Balfour Beatty Regulatory News (BBY)

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

16 August 2023

Strong first half performance from earnings-based businesses

On track for full year expectations

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

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

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

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

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

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

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

Geographically and operationally diversified portfolio providing resilience 

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

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

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

Balance sheet strength and consistent cash flow supporting shareholder returns 

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

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

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

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

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

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

On track for full year expectations

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

· Growing pipeline giving confidence for the long term outlook

Notes:

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

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

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

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

Investor and analyst enquiries:

Jim Ryan

Tel. +44 (0)7858 368527

jim.ryan@balfourbeatty.com

Media enquiries:

Antonia Walton

Tel. +44 (0)203 810 2345

antonia.walton@balfourbeatty.com

Investor and analyst presentation:

A presentation to investors and analysts will be made at Numis, 45 Gresham Street, London, EC2V 7BF at 09:00 (GMT) on 16 August 2023. There will be a live webcast of this on: www.balfourbeatty.com/webcast. The webcast will be recorded and subsequently available at Results, reports and presentations - Investors - Balfour Beatty plc.

2023 HALF YEAR RESULTS ANNOUNCEMENT

· GROUP CHIEF EXECUTIVE'S OVERVIEW

· RESULTS OVERVIEW

· DIVISIONAL FINANCIAL REVIEWS

· MEASURING OUR FINANCIAL PERFORMANCE

GROUP CHIEF EXECUTIVE'S OVERVIEW

Executive summary

Balfour Beatty's diverse portfolio and lower-risk order book have provided the resilience for the Group to deliver improved financial results from its earnings-based businesses during challenging economic conditions. The combination of the long term and inflation protected nature of UK operations, the breadth of geographies and end markets in the US and the consistency of performance in Hong Kong, underpin the stability of the Group.

The current high interest rate environment, while beneficial to the Group's cash balance, has caused delays in some projects going to contract, largely in the US commercial office sector, as customers wait for economic stability. Despite this, the large, lower risk order book continues to give clear visibility in the short and medium term of the Group's ability to deliver significant shareholder returns from profitable managed growth and cash generation. The Group's awarded but not contracted position remains high, having added notable airport and major road contracts in the first half.

Governments remain committed to driving economic growth through infrastructure investment in all three of Balfour Beatty's core markets. The Group's outlook is strengthened by its strategic decision in recent years to focus on specific geographies, to continue to develop unique capability within them and to build its track record in delivering world-class projects. Balfour Beatty is particularly well-placed to benefit from the growing focus on infrastructure which can mitigate climate change and improve energy security, with the Group pursuing a broad range of opportunities across the energy landscape that will drive profitable growth.

It is a matter of deep regret that two colleagues have tragically lost their lives this year. The Company offers its deepest sympathy and support to their family, friends and co-workers, and investigations into both incidents are underway. The Group is ensuring that it validates all of its processes and procedures while promptly acting on the resulting actions and learnings. Health and safety and focusing on a Zero Harm culture continues to be the top priority for Balfour Beatty and the Board.

Financial summary

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

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

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

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

Construction Services: operational progress in all geographies

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

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

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

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

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

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

Support Services: strong growth prospects across the portfolio

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

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

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

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

Infrastructure Investments: pursuing opportunities in attractive markets

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

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

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

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

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

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

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

Momentum in UK energy security and transition

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

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

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

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

Outlook

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

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

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

RESULTS OVERVIEW

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

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

Group financial summary

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

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

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

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

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

Non-underlying items

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

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

Cash flow performance

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

*  Excluding infrastructure investments (non-recourse) net borrowings

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

Working capital

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

^ Excluding impact of foreign exchange and disposals

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

Net cash/borrowings

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

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

Share buyback

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

Banking facilities

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

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

Going concern

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

Pensions

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

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

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

Dividend

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

DIVISIONAL FINANCIAL REVIEWS

CONSTRUCTION SERVICES

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

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

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

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

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

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

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

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

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

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

SUPPORT SERVICES

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

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

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

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 8)

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

INFRASTRUCTURE INVESTMENTS

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

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

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

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

2 Before non-underlying items (Note 8)

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

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

Directors' valuation

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

Movement in value FY 2022 to HY 2023

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

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

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

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

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

Methodology and assumption changes

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

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

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

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

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

Portfolio valuation June 2023

Value by sector

Value by phase

Value by income type

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

We confirm that to the best of our knowledge:

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

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

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first half of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining second half of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first half of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

Leo Quinn Philip Harrison

Group Chief Executive Chief Financial Officer

15 August 2023

Forward-looking statements

This report, including information included or incorporated by reference in it, may include certain forward-looking statements, beliefs or opinions, including statements with respect to Balfour Beatty's business, financial condition and results of operations. All statements other than statements of historical facts included in this document may be forward-looking statements.

