### ANNUAL REPORT AND ACCOUNTS 2022 ## Building ## New Futures ### Balfour Beatty plc Annual Report and Accounts 2022 ### ABOUT US ### Balfour Beatty is a leading international infrastructure group with 25,000 employees ### driving the delivery of powerful new solutions, shaping thinking, creating skylines ### and inspiring a new generation oftaf talent to be the change-makers of tomorrow. ### We finance, develop, build, maintain and operate the increasingly complex and ### critical infrastructure that supports national economies and deliver projects at ### thehthe heart oflof local communities. ## Innovation everywhere Across Balfour Beatty, we are harnessing the power of digital and cutting-edge technology to drive productivity, improve safety and develop sustainable solutions. Look out for this icon in the report to read about our best innovations which are helping to transform the infrastructure and construction industry. ## Infrastructure Infrastructure ## opportunities expertise ### Our chosen markets show strong ### underlying drivers and continue to deliver ### significant opportunities to the Group. ### Positive outlook for theUK ### A breadth ofin-house capability ## The infrastructure market outlook is positive and is p14 boosted by the Infrastructure and Projects Authority’s £650bn pipeline, providing the highest levels of investment in decades. ### Strong infrastructure stimulusinthe US Driven by the US$1.2 trillion Infrastructure Investment & ### Jobs Act, infrastructure growth in the US will experience Better, faster, greener through ### a significant boost in Balfour Beatty’s chosen states. modern methods of construction ## p30 ### Stable spend in Hong Kong The outlook is positive, supported by the Government’s plan to increase land supply, speed up railway development projects and rehabilitate the city’s ageing buildings. ### Towards a zerocarbon ### construction site ## p4 4 FRONT COVER: Jay Saddington, Survey & Product Communications Support and Kasia Renc, Graduate Digital Project Delivery Engineer, with Balfour | | FIND OUT MORE | | Beatty’s robotic dog ‘Spot’ which documents construction progress using | | --- | --- | --- | --- | | HK UK US | | | | | | READ OUR MARKET REVIEW | p16 | autonomous 3D data capture on site. | | 1.2 tn 1tn 650bn | | | | | $ £ $ | | | | ### FINANCIAL PERFORMANCE CONTENTS The Group has presented financial performance measures which are considered STRATEGIC REPORT most relevant to the Group and used to manage the Group’s performance. An explanation of these measures and appropriate reconciliations to statutory measures are provided onpages 73 and 79. Financial performance 1 Balfour Beatty at a glance 2 Group Chair’s introduction 4 UNDERLYING REVENUE¹ £m UNDERLYING PROFIT FROM Group Chief Executive’s review 8 ### OPERATIONS (PFO) £m Business model 12 Strategic report Capability showcase: A breadth of in-house capability 14 279 8,931 Market review 16 8,405 8,587 8,280 7,8 02 221 Our strategy: Build to Last 24 205 197 Stakeholder value 26 Modern methods of constructionshowcase: 51 Better, faster, greener 30 22 221918 191820 2021 21 Operational review Construction Services 32 UNDERLYING EARNINGS PER ORDER BOOK¹ Support Services 38 ### SHARE (BASIC) Pence £bn Infrastructure Investments 40 Directors’ valuation of the Investmentsportfolio 42 47.5 17.4 Sustainability showcase: 16.4 16.1 Towards a zero carbon 14.3 12.6 constructionsite 44 29.7 26.3 26.7 Health, safety and wellbeing 46 Ethics and compliance 52 3.7 Tax strategy 54 22 221918 191820 2021 21 Sustainability 55 Our people 64 NET CASH STATUTORY NET CASH/ My Contribution 70 ### £m (BORROWINGS) £m Non-financial information statement 72 Measuring our financial performance 73 Chief Financial Officer’s review 80 815 441 790 418 Risk management 84 Viability statement 97 581 512 Climate change and Task Force on Climate-related Financial Disclosures | | 337 | | | | | 139 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | (78) | (20) | | (TCFD) 98 | | | | | 22 221918 191820 2021 21 | | | | | GOVERNANCE | | | STATUTORY REVENUE | | | STATUTORY PROFIT | | | | | | | | | | | | | | Board leadership and Company purpose | 107 | | £m | | | FORTHEYEAR £m | | | | | | Division of responsibilities 122 Composition, succession 287 andevaluation 126 7,629 7,313 7,320 7,185 Nomination Committee 130 6,634 Safety and Sustainability Committee 134 Audit and Risk Committee 136 135 133 139 Remuneration Committee 142 30 Directors’ report 168 22 221918 191820 2021 21 FINANCIAL STATEMENTS STATUTORY EARNINGS PER DIVIDENDS PER SHARE Independent auditor’s report 171 ### SHARE (BASIC) Pence Pence Financial statements 179 Notes to the financial statements 187 46.9 10.5 9.0 OTHER INFORMATION 4.8 21.3 19.7 19.0 Unaudited Group five-year summary 253 4.4 2.1 Shareholder information 254 1.5 22 221918 191820 2021 21 KEY Performance measures Statutory measures 1 Including share of joint ventures and associates, before non-underlying items. Balfour Beatty plc Annual Report and Accounts 2022 1 ### BALFOUR BEATTY AT A GLANCE ### OUR PURPOSE ## Our cultural ## framework ## Building New Futures Our cultural framework provides a simple andclear We are leading the transformation of our industry to meet the challenges of the future. We harness the view of our purpose, values power of digital and cutting-edge innovation to redefine the possible and drive productivity. Trusted by and behaviours under our customers to deliver sustainable solutions and strengthen communities, we leave a legacy we are proud Buildto Last strategy. of. Always safe. Always reliable. Always improving lives. Theframework reflects who We support each other to deliver and succeed, placing equal value on all perspectives by embracing we are now as an international diversity and inclusion. Together we deliver powerful new solutions, collaborating with governments, our group, who we want to be, customers and partners to shape thinking, create skylines and inspire a new generation of talent to be the what we value and what change-makers of tomorrow. Balfour Beatty: Building New Futures. drivesthe way we work; always Lean, Expert, Trusted andSafe, and – if we are to ### OUR STRATEGY remain a market leader – always Sustainable. ## Build to Last Build to Last is our strategy for continuous improvement. It’sfundamental to how we’re building a market leading Balfour Beatty for the next 100 years. It’s our platform for sustainable growth, productivity, inclusive talent – all ensuring the best capability to deliver on our promises and our enduring ## commitmentto Zero Harm. p24 ### OUR VALUES Thenorms and beliefs that drive the way we work and how we measure ourselves. LEAN EXPERT TRUSTED SAFE SUSTAINABLE ## p24 ### SCAN FOR MORE OUR BEHAVIOURS INFORMATION ON OUR Reflect the things we will do to consistently deliver to the standard set out in our values. CULTURAL FRAMEWORK TALK COLLABORATE ENCOURAGE MAKE A VALUE POSITIVELY RELENTLESSLY CONSTANTLY DIFFERENCE EVERYONE ## Group highlights 1 ### UNDERLYING REVENUE NUMBER OF EMPLOYEES 1 ### GROUP ORDER BOOK ## £8,931m 25,000 ## £17.4bn ### UNDERLYING PROFIT DIRECTORS’ VALUATION ### BEFORE TAX INVESTMENTS PORTFOLIO ## £291m £1.3bn ##  l United Kingdom l United States l Hong Kong ## 1 Including share of joint ventures and associates. £8.5bn £6.0bn £2.9bn Balfour Beatty plc Annual Report and Accounts 20222 ## Our divisions CONSTRUCTION SUPPORT INFRASTRUCTURE ### SERVICES SERVICES INVESTMENTS Strategic report Hong Kong: A-grade office building UK: London Underground US: Automated People Mover, Los Angeles inCauseway Bay, Mandarin Oriental Piccadillylineupgrade. International Airport. HotelGroup. @ Our Construction Services @ Our Support Services @ Our Infrastructure Investments ## Expert capabilities businesses operate across businesses operate principally business develops and Balfour Beatty benefits infrastructure and buildings in the UK, designing, upgrading, finances both public and significantly from a broad set markets in the UK, the US and managing and maintaining private infrastructure projects ofcomplementary capabilities in joint venture in Hong Kong critical national infrastructure in the UK and the US across the Group. @ Their capabilities include @ Their capabilities include @ It operates and maintains civilengineering, building, electricity networks, rail infrastructure projects ground engineering, M&E, andhighways andaportfolio of military refurbishment, fit-out and andmulti-family housing, railengineering andstudent accommodation assets 1 1 ## Selective bidding ORDER BOOK ORDER BOOK DIRECTORS’ VALUATION ##  ## Our stringent gated lifecycle £15.0bn £2.4bn £1.3bn process allows us to carefully control our project portfolio onanongoingbasis. 1 1 1 ## Financial REVENUE REVENUE REVENUE ## performance ## £7,482m £989m £460m ### UNDERLYING PROFIT UNDERLYING PROFIT UNDERLYING ### FROMOPERATIONS FROMOPERATIONS PROFIT BEFORE TAX ## £149m £83m £105m ### STATUTORY PROFIT STATUTORY PROFIT STATUTORY PROFIT ### FROMOPERATIONS FROMOPERATIONS BEFORETAX ## £150m £83m £100m FIND OUT MORE READ THE OPERATIONALREVIEW ## p32 p38 p40 1 Including share of joint ventures and associates. Balfour Beatty plc Annual Report and Accounts 2022 3 ### GROUP CHAIR’S INTRODUCTION ## Continuing to ##  ##  Charles Allen, Lord Allen ## Dear Shareholder, ofKensington, CBE As I reflect on my first full year as Chair, and Non-executive Group Chair look ahead to the next, I am reminded of the words I wrote last year. I remarked then howimpressed I had been on entering the business, to witness the scale of Balfour Beatty’s capabilities – the complexity and critical nature of the inspiring projects it undertakes, the ingenuity of the Balfour Beatty workforce and the resilience and dedication they show as they live our values. 2022 has brought home to me the truth of those initial reflections as the Company continues to go from strength to strength. Having now visited over 100 projects across the business, I remain immensely proud of what Balfour Beatty achieves every day for all stakeholders. When I visit a site, I take time to talk with colleagues and listen to their views. What comes across really strongly is their pride in the projects they are working on, their loyalty to and, for many, their length of service with ## Balfour Beatty. Led by a strong ## During 2022, the Group regained momentum management team, as it moved further away from the significant ## Balfour Beatty impacts of COVID-19. Led by astrong management team, Balfour Beatty continues ## continues to deliver to deliver strong financial performance with ## an enhanced focus onpositioning for growth strong financial in critical national infrastructure. ## performance with The Board was delighted that Group Chief ## an enhanced focus Executive Leo Quinn was recognised at ## London Build’s inaugural awards ceremony on positioning for Outstanding Industry Leadership. ## Theaward is testament to his leadership forgrowth in ofthe industry as well as Balfour Beatty’s ## critical national transformation under the Build to Last ## strategy over the last seven years. infrastructure.” Balfour Beatty plc Annual Report and Accounts 20224 ## Board developments We continue to evolve the Board to ensure that it has the right balance of knowledge, experience and outside-in perspective. We welcomed Louise Hardy as a non-executive Director in April 2022. Louise brings with her over thirty years of business and leadership experience in the construction and infrastructure industry and is a strong addition to the Board. ## Prioritising health, safety and wellbeing Health, safety and wellbeing is paramount for Balfour Beatty. The Group's focus remains uncompromising, guided by a Zero Harm approach that has delivered a downward trend since 2014 in both our lost time injury and major injury rates. The Board's Safety and Sustainability Committee reviews the Health, Safety and Environment strategy, monitors progress and ensures accountability across the Group's operations. The Committee ensures that Balfour Beatty is never complacent and continues to work proactively to strengthen the Zero-Harm approach. While the number of health and safety incidents in 2022 remains low, we continue to work vigilantly to prevent all incidents. Balfour Beatty's 2022 performance is underpinned by a strong health and safety culture which has seen observations reach their highest rate ever of 4.0 per 1,000 hours worked, up from 2.99 in 2021, with total observations raised in 2022 reaching 380,000. A culture where our workforce is empowered to share observations means we are learning lessons, sharing best practice, gathering data, and improving the odds of preventing incidents or near misses in the future. Balfour Beatty's back-to-basics focus has seen it continue to upskill and support project and contract supervisors and has included the launch of initiatives such as the Supervisor Task and Finish Forum to enable continuous learning from and development of health and safety critical site supervisors. In 2022 Balfour Beatty launched *What3Things!