Group’s medium term ambition to achieve a 3% PFO margin in UK Construction.
US Construction: In the first half, operational highlights across the US Buildings business included: transformation of an old Coca-Cola bottling facility in Atlanta, Georgia, into an elevated mixed-use property; the completion of a new health sciences building at Santa Ana College in California; and breaking ground on the new concourse at Jacksonville Airport in Florida. In US Civils, the business completed construction of the Sterling Natural Resource Center, a water reclamation facility in California, and as part of the LINXS Constructors joint venture at Los Angeles International Airport, the Group have moved into the testing and commissioning phase of the project.
Balfour Beatty has continued its strategy to increase its presence in US buildings compared to US civils, with the Buildings business contributing 79% of the order book at half year, up from 76% at December 2023. With most of the projects undertaken by US Construction contracted on fixed-price terms, Buildings remains the lower risk business within the division, as the early issuing of subcontracts for works packages and insurance of the supply chain protects the Group’s US margin. With US Civils, the Group remains cautious and selective in its approach, as the combination of fixed-price contractual terms and the self-perform nature of the work means the mitigation of inflation and schedule risk is more challenging. As a result, the Group’s civils bidding is focused on those projects which closely align to its core capabilities.
Gammon: Balfour Beatty’s Hong Kong based 50:50 joint venture with Jardine Matheson continues to perform consistently, with a strong share of both the buildings and civils markets. The outlook for the Hong Kong construction sector remains positive, with Government commitments to grow the railway network and build new major roads, in addition to the long term Northern Metropolis project to develop more than 3,000 hectares by phases over the next 20 years. In the first half of 2024, the majority of Gammon’s new orders came in the buildings market, despite the high interest rate environment causing a slowdown in Hong Kong’s private residential sector. Additions to the order book included a residential development in the Kai Tak area for the Hong Kong Housing Society, various residential developments for private developers in Hong Kong and a data centre in Singapore.
Operationally, work continues at Hong Kong Airport, where Gammon is delivering the Automatic People Mover (APM) and Baggage Handling System (BHS) from Terminal 2 to Terminal 2C in addition to working on the Terminal 2 expansion. At Terminal 2, all modules of the steel roof structures are now in place, and installation of the roof covering, building service systems and supporting columns are complete, while the fit-out and building services works progress at full steam within the completed building structure. The majority of the tunnel construction for the APM and BHS has been substantially completed and the electrical and mechanical installation works inside the completed tunnel sections continue. Gammon’s buildings team at the One Causeway Bay project, which when complete will have 500,000 sq. ft. of office space across 24 floors and five floors for retail, marked a major milestone with a topping-out ceremony. The project, which occupies the former site of the historic Excelsior Hotel on the waterfront of Hong Kong’s Victoria Harbour, will open in 2025.
Support Services: Growth in road maintenance, power primed to expand
Support Services is focused on power, plant, road and rail maintenance and is characterised by profitable recurring revenues underpinned by long term contracts. For full year 2024, Support Services is expected to deliver towards the top of its targeted PFO margin range of 6-8%.
The power business continues to grow and perform well in what is a very buoyant market. In Scotland, Balfour Beatty has now commenced work on ten Early Contractor Involvement contracts for SSEN as part of their ASTI Pathway to 2030 programme. These projects span overhead lines, underground cabling and substations and reflect the Group’s multi-disciplinary capability. Also, with SSEN, the Group has signed an Initial Works Contract for the £690 million Skye Reinforcement project and started the construction phase on the £192 million Argyll Substations project. For National Grid, the business finished wiring all 116 T-Pylons on the Hinkley Point C Connection project, a major step towards completion of this vital piece of UK infrastructure. The Viking Link interconnector, the longest interconnector in the world for which Balfour Beatty constructed the 65km UK onshore underground cable route, is now live and transmitting power between the UK and Denmark. The Group also completed 62km of overhead line refurbishment between Bramford and Norwich, began to transition 3.5km of overhead lines in the North Wessex Downs to underground cables and energised the final circuit at the 400kV Littlebrook Substation. Balfour Beatty’s portfolio of power transmission and distribution projects continues to reflect the major role which the Group is playing in upgrading the grid to meet the UK’s net zero ambitions.