These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by Balfour Beattyin good faith based on the information available to it at the date of this report and reflect the beliefs and expectations of Balfour Beatty. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

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

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

MEASURING OUR FINANCIAL PERFORMANCE

Providing clarity on the Group's alternative performance measures

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

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

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

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

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

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

Readers are encouraged to review this report in its entirety.

Performance measures used to assess the Group's operations

Underlying profit from operations (PFO)

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

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

Underlying profit before tax (PBT)

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

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

Operating cash flow (OCF)

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

Measuring the Group's performance

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

Statutory measures

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

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

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

Performance measures

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

a) Order book

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

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

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

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

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

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

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

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

b) Underlying performance

The Group adjusts for certain non-underlying items which the Board believes assists in understanding the performance achieved by the Group. These items include:

· gains and losses on the disposal of businesses and investments, unless this is part of a programme of releasing value from the disposal of similar businesses or investments such as infrastructure concessions;

· costs of major restructuring and reorganisation of existing businesses;

· costs of integrating newly acquired businesses;

· acquisition and similar costs related to business combinations such as transaction costs;

· impairment and amortisation charges on intangible assets arising on business combinations (amortisation of acquired

intangible assets); and

· impairment of goodwill.

These are non-underlying costs as they do not relate to the underlying performance of the Group. From time to time, it may be appropriate to disclose further items as non-underlying items in order to reflect the underlying performance of the Group.

Further details of non-underlying items are provided in Note 8.

A reconciliation has been provided below to show how the Group's statutory results are adjusted to exclude non-underlying items and their impact on its statutory financial information, both as a whole and in respect of specific line items.

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

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

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

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

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

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

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:

^ 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.

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

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

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

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

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

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

f) Operating cash flow (OCF) continued

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

g) Recourse net cash/borrowings

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

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

Net cash/borrowings reconciliation

h) Average net cash/borrowings

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

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

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

i) Directors' valuation of the Investments portfolio

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

i) Directors' valuation of the Investments portfolio continued

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

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

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

The difference between the statutory measure and the Directors' valuation (performance measure) of the Group's Investments portfolio is not equal to the gain on disposal that would result if the portfolio was fully disposed at the Directors' valuation. This is because the gain/loss on disposal would be affected by the recycling of items which were previously recognised directly within reserves, which are material and can alter the resulting gain/loss on disposal.

The statutory measure and the Directors' valuation are fundamentally different due to the different methodologies used to derive the valuation of these assets within the Investments portfolio.

As referred to in the Directors' valuation section, the Directors' valuation for most investments is calculated using discounted cash flows. In deriving these cash flows, assumptions have been made and different discount rates used which are updated at each valuation date.

Unlike the Directors' valuation, the assets measured under statutory measures using the appropriate IFRS accounting standards are valued using a combination of the following methods:

§ historical cost;

§  amortised cost; and

§  fair value for certain assets and liabilities within the PPP portfolio, for which some assumptions are set at inception and some are updated at each valuation date.

There is also an element of the Directors' valuation that is not represented by an asset in the Group's balance sheet. This relates to the management services contracts within the Investments business that are valued in the Directors' valuation based on the future income stream expected from these contracts.

j) Constant exchange rates (CER)

The Group operates across a variety of geographic locations and, in its statutory results, the results of its overseas entities are translated into the Group's presentational currency at average rates of exchange for the period. The Group's key exchange rates applied in deriving its statutory results are shown in Note 2.

To measure changes in the Group's performance compared with the previous period without the effects of foreign currency fluctuations, the Group provides growth rates on a CER basis. These measures remove the effects of currency movements by retranslating the prior period's figures at the current period's exchange rates, using average rates for revenue and closing rates for order book. A comparison of the Group's statutory growth rate to the CER growth rate is provided in the table below:

2023 statutory growth compared to performance growth

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

INDEPENDENT REVIEW REPORT TO BALFOUR BEATTY PLC 

Conclusion 

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

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

Basis for conclusion 

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

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

Conclusions relating to going concern

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

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

Directors' responsibilities 

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

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

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

Our responsibility 

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

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

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

Mike Barradell

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London E14 5GL

15 August 2023

Condensed Group Income Statement

For the half-year ended 30 June 2023

Condensed Group Statement of Comprehensive Income

For the half-year ended 30 June 2023