*, a short, digestible summary of three key measures that must be in place to prevent each fatal risk – providing a quick and easy prompt for our teams to use (for more detail see page 49). Health continues to be given the same importance as safety, with Balfour Beatty leading the industry through the Health in Construction Leadership Group and promoting cross-industry collaboration on health issues. I am proud of the strong progress Balfour Beatty has made since 2017 in providing and promoting the help available for its employees and supply chain partners on critical issues INNOVATION IN ACTION ![img-0.jpeg](img-0.jpeg) ## Industry-leading innovations on the M25 In 2022, I visited Connect Plus Services' Scratchwood Depot to gain a better understanding of the contract and to learn about its industry-leading innovations. This team has developed the Optimetrics System to help manage road closures effectively on one of the busiest motorways in the UK, the M25. The system uses computer algorithms to create an optimised road space plan which enables the team to review and quickly de-plan activities to help minimise disruption for road users when factors such as the weather forecast change. It also saw a live demonstration of the innovative Automatic Cone Laying Machine, a new pioneering technology designed to reduce the risks associated with cone laying activities, improving safety for colleagues working on highways. Find out more about this industry-leading innovation on page 51. such as mental health. In 2022, Balfour Beatty implemented new initiatives such as *Make it Visible*, partnering with Ford to launch a new suicide prevention campaign, as well as continuing work with Mates in Mind, supporting their endeavours to create bespoke mental health support for apprentices across the industry. ## Continued focus on sustainability The Board gives close consideration to environmental, social and governance (ESG) factors when assessing the impact of the decisions it makes and supports. Balfour Beatty is committed to acting responsibly and to having a positive impact on the planet, the lives of its people and the communities in which it operates. Balfour Beatty's view is that this contributes to the long-term sustainability of the business and its ability to deliver for its stakeholders. Balfour Beatty's approach is guided by its sustainability strategy, Building New Futures, which includes a firm 2030 target of halving its 2020 carbon emissions, including Scope 3 emissions, and a 2040 ambition of Going Beyond Net Zero. Despite considerable progress in applying innovative technologies and accessing renewable energy sources, the Group has seen an increase in its carbon emissions in Scope 1 and 2 in 2022. There are a number of reasons for this increase; the impact of global supply chain issues, rising energy prices and the fallout from COVID-19, which have induced opportunities to drive low-carbon solutions as the Group has sought to keep coats down for customers and, an increase in workload involving tunnelling and earthworks, which are amongst the most carbon intensive elements of construction. Mates in Mind Balfour Beatty plc Annual Report and Accounts 2022 5 ### GROUP CHAIR’S INTRODUCTION CONTINUED ### Continued focus on sustainability framework, the intention is that the Code of The Board is committed to ensuring that Ethics empowers employees and supply chain Balfour Beatty has a supportive, diverse and ### continued partners to do the right thing; from prioritising inclusive culture and working environment With seven years remaining before the 2030 health, safety and wellbeing, to standing where all colleagues feel they belong, with target, Balfour Beatty’s intention is to accelerate against bribery and corruption, supporting diverse representation across all levels. This progress, ensuring that sustainability is built human rights, and fostering inclusion and is an area that I am deeply committed to and into every day operations, and that the respect. I was heartened to see in the 2022 so I am pleased to see progress being made. business is making the right corporate, social employee engagement survey that 96% of Key developments in 2022 included the and environmental choices. The steps the responders in the UK and US said that they launch of a new set of 2030 UK Diversity & business needs to take to achieve this have were familiar with the Code of Ethics, Inclusion targets to accelerate the pace of been identified and integrated into its following a multi-channel communication change; and strengthened family friendly business plans. campaign and learning programme. policies, available to all UK colleagues to Balfour Beatty’s sustainability strategy make sure they feel supported through commits the Group to take a holistic approach important life events. ### Building a skilled, diverse and and consider the long-term impacts of the ### inclusive workforce In the US, colleagues hosted their third decisions it makes. Rather than using Talent is a key focus for the Board. Balfour Together Allies conference dedicated to transitional options such as hydrotreated Beatty’s people are at the heart of everything improving Diversity, Equity and Inclusion vegetable oil (HVO), which run the risk of the Group does and achieves. Having the (DE&I). The virtual summit included a series creating a worse environmental issue than right people with the right skills, at the right of panel discussions and keynote speakers on they aim to solve, the Group is committed to time, is a priority. During 2022 we continued the positive impact that DE&I initiatives phasing out diesel and other fossil fuels by to monitor and track Balfour Beatty’s talent haveon operational improvement and using renewable and other low carbon development programmes, with a focus on advancement, helping to foster Balfour sources. I am proud that Balfour Beatty has ensuring that the Group has the right capabilities Beatty’s people-first culture. the courage to show leadership and make for the future and a strong, diverse succession decisions such as this. I was delighted to see that, in the 2022 pipeline across leadership positions. employee engagement survey, 86% of I am pleased to report that the social value In 2022, as further recognition of the Group’s people across the UK and US agreed that the the Group delivers to society continues to ongoing commitment to creating lifelong Company culture is inclusive to everyone, increase and that it made significant progress careers, Balfour Beatty’s Gold accredited regardless of difference, up from 83% in towards its ambition to Positively Impact membership of The 5% Club – an employer- 2021, showing that the business continues More than 1million People by 2040. This area led organisation committed to ‘earn and learn’ tomake progress in this important area. of Balfour Beatty’s work goes from strength opportunities for employees – was renewed. to strength as it boosts local economies At December 2022, 6.5% of our UK ### around its projects in all of its geographies. Delivering a multi-year capital workforcecomprised apprentices, ### allocation framework graduatesand sponsored students in ### A principles-led CodeofEthics Balfour Beatty is in the third year of delivering ‘earnandlearn’ positions. | The Board takes its role in overseeing Balfour | | a multi-year capital allocation framework and | | --- | --- | --- | | Beatty’s ethics and compliance very seriously. | 77% of employees responded to the annual | is increasingly confident of delivering significant | | To strengthen its approach, in 2022 Balfour | Group engagement survey (up from 65% in | future capital returns. This is evidenced by the | | Beatty evolved its rules-based Code of | 2021) and the Group engagement score was | announcement of an additional £150m share | | Conduct into a principles-led Code of Ethics: a | 80%, up from 76% in 2021. In such volatile | buyback programme for 2023. The Board is | | framework providing clear direction on the | times, it is important that the Group continues | also recommending a final dividend of 7.0 | | standards, values and expectations that guide | to maintain these levels of engagement, | pence per share, giving a total recommended | | the behaviours of all its employees and supply | ensuring a two-way conversation and | dividend of 10.5 pence per share for the year. | | chain partners in the UK and US. Rooted in | enabling employees to achieve their career | | The Board is pleased the Company was in the the values set out in Balfour Beatty’s cultural and development goals. top decile for FTSE 250 share price performance for 2022. ## Key developments ## in 2022 included ## the launch of a ## new set of 2030 ## UK Diversity & TO FIND OUT MORE ## Inclusion targets to ABOUT OUR NEW ## CODEOFETHICS, accelerate the SEEPAGE 52 ## pace of change.” Balfour Beatty plc Annual Report and Accounts 20226 ### Looking ahead ## Section 172 statement At the time of writing, we know there will continue to be many challenges ahead due The Directors take their responsibilities Strategic report tothe war in Ukraine. The Board continues to to stakeholders very seriously. ## The Group has clear | consider and monitor potential risks and | | Throughout 2022, the Board reviewed | | --- | --- | --- | | impacts. My thoughts continue tobe with all | strategic priorities | existing engagement mechanisms | | those impacted by this devastatingsituation. | | across each of the Group’s key stakeholder | ## forgrowth, an groups. The Board ensures all For businesses, trading conditions will ## ambitiousplan and complementary and divergent undoubtedly remain challenging throughout stakeholder views are understood and 2023, as the world continues to grapple with ## the resources, embedded into Board discussions and high energy costs and the related economic the decision-making process. In addition ## aftershocks and high levels of inflation. world-class capability to having regard to the interests of the Balfour Beatty has plans in place to mitigate ## andcredibility to Group’s stakeholders, Directors also the worst of the inflationary impacts on consider the impact of the Group’s ## thebusiness. pursue them.” activities on the communities within Balfour Beatty is well positioned with which it operates, the environment, and differentiated capability and leading positions the Group’s reputation for high in growth markets across the UK, US and standards of business conduct. Hong Kong – all markets where governments are The Directors seek to act in good faith in making significant investments in infrastructure. the way most likely to promote the The Group has clear strategic priorities for long-term success of the Company for growth, an ambitious plan and the resources, the benefit of its