The road and rail maintenance businesses have continued to perform well in the first half of 2024. The road maintenance business has substantially increased the volume of work delivered, driven by new contracts and increased demand, and continues to pursue new Local Authority contracts which come to market. The rail business has had a strong first half and has invested in its manufacturing and plant divisions to further strengthen the Group’s capabilities.
Infrastructure Investments: pursuing opportunities in attractive markets
Balfour Beatty continues to invest in attractive new opportunities. The Group has maintained its disciplined approach to investments and disposals to ensure the delivery of investment hurdle rates. The Group’s current focus is on investment opportunities in:
– Residential: Balfour Beatty continues to see attractive US multifamily housing come to market, providing opportunity to invest profitably in the regeneration of these properties.
– Student accommodation: Across the UK and US, demand for student accommodation remains strong as universities continue to improve their facilities to attract students.
– US P3: Balfour Beatty continues to pursue investment and construction opportunities in public-private partnerships, and, to date, 41 states (plus DC) have passed legislation allowing P3 projects.
– Energy transition: As the UK’s energy mix transitions to more renewable sources, and the UK adopts more sustainable transport such as electric vehicles, there are opportunities for private sector investment.
In the first half, Balfour Beatty invested £12 million in new and existing projects with one new US multifamily housing project in Mount Laurel, New Jersey, added to the portfolio. In student accommodation, the Group was awarded a developer contract to build a 1,000-bed undergraduate student housing complex at the University of Texas in Austin, and in the UK, begun the construction of the West Slope student accommodation development at Sussex University.
In US military housing, the Group continues to support the military’s energy resilience and climate goals and in the first half completed a rooftop solar project across five Navy bases in Florida, totalling 10.55 megawatts, and a $31 million energy savings performance contract bringing energy and water efficiency improvements to the housing communities at 11 Navy installations in the Southeast. The Group continues to work with the independent compliance monitor, appointed by the Department of Justice in 2021 and commencing work in 2022.
Outlook
Following the strong financial performance from the earnings-based businesses in the first six months, the Board continues to expect an increase in PFO from its earnings-based businesses for the full year. Infrastructure Investments financial performance is expected to improve in the second half, resulting in a small loss from operations for the full year, prior to disposals. Gains on investment disposals in the second half are expected in the range of £20 – £30 million. The Board expects net finance income of around £30 million for 2024 and for the effective tax rates in each of the three geographies to remain close to statutory rates.
In summary, the Board continues to expect growth in underlying Group earnings in 2024, with growth accelerating in 2025. The Group’s average cash in 2024 is expected to be broadly in line with the £700 million recorded in 2023, allowing for a working capital outflow and for full year capital expenditure to return closer to pre-2023 levels of around £35 million.
The Group’s longer-term outlook remains positive, with the growth forecast in 2025 and beyond driven by the increasing opportunities in the four key growth markets it has positioned itself for – energy, transport and defence sectors in the UK and the US buildings market. This gives the Board confidence in Balfour Beatty’s continued ability to deliver profitable managed growth and sustainable cash generation, and in turn, significant and attractive ongoing shareholder returns.
RESULTS OVERVIEW
Unless otherwise stated, all commentary in this section and the Divisional financial reviews is on an underlying basis.
Throughout this report, 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
Revenue increased by 3% (5% at CER) to £4,677 million (2023: 4,527 million) driven largely by increases at Support Services and Gammon. Statutory revenue, which excludes joint ventures and associates, was £3,885 million (2023: £3,811 million).
Construction Services revenue was up 1% (3% at CER) to £3,875 million (2023: £3,835 million), with increased activity at the major airport projects in Hong Kong partially offset by reduced volumes in the UK and in US Civils. Support Services revenue increased by 20% to £554 million (2023: £463 million) driven largely by a higher volume of road maintenance work, with major contracts at Buckinghamshire and East Sussex having only started late in to the first half of 2023.