shareholders, and to world-class capability and credibility to act fairly between all of its stakeholders. pursue them. Through the Board and the Board | As the world continues to tackle climate | Committees, Directors have taken | | --- | --- | | change, delivering a global energy system | action to promote and support these | | that can generate affordable, secure, | objectives across the Group, details of | | low-carbon energy is key. In 2022, Balfour | which can be found throughout this | | Beattyhas taken decisive steps to align | Annual Report as set out here: | itselfto the energy transition and security @ the Company’s purpose, values and market, leveraging its significant capability behaviours on pages 2 and 24; and scale to capitalise on the exciting opportunities ahead. @ a description of key stakeholder groups and how the Group has engaged with Against a challenging backdrop, Balfour stakeholders on pages 26 to 29; Beatty delivered a strong set of results for | 2022. This could not have been achieved | @ the range of activities undertaken | | --- | --- | | without the efforts of its 25,000 people. | across the Group relating to | | Their hard work, ingenuity and integrity have | sustainability matters on pages 55 | | once again shone through. On behalf of the | to63; | Throughout 2022, Board, I want to thank them for everything ourexpert engineers @ details of how high standards of integrity they have done, and continue to do, for delivered complex are maintained on pages 52 and 53; Balfour Beatty. I also want to thank and projects and vital workat acknowledge our shareholders and other @ the proactive and pragmatic approach of the heart ofcommunities. | stakeholders for their continued support. | the Group toward risk on pages 84 to 96; | | --- | --- | | I very much look forward to reporting on our | @ the framework of the Company’s | | progress this time next year. | decision making on pages 122 to 125; and | @ details of the Company’s governance Charles Allen, Lord Allen processes and practice on pages 107 ofKensingtonCBE to129. SCAN TO WATCH SOME OF Non-executive Group Chair OUR HIGHLIGHTS 15 March 2023 Balfour Beatty plc Annual Report and Accounts 2022 7 GROUP CHIEF EXECUTIVE'S REVIEW # A diversified portfolio delivering on all fronts Group Chief Executive ![img-1.jpeg](img-1.jpeg) ## 2022 results significantly ahead of 2021 The Group's continued progress is highlighted by the increased profitability in 2022, with underlying profit from operations from the earnings-based businesses (Construction Services and Support Services) rising by 28% to £232 million (2021: £181 million); £208 million of cash was returned to shareholders during the year (2021: £179 million) through a combination of dividends and share buybacks, while average net cash increased to £804 million compared to £671 million in 2021. ## Diversified portfolio delivering in challenging economic conditions The strong results in 2022 are a testament to Balfour Beatty's transformation into a well-balanced and lower risk group. The diversified portfolio, both geographically in the UK, US and Hong Kong, and operationally across Construction Services, Support Services and Infrastructure Investments, plus the strength of its balance sheet and cash management, have provided the resilience for the Group to deliver results ahead of expectations through the global instability seen in 2022. The Group continues to focus on higher quality and lower risk opportunities which utilise its end-to-end capabilities and large-infrastructure project experience. At Construction Services, UK Construction delivered profit within the 2-3% UK industry standard margin target range, and US Construction and Gammon have both produced strong results once again. Support Services delivered ahead of the 6-8% margin target range set in 2021, and the investments portfolio valuation grew by 17% as the high levels of inflation and consequent increase in rental rates in the year benefited the valuation of most assets. The strong results in 2022 are a testament to Balfour Beatty's transformation into a well-balanced and lower risk group." ### Order book growth while ### maintaining lower risk profile 2022 PERFORMANCE The Group’s order book has grown by 8% in Strategic report the year to £17.4 billion (2021: £16.1 billion). ## In the UK, the proportion of the order book Exceeding Positioning Delivering for signed on lower risk target-cost or cost-plus ## expectations  shareholders contracts compared to higher risk fixed-price contracts has significantly increased over the @ Strong performance @ £17.4 billion lower @ 17% growth in past four years and now represents 90%. across all divisions risk order book dividend These lower risk contract structures utilised | in the UK are uncommon in the US, where | @ Increase in Directors’ | @ Unique capabilities | @ Third consecutive | | --- | --- | --- | --- | | the early issuing of subcontracts for buildings | valuation | aligned to critical | year of £150 million | | jobs and bonding of the supply chain protects | ofInvestments | national | share buyback | | the Group’s US margin. These approaches | portfolio, correlated | infrastructure | | | are not only prudent to protect against job | withinflation | | | specific issues, but also mitigate against escalating labour and material costs in high ## inflationary conditions, such as those faced Well-balanced lower risk Group positioned for future in2022. ## infrastructure growth There is a significant level of work which the Group has been awarded but is not yet contracted (ABNC) and therefore was not recorded in the year end order book. This includes the £1.2 billion Lower Thames Crossing project awarded in January 2023, ## Balfour Beatty’s unique capabilities and the the seven-year £297 million contract for highways maintenance in East Sussex and ## positive outlook in its chosen markets will the US$222 million Jacksonville International ## Airport terminal project in Florida. enable it to deliver ongoing profitable ## managed growth.” ### Increased Directors’ valuation ### independently reviewed The Directors’ valuation of the Infrastructure Investments portfolio has grown considerably in the year from £1.1 billion to £1.3 billion, resulting from an exchange rate benefit and astrong correlation with inflation, partially offset by the disposal of five assets as well as ongoing project distributions. The half-yearly review of the methodology and assumptions used in the Directors’ valuation resulted in the discount rates used for the UK portfolio and US military housing being reduced. In addition, changes were made to the forecast growth rate, overhead and tax methodology used for valuing US military housing. The methodology and assumption changes resulted in a net £28 million increase in the value of the portfolio. Following year end, a third-party valuation expert independently reviewed the portfolio and the Directors’ valuation is consistent with their conclusions. All disposals made in the year were sold at above the Directors’ valuation and contributed to a gain on disposals of £70 million. The Group continues to invest in new opportunities (targeting a minimum 2x end to end multiple) whilst optimising value through the disposal of further operational assets. ABOVE: Leo's site visit to SSEN Transmission's Port Ann to Crossaig overhead line project in Scotland. Balfour Beatty plc Annual Report and Accounts 2022 9 ### GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED INNOVATION FOR SUSTAINABILITY As part of this, Balfour Beatty always looks to pay its people fairly and at a competitive rate. 2022 was a particularly challenging time with the cost-of-living crisis and the Group has supported its people as appropriate. Additionally, improvements were made to the Group’s family policies with enhanced maternity and paternity leave and a new set of UK diversity and inclusion targets were launched. The Group’s commitment to train the next generation of employees continues to grow, with 6.5% of the UK workforce at year-end comprising apprentices, graduate and sponsored students in ‘earn and learn’ positions, exceeding The 5% Club target. ### Zero Harm culture makes ### furtherprogress Health and safety continues to be the top priority for Balfour Beatty, and a reduction to 0.03 (2021: 0.05) in the Group’s major injury rate across 94 million hours worked (excluding international joint ventures) represents a | Mandating sustainable solutions | | milestone on the Group’s journey towards | | --- | --- | --- | | Balfour Beatty has identified over 130 ways | carbon emissions on site by up to 30%. | Zero Harm. A back-to-basics focus in 2022 | | to reduce its energy consumption, including | EcoNetand EcoSense are two of five | has helped reduce the Group lost time injury | | use of the EcoNet tool which manages the | solutions mandated across our UK | rate to 0.15. The logging of health and safety | | power of site compounds by controlling | businessto drive down emissions and | observations is a key part of deepening the | | andreducing the energy outputfrom | builda more sustainable future. When | health and safety culture within the Group’s | | keyappliances. | combined, EcoNet and EcoSense will | workforce and helps to keep safety front of | | | deliver an additional 4,000 to 5,000 tonnes | mind, so it is particularly encouraging that the | In addition, Balfour Beatty has deployed of CO savings annually. total number of observations made rose 2 over 600 EcoSense cabins which boast a significantly to 380,000 (2021: 297,000). range of sustainable applications and components including occupier-activated One of the most impactful health and safety extractor fan sensors and lower kilowatt SCAN TO WATCH initiatives in the year was the What3Things? OUR VIDEO heaters with built-in, self-regulating digital campaign, which is a practical and accessible thermostats. These cabins will reduce quick reference tool for colleagues to use on sites. What3Things? is focused on the fatal risks and what can be done to help eliminate them. The Group’s focus on leveraging digital energy infrastructure spanning renewable solutions is reducing health and safety risks ### Exciting opportunities in chosen electricity generation and storage, electric while improving productivity. During 2022, a ### infrastructure markets vehicle charging, smart grids and carbon digital permit solution was rolled out to sites Governments in the Group’s three chosen capture to hydrogen and nuclear. With its across the UK aimed at improving compliance, markets have all committed to driving strong expertise, Balfour Beatty has already consistency and transparency of the post-pandemic economic recovery by started exploring these opportunities. thousands of permits submitted each year. boosting spend on infrastructure and This web-based system has not only sustainability. In the 2022 Autumn Statement, enhanced efficiency, but has also reduced ### the UK Government reaffirmed its commitment Engagement of expert workforce unnecessary pedestrian movement around ### to the £650 billion National Infrastructure continues to improve sites, making them a safer place to work. Strategy (NIS) set out in 2020, but recognised Attracting and retaining an expert workforce in March 2023 that the impact of inflation and remains vital to Balfour Beatty. The results of ### supply chain disruption will result in some Focus on sustainability intensified the annual employee engagement survey transport schemes, including the Road Balfour Beatty’s sustainability strategy, improved for the fifth consecutive year, to Investment Strategy and HS2, taking longer Building New Futures, was launched in 2020 the highest level recorded since the survey than expected. to improve the Group’s approach to environment , started in 2015. The overall Group engagement materials and communities by setting firm score increased from 