| Underlying profit / (loss) from operations2 | HY 2024£m | HY 2023£m |
| UK Construction | 34 | 30 |
| US Construction | 18 | 21 |
| Gammon | 15 | 14 |
| Construction Services | 67 | 65 |
| Support Services | 34 | 30 |
| Earnings-based businesses | 101 | 95 |
| Infrastructure Investments pre-disposals operating (loss) / profit | (7) | 2 |
| Infrastructure Investments gain on disposals | – | – |
| Corporate activities | (17) | (17) |
| Total underlying profit from operations | 77 | 80 |
| 2 Before non-underlying items (Note 8) | ||
Underlying profit from operations decreased by 4% to £77 million (2023: £80 million), with a £9 million reduction in Infrastructure Investments due to the write off of capitalised bidding costs and higher military housing costs in relation to the independent compliance monitor’s ongoing work, partially offset by an increased workload in both Construction Services and Support Services. Statutory profit from operations was £91 million (2023: £65 million).
Including net finance income of £21 million (2023: £17 million), underlying pre-tax profit was £98 million (2023: £97 million). The taxation charge on underlying profits was £17 million (2023: £23 million) and results in an underlying profit after tax of £81 million (2023: £74 million). Total statutory profit after tax for the period was £96 million (2023: £63 million), as a result of the net effect of non-underlying items.
Underlying basic earnings per share was 15.3 pence (2023: 13.0 pence), which, along with non-underlying earnings per share of 2.8 pence (2023: loss of 1.9 pence), gave a total basic earnings per share of 18.1 pence (2023: 11.1 pence). This included the benefit from the basic weighted average number of ordinary shares reducing to 528 million (2023: 567 million) as a result of the Group’s share buyback programme.
Non-underlying items
The Board believes non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group.
Non-underlying items after taxation were a net credit of £15 million for the period (2023: net charge of £11 million). Items included a net credit of £16 million in the Group’s Rail Germany operations. One of the two remaining contracts held within Rail Germany reached the end of its warranty period resulting in the release of warranty provisions held in respect of this contract. This release has been credited to the Group’s income statement within non-underlying, net of provision increases relating to certain legacy liabilities remaining within the business. There was also a £1 million post-tax charge relating to the amortisation of acquired intangible assets. Further detail is provided in Note 8.
Cash flow performance
The total cash movement in the first half resulted in a £57 million decrease (2023: £105 million) in the Group’s period end net cash position to £785 million (FY 2023: £842 million), excluding non-recourse net borrowings. Operating cash flows were ahead of profit from operations. As expected, there was a working capital unwind in the first half and there was also a £72 million outflow for the current tranche of the multi-year share buyback programme.
| Cash flow performance | HY 2024£m | HY 2023£m |
| Operating cash flows | 128 | 112 |
| Working capital outflow | (76) | (42) |
| Pension deficit payments+ | (14) | (13) |
| Cash from operations | 38 | 57 |
| Lease payments (including interest paid) | (33) | (31) |
| Dividends from joint ventures and associates | 32 | 27 |
| Capital expenditure | (12) | (30) |
| Share buybacks | (72) | (87) |
| Infrastructure Investments | ||
| – disposal proceeds | – | – |
| – new investments | (12) | (24) |
| Other | 2 | (17) |
| Net cash movement | (57) | (105) |
| Opening net cash* | 842 | 815 |
| Closing net cash* | 785 | 710 |
* Excluding infrastructure investments (non-recourse) net borrowings
+ Including £1 million (2023: £1 million) of regular funding
Working capital
As expected, the Group had a net working capital outflow of £76 million (2023: £42 million) as a result of the unwind of the spike in negative working capital position reported at year end.
| Working capital flows^ | HY 2024£m | HY 2023£m |
| Inventories | (38) | (27) |
| Net contract assets | (66) | (158) |
| Trade and other receivables | (106) | (51) |
| Trade and other payables | 151 | 169 |
| Provisions | (17) | 25 |
| Working capital outflow^ | (76) | (42) |
^ Excluding impact of foreign exchange and disposals
Including the impact of foreign exchange and non-operating items, negative (i.e. favourable) current working capital decreased to £1,210 million (FY 2023: £1,232 million). In the medium term, the Group expects negative working capital as a percentage of revenue to be around the top of its historical long term average of 11-13% (HY 2024: 15.6%; FY 2023: 15.4%) 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 increased in the first half to £735 million (FY 2023: £700 million, HY 2023: £695 million). The Group’s net cash position at the half year, excluding non-recourse net borrowings, was £785 million (FY 2023: £842 million; HY 2023 £710 million).