76% in 2021 to 80%, This expansion of state-backed infrastructure 2030 targets and longer-term ambitions placing Balfour Beatty 6bps above the provides a positive landscape for the Group. for2040. The 2030 targets set were the industry average and 13bps above companies Given its proven track record of delivering achievement of a science-based carbon of a similar size. Employee satisfaction world-class projects, Balfour Beatty is reduction target, a 40% reduction in waste remains of utmost importance and is one of particularly well-placed to benefit from the generated and the delivery of £3 billion in the primary factors which the Group can growing focus on infrastructure which can social value. It also outlines the Group’s 2040 influence to maintain its capability. enhance GDP, deliver energy security and ambitions to go Beyond Net Zero Carbon, mitigate climate change. These requirements toGenerate Zero Waste and to Positively dictate a significant transition in national Impact More than 1 Million People. Balfour Beatty plc Annual Report and Accounts 202210 ### Intheyear, the UK business delivered Continued delivery of attractive £816million of social value and 96% of the ### shareholder returns Group’s waste was diverted from landfill. Since the introduction of the capital allocation Strategic report The Group’s drive to reduce carbon emissions framework in 2021, Balfour Beatty has delivered ## Balfour Beatty has continues to deepen, with signs of progress attractive total cash returns to shareholders ## delivered attractive evident in all business units. These range while maintaining an appropriate balance from project-wide approaches, such as the between investment in the business, and a ## total cash returns to | | use of modular construction at a 2,000 bed | strong capital position. Given the favourable | | --- | --- | --- | | shareholders while | student hostel project in Hong Kong, to | outlook, Balfour Beatty is confident of delivering | | | innovations such as at the A63 road | significant future shareholder returns. As such, | ## maintaining an improvement scheme in Hull, where the the Board is today recommending a final diesel generator powering the offices has dividend of 7.0 pence per share (2021: ## appropriate balance | | been replaced by a hydrogen fuel cell generator. | 6.0pence), giving a total recommended | | --- | --- | --- | | between investment | Despite the significant and focused efforts of | dividend for the year of 10.5 pence per share | | | the Group, carbon emissions have increased | (2021: 9.0 pence). Additionally, the Company | ## in the business, | | in 2022, as the Group’s mix of work in the | intends to repurchase £150 million of shares | | --- | --- | --- | | andastrong | year included more tunnelling and earthworks | during the 2023 phase of its multi-year share | | | than in 2021, with these activities being | buyback programme. | ## capitalposition.” particularly carbon intensive. Additionally, The share buyback programme and theimpact of global supply chain issues and recommended final dividend announced rising energy prices reduced opportunities today will bring the cumulative return to todrive low carbon solutions as some shareholders since the introduction in 2021 customers have looked to implement cost of the multi-year capital allocation framework efficiencies. This has highlighted that more to over £570 million. progress is required to ensure sustainability is built into everyday operations and the right ### Outlook choices are being made to achieve the The Board expects 2023 PFO from its targets set out. earnings-based businesses to be broadly in line with 2022. This includes incremental PFO improvement in UK Construction and USConstruction, consistent performance inGammon, and Support Services PFO towards the top of its targeted 6-8% margin range. Infrastructure Investments will continue to deliver attractive end-to-end BELOW: | Leo’s site visit to HS2’s | returns from its recurring income, by divesting | | --- | --- | | Old Oak Common station | assets and making new investments in line | | project in London. | with the Group capital allocation framework. | For 2023, gains on disposal are expected in the range of £15-£30 million. The Board expects a small increase in net finance income for 2023 and for the effective tax rates in each of the three geographies to be close to statutory rates, albeit with cash tax payments in the UK remaining below statutory levels in the medium term as losses are utilised. The Group’s average cash is expected to reduce in 2023, due to a working capital unwind forecast in the range of £75-£125 million for the year. The longer-term outlook for the Group is also positive. The further growth and de-risking of the order book delivered in 2022, 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 ongoing shareholder returns. Leo Quinn Group Chief Executive 15 March 2023 Balfour Beatty plc Annual Report and Accounts 2022 11 ### BUSINESS MODEL ## Delivering ## sustainable growth ### The Group is well positioned to ensure high-quality outcomes for all its stakeholders ### by operating in attractive markets, leveraging synergies between its business units ### and continuing to focus on world-class delivery. ## How our Group works together Multi-disciplinary collaboration is core to Balfour Beatty’s identity; our Construction Services, Support Services and Infrastructure Investments teams work closely together to ensure high-quality outcomes for our stakeholders. The Group’s business model has not changed asa result of COVID-19 or the UK leaving the European Union. Profitable work for construction business Cross-selling across customer base ### SUPPORT ### INFRASTRUCTURE CONSTRUCTION ### SERVICES (SS) ### INVESTMENTS (II) SERVICES (CS) We maintain, upgrade and A proven track record We manage strong manage vital services across ofdeveloping and construction businesses the power transmission, financingprojects. in the UK, US and distribution, utilities, road Hong Kong. andrail sectors. Delivery skills support investment opportunities Knowledge transfer EXAMPLES OF THE GROUP WORKING COLLABORATIVELY CAN BE FOUND ON ## p14 Balfour Beatty plc Annual Report and Accounts 202212 ##  Strategic report The iconic cultural landmark, M+ Museum, Hong Kong. Our experts working on the Midland Metropolitan Hospital, UK. | Build to Last values | World-class track record | Expert people | | --- | --- | --- | | Balfour Beatty has built an industry-leading | With over 110 years of experience | Our engineering and project management | | brand on its reputation as a partner that is | successfully delivering transformational | expertise allows us to deliver complex, | | Lean, Expert, Trusted, Safe and Sustainable | infrastructure projects, Balfour Beatty has | one-of-a-kind projects and has made Balfour | | – our five Build to Last values. | cultivated a strong track record of quality | Beatty a trusted construction partner for | | | andreliability. | public and private sector alike. | Investing in the future generation through the Operator Our teams use drone technology to safely undertake The UK’s first hydroponic ‘living wall’ improving air quality Skills Hub, UK. surveys and inspections. in Southampton. ### Financial stability Innovation Sustainable focus Balfour Beatty’s strong balance sheet is a Innovation is part of the Balfour Beatty Balfour Beatty takes its responsibility as a testament to strong governance. It gives culture, harnessing the power of digital and custodian of the planet seriously and seeks customers confidence in the Company’s cutting-edge technology to drive productivity to leave a positive legacy in the communities ability to deliver, and that Balfour Beatty is and redefine the possible. it works in. here for the long term. ## Reducing risk in 4% 10% 16% ##  As part of its Build to Last strategy, Balfour HY2018 FY 2022 Beatty has strengthened its governance, focusing on reducing risk in its order book by ## £2.7bn £6.1bn selectively bidding for work it is best placed to UK Construction order book UK Construction order book deliver on terms that are attractive to the Group. This reduction has been most noticeable in the 50% 46% UK Construction business, where the proportion of fixed-price work has fallen to 10% at the end 74% ##   of 2022. While inflation risk is mitigated through target-cost and cost-plus contracts, forremaining fixed-price contracts, the HY 2018 FY 2022 replication of contractual terms through our 4% l Cost plus 16% supply chain mitigates the risk of rising labour and material prices. 46% l Target cost 74% 50% l Fixed price 10% Balfour Beatty plc Annual Report and Accounts 2022 13 ## Projects that are utilising a breadth of capability across the project lifecycle ### SSCS II SSCS Littlebrook substation, Kent, UK M25, UK As part of National Grid’s transformation programme, Balfour In 2009, Balfour Beatty, with its joint venture partners, Beatty is replacing the high-voltage Littlebrook substation to was awarded the design, build, finance and operate ensure power supply in the Southeast for years to come. This contract for the M25, and has subsequently upgraded, project combines multiple aspects of the Group’s capabilities, widened and enhanced sections of the London orbital including ground engineering, construction, steel fabrication, motorway. The Group continues to operate and maintain M&E, cabling and overhead line connections. the M25 through its stake in Connect Plus Services. Balfour Beatty plc Annual Report and Accounts 202214 ## A breadth of Strategic report ## in–house capability ### Utilising capabilities from across the Group, our one-stop solution improves ecienciesand delivers ### certainty for our customers. Balfour Beatty invests in a wide range of in-house solutions, capability, equipment and innovation, and in developing our own homegrown, expert skilled workforce, with 6.5% of the UK workforce on formal ‘earn and learn’ schemes. The Company operates across the project lifecycle – from owner support with front-end engineering design and programme management, through to construction and commissioning. Alongside a track record of delivering complex multi-disciplinary infrastructure projects in the UK and around the world, is an in-house capability across a wide range of specialist disciplines providing customers with a one-stop solution. This approach offers customers reduced risk in areas including quality and delivery; increased programme certainty; greater cost predictability; and higher productivity, particularly on the most complex or time-pressured schemes. ### End-to-end capability Power Commercial Design and Ground Civil and rail Mechanical transmission and technical planning engineering engineering and electrical and distribution MAIN IMAGE: Littlebrook substation, Kent, UK. ### Operating divisions II Infrastructure Investments CS Construction Services SS Support Services ### SSCS II CS Hinkley Point C, Somerset, UK Los Angeles International Airport (LAX)AutomatedPeople Mover, US Delivering the UK’s first nuclear power station in a generation has drawn on a breadth of capabilities from Balfour Beatty and its joint venture partners in LAX Integrated across the UK business. Construction Services is carrying Express Solutions (LINXS) are responsible for the design, build, out the tunnelling and maritime works package, plus the finance, operation and maintenance of the LAX Automated mechanical and electrical works through the MEH Alliance. People Mover project. To construct this 2.25-mile above-ground Support Services is delivering the 48km, 400kV overhead airport transport system connecting passengers with the line connection project on behalf of National Grid. airline terminals, LINXS is utilising expert capabilities from its US construction businesses with the financial expertise of Balfour Beatty Investments. Photo credit: Los Angeles International Airport Balfour Beatty plc Annual Report and Accounts 2022 15 ### MARKET REVIEW ## Well positioned in ## our chosen markets ### Balfour Beatty operates in a number of chosen markets, based on level of ### opportunity and the competitive advantage of its multi-disciplinary capabilities. ## Macro trends Despite challenging market conditions, Balfour Beatty’s chosen markets show strong underlying drivers and continue to deliver significant opportunities to the Group. The principal markets in which Balfour Beatty operates, the UK, the US and Hong Kong, are showing strong signs of enhanced growth on the back of government infrastructure stimulus. Balfour Beatty manages inflationary risks through target-cost and cost-plus contracts and by ensuring contractual terms are replicated through its supply chain in the case of fixed-price contracts. ### FORECAST INCREASE IN THE UK, THE US AND ASIA INFRASTRUCTURE SPEND ON CURRENT TRENDS 2020-2040 (US$ nominal) United Kingdom United States Asia | +30.5% | | | +26.2% | | | +43.8% | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | US$77bn | | | US$390bn | | | US$2.3tn | | | | | 2040 | | | 2040 | | | 2040 | ### US$59bn ### US$309bn US$1.6tn 2020 2020 2020 Source: Global Infrastructure Hub. | UK public sector spend | Strong infrastructure | Stable spend in Hong Kong | | --- | --- | --- | | In both the short and long term, the | stimulusinthe US | In the public and private sectors, the | | infrastructure market outlook is positive, | As a result of the US$1.2tn Infrastructure | construction outlook in Hong Kong is | | driven by the Infrastructure and Projects | Investment & Jobs Act and US$370bn | positive in the short and medium term, | | Authority’s plan to invest £650bn in the 10 | Inflation Reduction Act, the buildings | supported by the government’s plan to | | years to 2031. The level of investment is | marketin the US is expected to continue | increase land supply, speed up railway | | further enhanced by the government’s Net | to grow in the short and medium term. | development projects and rehabilitate | | Zero Strategy, bringing major infrastructure | The Acts are driving infrastructure | ageing buildings. | | projects to market. Public buildings market | growthby delivering projects in a wide | | | growth is mainly supported by a combined | range of sectors. | | investment of approximately £6bn in the healthcare and education sectors. Balfour Beatty plc Annual Report and Accounts 202216 investments in modern clean energy bring highways and rail projects that will ## Strong market drivers solutions and decarbonisation. Balfour support strong short-term growth prospects. Beatty’s focus on being a sustainable As a trusted partner to public sector clients, Through Build to Last, Balfour Beatty has contractor, as set out in its sustainability the Group benefits from not only increasing Strategic report focused its operations on markets with strategy, Building New Futures, makes the spend, but also long-term certainty around strong fundamental drivers, underpinned by Group a suitable partner to deliver this green that spend. macro demographic and economic trends. infrastructure work. The need for greater collaboration to | Increasing emphasis on decarbonisation | Resilient infrastructure prospects driven | successfully deliver complex | | --- | --- | --- | | and sustainability – The COP26 and COP27 | by major projects and frameworks within | infrastructure programmes – As client | | conferences played a key role in accelerating | regulated sectors – Governments are | organisations mature, Balfour Beatty is | | many policies that countries already had in | increasingly turning to fiscal stimulus through | increasingly able to work collaboratively to | | place. In the UK, the government’s new | infrastructure investment to drive economic | develop mutually beneficial models of | | NetZero Strategy has set out the path to | growth. In the UK, infrastructure spend | working, sharing risk and upside appropriately. | | halving carbon emissions in the next decade | continues to reach high levels and is | This is exemplified by the UK Government’s | | and reaching net zero carbon emissions by | expected to maintain that trajectory in the | Construction Playbook which allows the | | 2050. This is driving an ever-increasing | short term as a result of the government’s | Group to assist government, as a customer, | | demand for efficient, decarbonised | £600billion National Infrastructure Strategy | to create better outcomes – for example by | | infrastructure solutions able to meet the | (of which £200billion is planned to be | focusing on an appropriate allocation of risk | | country’s current and future needs. The | delivered by 2024/25). While in the US, the | between contractor and customer, focusing | | same sentiment is echoed in the US, with | infrastructure market is expected to recover | on the whole life cost of infrastructure, and | | the President having re-joined the Paris | to pre-pandemic levels in 2023, supported by | increasing the social value impact of projects. | | Agreement, establishing the same two targets | the US$1.2 trillion Infrastructure and | In the US, the fiscal stimulus packages | | as the UK and committing to make historic | Investment Jobs Act. The Act is expected to | introduced encourage a greater number of | public and private relationships by increasing the opportunities for joint investment into ### MANAGING INFLATION RISK infrastructure projects. Demographic changes will necessitate Balfour Beatty faces inflationary pressures Whilst general inflationary pressure in sustained infrastructure investment – A in each of its core geographic markets: Balfour Beatty’s core markets is expected growing and increasingly urbanised global to reduce over the next two years, the @ UK - Inflation is being driven by rising population will require investment in new actual pressure on the business is more energy costs combined with labour and infrastructure including utilities supporting complex and determined by price trends for material shortages, but is expected to energy generation and supply, water and specific input costs. | ease in the second half of 2023, with the | | wastewater, data and communications and | | --- | --- | --- | | Bank of England forecasting a | Balfour Beatty manages inflationary risks | transportation to construct the modern living | | stabilisation of energy and imported | through target-cost and cost-plus contracts | conditions required to meet this growth. In | | goods prices and a lowered demand for | and by ensuring contractual terms are | the US, domestic migration out of big metro | | goods and services. | replicated through its supply chain in the | areas and continued international migration to | | | case of fixed-price contracts. | the Group’s chosen regions necessitate | @ US - Inflation shows signs of slowing increased investment in new and upgraded amid Federal Reserve tightening and a The Group is selective in its bids to ensure infrastructure, particularly within healthcare modest slowdown of the labour market it is best placed to deliver the projects it and transportation segments. | after significant job and wage growth | takes on and that the terms of the contracts | | | --- | --- | --- | | throughout 2022. | are suitable. Over the years, this approach | Growing recognition of the need for | | | has lowered the risk in Balfour Beatty’s | infrastructure investment to deliver the | @ Hong Kong - Experienced moderate order book and the Group will continue to low-cost energy transition and provide price inflation in overall terms throughout monitor and manage inflation risk in a energy security – The persistence of high, 2022, mitigated by the government similar fashion. rising, and volatile energy costs and commodity introducing several relief measures to prices will be dependent on how the geopolitical support both businesses and individuals. dynamics in Europe continue to play out, which is clearly uncertain. We expect that markets ### CONSUMER PRICE INDEX (CPI) INFLATION RATES 2019 – 2027 will price continuing uncertainty into expectations. Given the increase in both 12% energy costs and commodity prices in 2022, Balfour Beatty does not anticipate further 10% significant increases unless there are further 8% external shocks. Beyond the cost effects, rising gas and electricity prices have highlighted the 6% need for increased investment in the network infrastructure to support the transition to 4% decarbonised power systems and the 2% establishment of greater energy security. Balfour Beatty’s energy and power capabilities 0% mean the UK business is wellpositioned | -2% | | | tocapture the opportunitiesin this | | --- | --- | --- | --- | | | 2019 2020 2021 2022 2023 2024 2025 2026 2027 | | growthsegment. | | Source: IMF. | | UK US HK | | Balfour Beatty plc Annual Report and Accounts 2022 17 ### MARKET REVIEW CONTINUED ##  ### Strong underlying growth ### NATIONAL HIGHWAYS’ ROAD INVESTMENT STRATEGY The current multi billion pound spend under the UK Government’s Road Investment Strategy, including £8 billion over the next two years, continues to be a strong driver for the sector. Through its positions on the Regional Delivery Programme (RDP) Balfour Beatty is well positioned to deliver projects on both existing and futureschemes. Following a Department for Transport announcement in March 2023, the majority of RIS2 (schemes are continuing within their existing defined timescales between 2020-2025. All schemes earmarked for RIS3 (2025-30) are continuing to be developed and considered for inclusion within RIS4, which will run from 2030-2035. | Regional Delivery | | | Smart Motorway | | | Complex Infrastructure | | M25 Connect | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Partnership | | | Programme | | | Programme | | PlusServices | | | M25 J10 | A19 N -W | | | | | Lower Thames Crossing | | | | | | | M3 J9 -14 | DHS M4/M5 | | | Manage and Operate | roadsNorth A19 NTC A63 Manchester North DHS M1 ERA A57 A66 WestQuadrant ### INVESTMENT IN THE RAIL NETWORK Investment in Britain’s rail network is supported by the Integrated Rail Plan, with a £96billion package of rail construction and upgrades for the Midlands and the North, including the electrifying and upgrading of the Midlands Main Line and the Transpennine Main Line, aswell as upgrading the East Coast main line. Further support comes from the pledged £500million for the Restoring Your Railway programme, which includes building and reopening lines and stations closed during the Beeching cuts, supporting the development or delivery of over 45 schemes across England and Wales. As an agile operator offering a range of rail capabilities, Balfour Beatty iswell placed to deliver both maintenance and core construction work within these schemes. Central Rail Systems Alliance Transport for Wales Northumberland Line Core Valley Lines Track Crewe Hub Global Centre of Rail Excellence (GCRE) Euston Rail Systems Domestic Renewals Midlands Main Line Electrification Transport for London Midlands Rail Hub ## £10.1bn P.A. HV PLU Batch A CP7 Eastern ITT BP05 CP7 North-West & Central Plant Piccadilly Line Depots CP7 + TfL + TfW (2024-2029) Stone blower Service Track Procurement Tampers Multi-purpose Vehicles ### UK TRANSMISSION MARKET Strong power pipeline The power transmission and distribution industry is experiencing a wave of new demand driven by the environmental agenda. Programmes such as the SSE Network Options Assessment and the National Grid New Infrastructure Delivery Onshore Programme and the overhead line, underground cable and substation projects within the RIIO-T2 and ED2, are expected to drive growth over the next 10 years and could be further enhanced by transmission and distribution connections from new build green generation. Balfour Beatty is a trusted and safe contractor and is well placed to deliver these works and the