Non-recourse net borrowings, held in Infrastructure Investments entities consolidated by the Group, were £279 million (FY 2023: £264 million; HY 2023: £259 million). The balance sheet also included £151 million for lease liabilities (FY 2023: £143 million; HY 2023: £135 million). Statutory net cash at half year was £355 million (FY 2023: £435 million; HY 2023: £316 million).
Share buyback
On 2 January 2024, Balfour Beatty commenced an initial £50 million tranche of its 2024 share buyback programme, which was subsequently increased, following the release of its 2023 full year results, to £100 million on 13 March 2024. In the first half, the Group purchased 20 million shares for a total consideration of £73 million. These shares are currently held in treasury with no voting rights. This tranche of the multi-year share buyback programme is on track to complete by the end of 2024.
Banking facilities
In the period the Group extended its core Revolving Credit Facility (RCF) by one year, to June 2028, with the support of the lending bank group. The facility was reduced to £450 million (FY 2023: £475 million) in the extension process. The RCF remains a Sustainability Linked Loan (SSL) and subsequent to the extension, in July 2024 new SLL metrics and targets were agreed with the lending bank group. The Group continues to be incentivised to deliver annual measurable performance improvement in three key areas: Carbon Emissions, Social Value generation and an independent Environment, Social and Governance (ESG) rating score. The RCF remained undrawn at 28 June 2024.
The Group retains an additional £30 million bilateral committed facility on similar terms to the core RCF. This facility has a maturity of December 2024. The Group holds an option to extend the expiry of the facility to December 2027. As at 28 June 2024, the Group had not triggered the facility’s extension option. At 28 June 2024 the bilateral committed facility remained undrawn.
Debt Refinancing
In the first half, the Group completed the early refinancing of US$50 million of US Private Placement (USPP) notes that were set to mature in March 2025. The Group raised US$50 million of new USPP notes, on terms and conditions that mirror existing debt facilities, and used this new funding to complete the early repayment of the US$50 million 2025 USPP notes. The new debt is comprised of US$25 million of 7-year notes, maturing in June 2031 at a fixed coupon of 6.71%, and US$25 million of 12-year notes, maturing in June 2036 at a fixed coupon of 6.96%. The refinancing exercise has extended the debt maturity profile of the Group until 2036, with the next debt maturity now in June 2027 (US$35 million USPP notes).
Going concern
The Directors have considered the Group’s medium term cash forecasts and conducted stress-test analysis on these projections in order to assess the Group’s ability to continue as a going concern. Having also made appropriate enquiries, the Directors consider it reasonable to assume that the Group has adequate resources to continue for the period of at least 12 months from the date of approval of the condensed financial statements and, for this reason, have continued to adopt the going concern basis. Further detail is provided in Note 1.3 Going Concern.
Pensions
Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have agreed to a journey plan approach to managing the BBPF whereby the BBPF is aiming to reach self-sufficiency by 2027. The Company and the trustees agreed the 31 March 2022 formal valuation in 2023 and, as a result, Balfour Beatty will pay deficit contributions to the BBPF of £24 million in 2024 and £6 million in 2025 together with additional contributions of £2 million per month from March 2025 if BBPF’s performance is different from that expected. The next formal triennial funding valuation of the BBPF is due with effect from 31 March 2025.
The Company and trustees of the Railways Pension Scheme (RPS) agreed the 31 December 2022 formal valuation in the first half of 2024 and, as a result, Balfour Beatty agreed to continue making deficit contributions of £6 million per annum until February 2025. The next formal triennial funding valuation of the RPS is due with effect from 31 December 2025.
The Group’s balance sheet includes net retirement benefit assets of £90 million (FY 2023: £69 million) as measured on an IAS 19 basis, with the surpluses on the BBPF (£113 million) and RPS (£12 million) partially offset by deficits on other schemes (£35 million).
Dividend
The Board is committed to a sustainable ordinary dividend which is expected to grow over time, targeted at a pay-out ratio of 40% of underlying profit after tax excluding gain on disposal of Investments assets. As announced at the time of the 2022 full year results, going forward, the Board expects the interim dividend to be roughly one third of the prior year’s full year dividend. Aligned to this, and following a 2023 full year dividend of 11.5 pence, the Board has declared an interim dividend of 3.8 pence for 2024 (2023: 3.5 pence).
DIVISIONAL FINANCIAL REVIEWS
CONSTRUCTION SERVICES
Underlying revenue at £3,875 million was up 1% (2023: £3,835 million), a 3% increase at CER, with higher volumes in Gammon offset by lower volumes in UK Construction and US Construction. Underlying profit from operations increased to £67 million (2023: £65 million) due to improved profitability in UK Construction and higher volumes at Gammon, partially offset by lower profitability in US Construction. The order book remained flat (down 1% at CER) in the period at £13.7 billion (FY 2023: £13.7 billion).
| Construction Services | HY 2024 | HY 2023 | FY 2023 | ||||||
| Revenue1 | PFO | Order book1 | Revenue1 | PFO | Order book1 | Order book1 | |||
| £m | £m | £bn | £m | £m | £bn | £bn | |||
| UK Construction | 1,458 | 34 | 6.1 | 1,516 | 30 | 5.9 | 6.1 | ||
| US Construction | 1,703 | 18 | 5.6 | 1,736 | 21 | 5.3 | 5.6 | ||
| Gammon | 714 | 15 | 2.0 | 583 | 14 | 2.6 | 2.0 | ||
| Underlying2 | 3,875 | 67 | 13.7 | 3,835 | 65 | 13.8 | 13.7 | ||
| Non-underlying | – | 15 | – | (13) | – | – | |||
| Total | 3,875 | 82 | 13.7 | 3,835 | 52 | 13.8 | 13.7 | ||
1 Including share of joint ventures and associates
2 Before non-underlying items (Note 8)
A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section
UK Construction: Revenue in UK Construction reduced by 4% to £1,458 million (2023: £1,516 million) due to lower volumes from the nuclear new build project at Hinkley Point C.
UK Construction profitability continued to increase, with improved project delivery contributing to £34 million of underlying profit from operations (2023: £30 million). This represents a 2.3% PFO margin (2023: 2.0%), with the full year PFO margin for UK Construction expected to be above the 2.3% delivered in the 2023 full year.
The UK Construction order book remained flat at £6.1 billion (FY 2023: £6.1 billion), with new additions including HMP Highland in Inverness, Scotland, on behalf of the Scottish Prison Service and enabling works at HMNB Devenport. 91% of the UK Construction order book is from public sector and regulated industry clients and 83% of orders are now on either target cost or cost plus contractual terms
US Construction: Revenue in US Construction decreased by 2% (increased 1% at CER) to £1,703 million (2023: £1,736 million), with an increase of 3% (5% at CER) in buildings offset by a reduction in civils.
Underlying profit from operations for US Construction reduced to £18 million (2023: £21 million). As disclosed in the 2023 full year results, there are a small number of civils projects which are taking longer than initially scheduled. As expected, the cost of these delays has impacted profitability in the first half of 2024; however full year PFO for 2024 is expected to be flat with the prior year. PFO margin reduced to 1.1% (2023: 1.2%).
The US Construction order book remained flat (down 2% at CER) at £5.6 billion (FY 2023: £5.6 billion) as growth in buildings was offset by a reduction in civils. Key buildings additions in the first half were Terminal B at the Jacksonville International Airport in Florida, a new education campus in Raleigh, North Carolina, a new middle school in San Bernardino, California and further federal work in Washington DC.
Gammon: The Group’s share of Gammon’s revenue increased by 22% (25% at CER) to £714 million (2023: £583 million) driven by increased activity at Hong Kong airport, where Gammon are delivering the APM and BHS from Terminal 2 to Terminal 2C and the Terminal 2 expansion.
Underlying profit increased to £15 million (2023: £14 million) representing a 2.1% profit margin (2023: 2.4%).