associated infrastructure to enable the networks to support this influx of new, green power generation. National Grid Electricity Scottish and Hydro Transmission Electricity Transmission National Grid Viking LinkPeterhead GIS SubstationHinkley OHL East Coast OHLLondon Power Tunnels 2 Other Underground CablesSchemes ## £5.7bn Littlebrook Substation Other Substation Schemes P.A. ## £2bn P.A. Other Overhead Line Schemes Other Overhead Line Schemes Other Underground Other Underground CablesSchemes CablesSchemes RIIO-T2 (2021-26) RIIO-T1 (2013-20) NOA & NIODP (2023-30) Other Substation Schemes l Construction o Construction l Support Services o Support Services Services – Services – – Secured work – Future opportunity Secured work Future opportunity Balfour Beatty plc Annual Report and Accounts 202218 Exciting local roads market The local highways maintenance market has Artist’s impression of a Holtec SMR-160 nuclear power plant. seen significant growth, driven by an additional £2.5bn in pothole repair funding, providing £500m a year to local authorities between 2020 and 2025. Further, Balfour Beatty continues to see additional capital funding to transform cities and town centres Strategic report to improve the public realm, encourage active transport such as walking and cycling and meet Local Authorities’ objectives to reach Carbon Net Zero. There are several contracts coming to market between 2023 and 2026, and with long-term security from its ongoing contracts, Balfour Beatty is well positioned to capitalise, win new work, and achieve sustainable growth. Investment in public buildings Public buildings market growth is supported by the £3.7bn New Hospital Programme which aims to build 40 new hospitals by 2030 and the School Rebuilding Programme, which targets to build and refurbish 500 primary, secondary and further education establishments over the next decade, including the £2bn Learning Estate Investment Programme inScotland. HDEC on the civil construction and ## Balfour Beatty joins with installation of the Mechanical, Electrical and ## Smarter procurement Holtec to fuel the UK’s Heating, Ventilation and Cooling systems as The UK Government’s Construction Playbook well as the equipment required for Holtec ## nuclear energy drive continues to be rolled out, with the principles International’s innovative SMR-160 reactors. of creating social value from, and ensuring Balfour Beatty has signed a memorandum of understanding with Holtec Britain, a Holtec International is planning tostart the UK value for money for, public sector projects subsidiary of Holtec International – a regulatory acceptance process for SMR-160 increasingly being adopted. This new focus supplier of equipment and systems to the reactors in 2023, which, when granted, will matches well with Balfour Beatty’s Build to global energy industry – and Hyundai enable the startof the construction of the Last values and given its strong track record, Engineering and Construction (HDEC), to firstUK unit in as early as 2028. Balfour Beatty is well positioned to continue to support these goals. This is strengthened support the planning advancement for the Once approved, the SMR-160 power plant further by Balfour Beatty’s sustainability construction of Holtec’s SMR-160 units are poised to play a key role in the strategy, Building New Futures, which focuses pressurised light-water reactors in the UK. delivery of the UK Government’s Energy on three specific areas: Environment, Balfour Beatty will act as the main UK Security Strategy, targeting 5GW of clean Materials and Communities. construction partner and collaborate with electricity to the National Grid by 2050. Growth of public sector frameworks Innovative frameworks in the UK such as the Transformational green and the main civil works for Area North and Crown Commercial Services (CCS), the NHS infrastructureagenda through the Group’s work on the Road Shared Business Services (SBS) and the SCAPE To meet its target of net zero carbon emissions Investment Strategy. Civil Engineering frameworks continue to by 2050, the UK Government has prioritised the evolve and redefine how construction is New nuclear decarbonisation of the transport and energy procured nationwide. Balfour Beatty is The UK Government is investing £525m to sectors with a generational investment in participating as a major contractor on these bring forward the next generation of new infrastructure through the £600bn National frameworks and it has recently officially nuclear power stations, while also confirming Infrastructure Strategy to make this a reality. This signed as the sole contractor to both the new £679m of funding for a 20% stake towards is further underpinned by £26bn of government SCAPE Scotland and SCAPE England, Wales the building of the Sizewell C nuclear plant. capital investment under the government’s Net and Northern Ireland Civil Engineering Balfour Beatty is currently playing a critical Zero Strategy designated for the environmental frameworks. Both SCAPE schemes will role in constructing Hinkley Point C and is well agenda. Balfour Beatty’s Building New Futures deliver a wide variety of projects to the market placed for the proposed Sizewell C nuclear sustainability strategy supports this agenda, with with a combined value of up to £4bn over the plant. The government’s Nuclear Energy Beyond Net Zero Carbon, Generate Zero Waste coming years. (Financing) Act enabled the Regulated Asset and Positively Impact More than 1million People Base model for new nuclear projects, which as ambitions for 2040. Long-term strategic alliances encourages a wider range of private Public bodies charged with operating and Transportation investments. Furthermore, Balfour Beatty has maintaining infrastructure assets are increasingly In March 2023, the UK Government signed a memorandum of understanding with embracing longer-term alliances which reaffirmed its commitment to over £40bn of Holtec Britain, a supplier of equipment and encourage industry collaboration to drive capital investment in transport across the next systems to the global energy industry, and higher efficiency and service standards. two financial years, which will drive significant Hyundai Engineering and Construction (HDEC) Network Rail’s Track Alliances bring together improvements to rail and road across the to support the planning advancement for the leading industry players, including Balfour country. Balfour Beatty is already playing a construction of Holtec’s SMR-160 pressurised Beatty, to deliver collaboratively and quickly a pivotal part in this transformation through its light-water reactors in the UK. combined £1.5bn of work over a 10-year period. HS2 work on both Old Oak Common station Balfour Beatty plc Annual Report and Accounts 2022 19 ### MARKET REVIEW CONTINUED prices and interest rates. As the market settles ## US: Construction Services down, demand rises in lower density and lower cost markets combined with continuing migration to Balfour Beatty’s chosen states ## Growth is expected across Strong growth is and core metropolitan areas such as Seattle ### allourmarkets and Washington D.C. are expected. ## expected in the Transportation ## Offices transportation sector, Strong growth is expected in the transportation While businesses are currently grappling with sector, with US$639bn of the US$1.2 trillion ## with US$639bn continued inflationary pressures, office space Infrastructure Investment and Jobs Act demand is expected to recover slowly. Existing ## designated to road and rail. Compared to the designated to road traditional office space overcapacity means FAST Act that was in effect from 2016 to ## that demand will favour newer, more desirable and rail.” 2020 and had a total amount of authorised offices, coupled with the repurposing of older funding of US$305bn, this is a 108% increase. spaces. There are opportunities within the Health offices market, as headquarters relocations The COVID-19 pandemic has exposed the are expected to accelerate. need for urgent investment in the health Hospitality and leisure sector and, along with an ageing population The hospitality and leisure sectors are demographic, is expected to drive continued bouncing back after being substantially growth in healthcare both in new construction impacted by the COVID-19 pandemic and are and replacement facility demand. expected to see strong recovery in the Education medium term. School building construction spend is Federal expected to see steady growth; significant As various government agencies are readying deferred maintenance will drive increased for replacement facilities and rehabilitation or K-12 construction, whilst investment in higher repurpose projects, large government education will be challenged by declining spending programmes for shovel-ready enrolment in the short term. projects that are within Balfour Beatty’s Multifamily housing expertise are being released. This is While the multifamily housing market still expected to increase over the next three experiences strong occupancies and has years in all of the Group’s core markets, potential future growth, a slowdown over the especially in the Mid-Atlantic. short term is expected because of increased LEF T: The Southern Gateway reconstruction and improvement project for the Texas Department of Transportation, US. Balfour Beatty plc Annual Report and Accounts 202220 ### Growth in Balfour Beatty’s chosen states outpaces the overall US market Balfour Beatty’s US operations are focused primarily on specific, high-growth regions known internally as ‘The Southern Smile’. This starts in the Pacific Northwest, runs through California, Texas, Florida and up through Georgia and the Carolinas to Washington D.C. These areas are population Strategic report hubs with growth and migration projected to continue driving increased investment, particularly in transportation and social infrastructure. ### OUR CHOSEN STATES Selected states are poised for growth Our sectors are receiving support through the US$1.2 trillion InfrastructureInvestment and Jobs Act. ## Favourable demographic ## changes and large The Transport sector is receiving US$639billion, of which a third is ## forroads,bridges, and major infrastructural projects. government spending ## programmes will continue The Education sector is receiving US$170billion through the 2021 ## todrive growth in our AmericanRescue Plan Act, a portion of which will be used for school ## repairsandimprovements. chosenstates.” ### MARKET SIZE Nationwide Our chosen states ### +5.9% P.A. ### -0.6% P.A. ## US$414bn ## US$1,761bn US$1,717bn US$329bn 2022 2026 2022 2026 Source: FMI and Dodge Market Forecast. Balfour Beatty plc Annual Report and Accounts 2022 21 ### MARKET REVIEW CONTINUED ## Gammon HONG KONG Key trends ### Stable core market Strong growth in the public sector is expected in Hong Kong. The current pipeline of infrastructure projects is mainly driven by investments into major expansions of Hong Kong Airport and the MTR subway system. The Government’s announcement to materially increase investment in the medium term further supports this growth. Private sector construction demand is expected to gradually pick up after lifting of the COVID-19 travel restriction between Mainland China and Hong Kong. Gammon, with a diverse set of capabilities across both the building and | civils sectors, is well placed to benefit from | Hospital development | Long-term aviation | HK$1 trillion | Rail and residential | | --- | --- | --- | --- | --- | | the increased level of investment. | plans | investment | infrastructure | land sale programme | | | Over HK$500bn | The HK$141.5bnThree | investment | Currently, 13 residential | | | earmarked to expand, | Runway System | Over the next decade, | sites have been | | | redevelop and construct | (3RS)development at | Hong Kong plans to | designated for sale in | | | new hospitals to serve | Hong Kong Airport | invest over HK$1tn | 2022-23. Together with | | | 500,000 more patients | marks the beginning of | indeveloping | housing projects of the | | | by 2036.The Hong | a long-term investment | infrastructure. | railway operator and | | | Kong Hospital Authority | in aviation, with a | | public housing, it is | | | is implementing the first | further HK$9bn | | estimated this will | | | HK$200bn 10-year | expansion programme | | provide a capacity to | | | Hospital Development | already underway. | | produce about 17,940 | | | Plan (HDP) andis | | | units in 2022-23. The | | | planningthe second | | | Government’s 10-year | | | 10 - ye ar H DP. | | | housing supply target | remains at 430,000 units by 2032-33. Source: Construction Industry Council Hong Kong, Hong Kong Budget 2022-23. Total construction output ### +2.6% P.A. ## HK$310bn ### HK$280bn 2022 2026 Source: Construction Industry Council Hong Kong. INNOVATION IN SUSTAINABILITY ## Gammon is the first company in its sector ##  Gammon is proud to have committed to commitments that will see the business setting its own science-based emissions move away from carbon intensive behaviours reduction targets in a bid to drastically and processes towards longer-term, reduce its carbon footprint and propel its sustainable approaches and solutions. drive for net zero. This not only marks a Gammon recognises that every individual watershed moment for the company but for and organisation has a role to play in the Hong Kong itself, as Gammon has become battle against climate change. In October the city’s first construction and engineering 2022, Gammon committed to set near-term company to make such a pledge. In the company-wide emission reductions in line wider Asia region, only thirty other with climate science under the Science companies in the sector are taking similar Based Targets initiative (SBTi). Gammon action. Leading by example, Gammon plans isproud to be the first company in the to make major interventions in Scope 1, 2 construction and engineering sector to and 3 emissions, targeting specific carbon commit to SBTi in Hong Kong. Balfour Beatty plc Annual Report and Accounts 202222 ## Investments: UK & US GLOBAL UNLISTED INFRASTRUCTURE ASSETS UNDER ### MANAGEMENTANDFORECAST, 2010 - 2025 US$bn Strategic report ### Continued demand for $900bn ### infrastructure assets As inflation rates continue to exceed interest $800bn rate rises, infrastructure asset will remain attractive to yield-seeking investors who are experiencing low rates of real return in other $700bn asset classes. Infrastructure generally offers inflation protection to investors, with the $600bn degree of protection varying by asset. Most infrastructure assets have an explicit link to $500bn inflation through regulation, concession agreements or contracts; Balfour Beatty’s $400bn public and private infrastructure projects include an explicit revenue link to inflation. $300bn Other assets within Balfour Beatty’s portfolio without explicit inflation links through formal contractual arrangements typically have the $200bn pricing power to deliver similar, or better, outcomes. For example, the rental model of $100bn multi-family housing creates an indirect inflation-linked income stream. $0bn 2010 2011 2012 20182013 20192014 20202015 20212016 20222017 2023 2024 2025 Source: Preqin. ### Attractive range of opportunities ### UK TARGET SEGMENTS ### continue to come to market Student accommodation: strong US Student accommodation and residential andUK demand ‡ Student accommodation: University procured or direct let Across the UK and US, demand for student accommodation remains strong as ‡ Residential: Build to rent accommodation in focused markets universities continue to improve their facilities to attract students. Energy transition Energy transition ‡ Nascent energy transition markets As the UK’s energy mix transitions to more renewable sources, such as wind, solar and hydrogen, and the UK adopts more sustainable transport such as electric vehicles, there are opportunities for private ### US TARGET SEGMENTS sector investment with large upside potential. The Group continues to evaluate these changes for both investment and Student accommodation construction opportunities. @ University procured on-campus and off-campus student housing and other buildings Housing opportunities | Balfour Beatty continues to see attractive US | TARGET SEGMENTS | | | --- | --- | --- | | multifamily accommodation come to market, | | P3 social and transport | | providing ample opportunity to invest profitably | | ‡ Courthouses, schools, and other government buildings | | in the regeneration of these properties. | | ‡ Mass transport | States, counties and cities using P3 The US has become an increasingly exciting Military housing market for public-private partnership, and, to ‡ Military personnel housing renovations and improvements date, 41 states (plus DC) have passed legislation allowing P3 projects. The US$1.2 trillion Infrastructure Investment and Jobs Act provides funding for local governments to Multifamily housing evaluate P3 opportunities which is expected ‡ Acquiring and renovating housing, focusing on geographies with strong to drive increased adoption of thisapproach. population growth and existing Balfour Beatty Investments presence Balfour Beatty plc Annual Report and Accounts 2022 23 ### OUR STRATEGY: BUILD TO LAST ## Delivering ##  ### Launched in 2015, Build to Last is our strategy for continuous improvement. It is the ### day-to-day guide we use to uphold our purpose, and underpins everything we do. ## Our values ## Lean Expert ## We create value for our Our highly skilled ## customers and drive colleagues and ## continuous improvement  We’re thoughtful and agile, continuously Our people are leaders. We’re the experts of ## Our strategy challenging our ways of working to improve today and inspire the leaders of tomorrow. Our strategy, Build to Last, is fundamental health and safety and productivity, eliminate We invest in our colleagues, building their to how we’re building a market-leading waste and enhance quality to make us skills and knowledge, to develop a passionate, Balfour Beatty for the next 100 years. morecompetitive. world-class workforce drawn from all parts of It’sour platform for sustainable growth, our society. productivity, inclusive talent – all ensuring the best capability to deliver on our promises and our enduring commitment to Zero Harm. ## Our KPIs NET CASH £m UNDERLYING EMPLOYEE ENGAGEMENT ### excluding non-recourse PROFIT/(LOSS) INDEX% The Build to Last strategy is measured borrowings ### FROMCONTINUING against our five values – Lean, Expert, | Trusted, Safe and Sustainable. | | | OPERATIONS£m | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 815 | | 279 | | 80 | | | 790 | | | | 76 | | 75 221 | | 205 | 197 | | | | 66 | | --- | --- | --- | --- | --- | --- | --- | | 196 | | | | | 65 | | | | | | 60 | 60 | | | 58 581 512 69 335 337 51 (74) | 163 | 173 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 15 16 | 17 | 18 | 19 | 20 | 21 22 | 15 | 16 | 17 | 18 | 19 | 20 | 21 22 | | 18171615 | 19 | 20 | 2221 | | 2022: | | | | | | 2022: | | | | | | | 2022: | | | | | | £815m | | | | | | £279m | | | | | | | 80% | | | | | More information Find out how our strategy is supported by the current market on pages 16 to 23. For the risk appetite in the ## context of the Company values seepage 87. p80 p64 Balfour Beatty plc Annual Report and Accounts 202224 Strategic report ## The results of the annual employee engagement ## survey improved for the fifth consecutive year, to ## the highest level recorded since the survey was ## first completed in 2015.” ### Leo Quinn, Group Chief Executive ##  Safe Sustainable ## We deliver on our We make We act responsibly to ## promises and we  protect and enhance ##   We build trust every day by delivering on our Safety is our license to operate. Nothing is We leave a positive legacy for the people we promises, always. We’re accountable for our more important than the health, safety work with, the communities we work in, and decisions and work with the upmost integrity andwellbeing of our colleagues and the the world in which we operate. We want to ensure we’re making the right choices. communities we serve. We are unrelenting toenhance our impact on the environment, and uncompromising in our commitment to working with our supply chain partners, achieving Zero Harm. customers and communities to ensure our choices are sustainable. ### CUSTOMER SATISFACTION LOST TIME INJURY RATE (LTIR) TOTAL SCOPE 1 & 2 EMISSIONS ### AVERAGE% excluding international joint ventures (tCO e)PER £m REVENUE 2 97 94 95 96 95 94 0.24 0.24 35.0 91 82 29.4 0.19 0.18 | | | | | | 24.5 | | 25.3 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 0.16 | 0.16 | | | | | | | | | | | | 0.15 | 22.1 | | | | 22.4 | | | | 0.14 | | | | 20.3 | | | 18.8 2221 2221 222118 18 1817 17 1716 16 1615 15 1519 19 1920 20 20 ### 2022: 2022: 2022: ## 95%  22.4 tCO e/£m ### 2 ## p55p46p52 Balfour Beatty plc Annual Report and Accounts 2022 25 ### STAKEHOLDER VALUE ## Sharing the ##  ### In striving to achieve its purpose of Building New Futures, Balfour Beatty touches the ### lives of many people across the UK, US and Hong Kong. Working with its stakeholders ### across the industry and beyond, the Group continues to innovate, lead the market ### through driving change, shape the debate and inspire a new generation of talent to ### bethe change-makers of tomorrow. FIND OUT MORE ## Customers p12 READ THE BUSINESS MODEL SECTION ### Why are they important? How we create value Collaborative and long-term mutually beneficial relationships with Balfour Beatty is trusted to ‘do what we say we will do’ and is our customers are the foundation of oursuccess. measured on this by customer satisfaction. In 2022, over 2,100 customer satisfaction reviews were carried out with the Group’s customer satisfaction score standing at 95%. ### Our priorities @ Be the partner of choice by deliveringon our promises We strive to leave positive lasting legacies in the communities in which we operate, through local employment opportunities, working @ Selective bidding to ensure we are pursuing the right with SMEs and engaging in volunteering and fundraising schemes. opportunities with partners who value our expertise In 2022, over £1.5bn was spent with SMEs and local businesses in @ Deliver high-quality, safe, sustainablesolutions the UK. We use the latest technologies to solve our customers’ challenges. ### How we engage Following the launch in 2021 of our Operational Control Hub (OCH) @ Regular communications with our customers at operational, in Herefordshire, which uses a digital management system to create management, executive and Board level cross-service, real-time visibility of our activities, we have since @ In the UK, our MAP process includes electronic surveys and rolled out a further OCH in Southampton, providing cost and in-person reviews and is aligned to ISO 44001, the international efficiency savings for our customer. OCHs will also be set up on the accreditation for collaborative business relationships. East Sussex and Buckinghamshire contracts. In its first year, Herefordshire’s OCH delivered significant support to the client, @ Customer account management plans providing over 1,900 emergency responses and completing over @ In Hong Kong, Gammon hosts customer partnering events to 41,500 jobs, and resulted in a 16% increase in productivity and 61% understand perceptions and identify areas of improvement of reported defects and issues actioned and completed ahead ofschedule. ## We strive to leave positive lasting legacies in the ## communities in which we operate, through local ## employment opportunities, working with SMEs and ## engaging in volunteering and fundraising schemes.” Balfour Beatty plc Annual Report and Accounts 202226 # Employees FIRST OUT READ WHAT DO YOUR BUSINESS p66 # Why are