The Group’s share of Gammon’s order book remained flat (flat at CER) at £2.0 billion (FY 2023: £2.0 billion), with additions including a residential development in the Kai Tak area for the Hong Kong Housing Society, various residential developments for private developers in Hong Kong and a data centre in Singapore.
SUPPORT SERVICES
The Support Services business provides power, plant, road and rail maintenance and is characterised by profitable recurring revenues underpinned by long term frameworks targeting PFO margin of 6-8%.
Support Services revenue increased by 20% to £554 million (2023: £463 million), mainly due to higher volumes in the road maintenance business, as the two major contracts at Buckinghamshire and East Sussex did not start until late in to the first half of 2023. Underlying profit from operations increased 13% to £34 million (2023: £30 million) driven by higher volumes. PFO margin has reduced to 6.1% in the period (2023: 6.5%) due to the mix of work, however the power, road and rail maintenance businesses all continue to perform well, and Support Services is expected to deliver towards the top end of its targeted 6-8% margin range for the 2024 full year.
The Support Services order book increased by 4% to £2.9 billion (FY 2023: £2.8 billion). During the first half, the power business won a £192 million contract to construct three new substations in Argyll, Scotland for SSEN and the rail business won £83 million of work for the Central Rail Systems Alliance.
| Support Services | HY 2024 | HY 2023 |
| Order book1 (£bn) | 2.9 | 2.6 |
| Revenue1 (£m) | 554 | 463 |
| Profit from operations2 (£m) | 34 | 30 |
| Non-underlying items (£m) | – | – |
| Statutory profit from operations (£m) | 34 | 30 |
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
Infrastructure Investments made a £7 million underlying loss from operations in the period (2023: £2 million profit) largely due to two main factors. In the UK, Balfour Beatty wrote off capitalised bidding costs following the cancellation of a student accommodation project, for which the Group had been awarded preferred bidder status. In the US, there was an increase in the costs relating to the independent compliance monitor’s work across the US military housing portfolio.
Infrastructure Investments financial performance is expected to improve in the second half, resulting in a small loss from operations for the full year, prior to disposals. The Group is anticipating a gain on disposals in the second half of 2024 in the range of £20 – £30 million.
Net investment income in the first half was £11 million (2023: £12 million) and included an impairment write back of subordinated debt following the recovery of costs relating to a faulty OFTO cable, which had been provided for in prior periods. This was offset by lower interest received on subordinated debt and higher interest on non-recourse borrowings.
Balfour Beatty continues to invest in attractive new opportunities, each expected to meet its investment hurdle rates. In the first half, the Group invested £12 million in new and existing projects, with one new US multifamily housing project in Mount Laurel, New Jersey, added to the portfolio.
| Infrastructure Investments | HY 2024 £m | HY 2023 £m |
| Pre-disposals operating (loss) / profit2 | (7) | 2 |
| Gain on disposals2 | – | – |
| (Loss) / profit from operations2 | (7) | 2 |
| Net investment income~ | 11 | 12 |
| Profit before tax2 | 4 | 14 |
| Non-underlying items | (1) | (2) |
| Statutory profit before tax | 3 | 12 |
2 Before non-underlying items (Note 8)
~ Subordinated debt interest receivable, net interest receivable on PPP financial assets and non-recourse borrowings, fair value (loss)/gain on investment asset and impairment to subordinated debt receivable and accrued interest
A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section
Directors’ valuation
The Directors’ valuation increased by 5% to £1,270 million (FY 2023: £1,212 million). The portfolio is now 59% weighted towards the US (FY 2023: 58%). The number of projects in the portfolio was stable at 59 (FY 2023: 59).
Movement in value FY 2023 to HY 2024
| £m | FY 2023 | Equity invested | Distributions received | Unwind of discount | Operational performance | FX | HY 2024 | |
| UK | 509 | 1 | (9) | 17 | 6 | – | 524 | |
| US | 703 | 11 | (7) | 23 | 10 | 6 | 746 | |
| Total | 1,212 | 12 | (16) | 40 | 16 | 6 | 1,270 |
Balfour Beatty invested £12 million (2023: £24 million) in new and existing projects, including the addition of a multifamily housing project in New Jersey.
Cash yield from distributions amounted to £16 million (2023: £33 million). There were no disposals in the period, but a preferred bidder student accommodation project in the UK was cancelled and has been removed from the portfolio. There are currently no other preferred bidder projects in the portfolio.
Unwind of discount at £40 million (2023: £42 million) is a function of moving the valuation date forward by six months with the result that future cash flows are discounted by six months less.
Operational performance movements resulted in a £16 million increase (2023: £16 million decrease). The operational performance movements in the UK were primarily due to the recovery of previously recognised costs relating to a faulty OFTO cable, offset by higher forecast costs on roads projects. In the US, there was a gain in the US military portfolio due to lower insurance costs, offset by higher independent compliance monitor costs.
The foreign exchange movement was a £6 million increase, as sterling weakened against the US dollar (2023: £39 million decrease).
Methodology and assumption changes
The methodology for valuing most investments in the portfolio remains the discounted cash flow (DCF) method. Under this methodology cash flows for each project are forecast based on historical and present performance, future risks and macroeconomic forecasts. They also factor in secondary market assumptions. These cash flows are then discounted using different discount rates, which are based on the risk and maturity of individual projects and reflect secondary market transaction experience. The main exception to the use of DCF is for US multifamily housing projects which, due to the perpetual nature of the assets and the depth and liquidity of the rental housing market, are valued based on periodic broker reports for each property.
The valuation methodology used at the previous Directors’ valuation is unchanged. The discount rates applied to the UK portfolio range from 7.25% to 9.25% (FY 2023: 7.25% to 9.25%) depending on the maturity and risk of each project. The implied weighted average discount rate for the UK portfolio is 8.4% (FY 2023: 8.3%). A 1% change in the discount rate would change the value of the UK portfolio by approximately £46 million.
The discount rates applied to the US portfolio range from 6.25% to 10.5% (FY 2023: 6.25% to 10.5%). The implied weighted average discount rate for the US portfolio is 8.1% (FY 2023: 8.1%). A 1% change in the discount rate would change the value of the US portfolio by approximately £81 million.
The portfolio remains positively correlated to inflation. A 1% change in the long-term inflation rate in the UK portfolio would change the valuation by approximately £26 million and a 1% change in the long term rental growth rate in the US portfolio would change the valuation by approximately £81 million.
As in previous periods, the Directors’ valuation may differ significantly from the accounting book value of investments shown in the financial statements, which are produced in accordance with International Financial Reporting Standards (IFRS) rather than using a discounted cash flow approach. A full reconciliation is provided in section i) of the Measuring Our Financial Performance section.
Portfolio valuation June 2024
Value by sector
| Sector | HY 2024 | FY 2023 | HY 2024 | FY 2023 |
| No. projects | No. projects | £m | £m | |
| Roads | 12 | 12 | 164 | 168 |
| Healthcare | 2 | 2 | 132 | 129 |
| Student accommodation | 5 | 6 | 139 | 137 |
| Energy transition | 4 | 4 | 58 | 44 |
| Other | 2 | 2 | 31 | 31 |
| UK total | 25 | 26 | 524 | 509 |
| US military housing | 21 | 21 | 597 | 562 |
| Student accommodation and other PPP | 4 | 4 | 82 | 83 |
| Residential housing | 9 | 8 | 67 | 58 |
| US total | 34 | 33 | 746 | 703 |
| Total | 59 | 59 | 1,270 | 1,212 |
Value by phase
| Phase | HY 2024 | FY 2023 | HY 2024 | FY 2023 |
| No. projects | No. projects | £m | £m | |
| Operations | 56 | 55 | 1,225 | 1,164 |
| Construction | 3 | 3 | 45 | 46 |
| Preferred bidder | – | 1 | – | 2 |
| Total | 59 | 59 | 1,270 | 1,212 |
Value by income type
| Income type | HY 2024 | FY 2023 | HY 2024 | FY 2023 |
| No. projects | No. projects | £m | £m | |
| Availability based | 17 | 17 | 365 | 353 |
| Demand – operationally proven (2+ years) | 38 | 37 | 855 | 807 |
| Demand – early stage (less than 2 years) | 4 | 5 | 50 | 52 |
| Total | 59 | 59 | 1,270 | 1,212 |