they important? Talented and engaged employees committed to upholding our values enable us to deliver on our Build to Last strategy, ensuring we win, and expertly deliver, the best and most exciting projects whilst continuing to build a great place to work. # Our priorities - Zero Harm – no injury, ill health or environmental incident caused by our work - Deliver the Group's sustainability 2030 targets and 2040 ambitions to go Beyond Net Zero Carbon, Generate Zero Waste and Positively Impact More than 1 million People - Attraction and retention of talented people from a diverse range of backgrounds - Improved employee engagement # How we engage - A full range of communications channels, both digital and in-person, enable us to broadcast need-to-know, time-sensitive messages, and encourage feedback, conversation and connections across the Group - Group-wide surveys to measure and understand employee engagement and identify improvement priorities - Well-established employee-led affinity networks across the Group to build a better understanding of diversity and inclusion - My Contribution, our employee-led change programme to crowd source ideas # How we create value The key metric for our Expert value is employee engagement. In 2022, our Group employee engagement score was 80%, up from 76% in 2021. Our surveys are run by an independent company and when benchmarked, our engagement score for 2022 was 6 basis points (bps) above the industry average and 13bps above companies of a similar size. During our Group-wide September safety stand-up, our workforce stopped to come together to renew their collective and individual focus on safety. The safety stand ups adopted a mandated multi-communications channel approach across the UK, encompassing in-person and virtual events, written and rich media content and training. We also launched our Group-wide What3Things? initiative – a simple summary of three key measures to be applied to each of our fatal risks. Find out more on page 49. Our efforts were recognised with a 5 bps increase on the employee engagement question "I feel able to discuss my wellbeing and safety at work", up to 87% in the UK and US. In 2022, more than 1,800 My Contribution ideas were submitted, with those delivered generating over £2.6 million of cash, £12 million of cost savings, 101,000 hours of time saved, and 273 ideas delivered in the Better Place to Work category. The Group celebrates and takes part in a range of diversity and inclusion focused events to help create an inclusive workplace. In 2022, this included Hispanic Heritage Month, Women's Equality Day and Black History Month in the US, International Women's Day in Hong Kong and the UK, and International Day of People with Disabilities, Pride Month and International Women in Engineering Day in the UK. For details on how the Board engages with employees see pages 116 to 120. # Shareholders FIRST OUT READ WHAT DO YOUR BUSINESS MAKES MORE BETTER? p116 # Why are they important? Balfour Beatty's shareholders, as the owners of the Company, are a critical shareholder for the Group. More generally, shareholders are categorised into two groups: retail investors, individual or non-professional investors who buy and sell shares personally; and institutional investors who invest money on behalf others. The Board places great importance on building and maintaining positive relationships with all shareholders and seeks to ensure there is an appropriate level of regular and informative dialogue with them. # Our priorities - Provision of financial and non-financial information to retail and institutional shareholders in a timely and accurate way - Presentation of investor feedback to the Board and management - Enable the market to fairly reflect the fundamental value of the Company in the share price # How we engage - Regular briefings via regulatory announcements, webcasts and presentations as well as annual reporting - Regular face-to-face and virtual meetings with major shareholders including new or prospective investors - Dedicated Investor Relations department responsible for the day-to-day engagement with shareholders and leading a comprehensive investor roadshow programme - Regular updates to the Investor Relations web pages # How we create value Balfour Beatty has established one of the strongest balance sheets in its sector. From its position of strength, Balfour Beatty announced a new capital allocation framework in March 2021. This provides a balanced approach between the investment needs of the business, regular dividend payments and additional returns to shareholders. The Board expects dividends to grow over time with underlying profit. In addition, the Company delivered £150m share buyback programmes for both 2021 and 2022 with a further £150m share buyback underway in 2022. Throughout 2022, around 50 meetings were held with shareholders across all geographies both virtually and face-to-face. For details on how the Board engages with investors see pages 120 and 121. Balfour Beatty plc Annual Report and Accounts 2022 27 Money mem ### STAKEHOLDER VALUE CONTINUED ## Governments ### Why are they important? @ Help to inform and shape the policy and legislative framework to Governments set the policy and legislative context within which we ensure that Balfour Beatty is aware of new priorities and able to operate, which has significant implications for our operations. highlight potential negative implications of proposed legislation We are one of the UK Government’s 40 Strategic Suppliers due to ### How we engage the importance of the work we do for a number of government @ 1:1 relationships with key government decision makers departments and agencies and the significant amount of public money invested in many of the schemes we work on. @ Sharing views on key topics using media, social media, engaging events and thoughtful written collateral In the US, we work on projects for a number of federal and state agencies. Our US construction business works for the US Army Corps @ Responses to government consultations, inquiries and hearings of Engineers, the Naval Facilities Engineering Systems Command (NAVFAC) and the General Services Administration (GSA). Balfour ### How we create value Beatty Communities is one of the largest military housing owners in Thanks to the relationships we have established with key the US, working closely with the US Department of Defense, and is a stakeholders across the UK Government, we are able to engage joint venture partner with the US Army, Navy and Air Force in projects with Whitehall departments in order to improve our ability to deliver that manage housing on 55 military installations across the country. vital public sector projects efficiently. We also invite Ministers, Mayors and other political stakeholders to ### Our priorities visit sites and other facilities to showcase our work and assist them @ Build strong working relationships with key decision makers with a deeper understanding of the sector. @ Protect and enhance Balfour Beatty’s reputation to help the business secure work with governments FIND OUT MORE ## Communities READ THE SUSTAINABILITY SECTION p55 ### Why are they important? We plan works to be delivered with minimal disruption to local Our activities can have a lasting impact on the communities in communities and engage with them ahead of works starting and which we operate – we strive to leave a positive legacy. throughout the project lifecycle to make sure they are aware of any impacts the works may have. ### Our priorities We deliver STEM activities with schools, colleges and universities @ Zero Harm – no injury, ill health or environmental incident caused to raise awareness of careers in these areas and to attract new by ourwork entrants to our industry. @ Deliver the Group’s sustainability 2030 targets and 2040 To help create a positive lasting legacy, we develop and deliver ambitions to go Beyond Net Zero Carbon, Generate Zero Waste training programmes for apprentices, graduates and work experience and Positively Impact More than 1million People students as part of our commitment to The 5% Club in the UK: www.5percentclub.org.uk. @ Work in partnership with communities to understand and support local needs In the UK, we have partnered with The Prince’s Trust, Groundwork and Project RECCE and continue to work with local charity partners @ Establish relationships with key community stakeholders to too. This provides an opportunity for our people, particularly project develop a programme of impactful community investment activities teams, to positively impact local communities and volunteer to @ Contribute to environmental wellbeing support good causes. In the US, we have partnered with over 20 charitable organisations ### How we engage and we encourage our employees to raise money and volunteer @ In the UK, we employ a network of community engagement their time with these organisations. specialists who plan and deliver activities to engage and enhance We hold regular ‘Meet the Buyer’ days in the UK to raise awareness local communities in local communities of opportunities to work with us. This helps us @ Community engagement plans for projects including local to select local supply chain partners and ensure that project spend employment opportunities and local spend supports the local economy and jobs. @ Communication with communities under the Considerate Across the UK, our teams attend careers fairs and other similar Constructors Scheme (UK) events to raise awareness of the types of careers available in our industry and promote local job opportunities. @ Developing training programmes for apprentices, graduates and work experience Across our military housing portfolio in the US, our award-winning LifeWorks programme provides a busy calendar of engaging events ### How we create value and activities for residents of all ages, from fitness clubs and We work with our customers and supply chain partners to reduce seasonal crafts to community gardens and cooking classes. carbon emissions throughout an asset’s lifecycle and reduce waste during construction. Balfour Beatty plc Annual Report and Accounts 202228 ## Supply chain and strategic partners ### Why are they important? How we create value Our many supply chain partners, large and small, are an invaluable In the UK, our eProcurement portal, Jaggaer, helps reduce risk by Strategic report resource fundamental to the successful delivery of all of our creating a standardised, consistent process for our supply chain projects. We also work with trusted partners in a number of partners to tender for work packages. The portal also provides long-term joint ventures which are critical to our success. access to catalogues for commonly procured items, helping us to concentrate our spend with the best performing partners and procure goods and services with consistent levels of quality. ### Our priorities @ Zero Harm – no injury, ill health or environmental incident caused We support the creation of a best-in-class supply chain in the UK by our work through our membership of the Supply Chain Sustainability School, a collaboration between customers, contractors and supply chain @ Deliver the Group’s sustainability 2030 targets and 2040 partners who want to build a skilled supply chain. For the second year ambitions to go Beyond Net Zero Carbon, Generate Zero Waste running, we have partnered with the Supply Chain Sustainability and Positively Impact More than 1million People School, undertaking a joint survey targeting hundreds of supply chain @ Improve transparency through digital tools and automation partners across the UK to understand the barriers and opportunities faced in decarbonising the sector. We have shared our findings and @ Mitigate and manage risks through collaboration recommendations for policy makers, customers, and the industry @ Be the customer of choice more widely in our paper ‘2022 Greening the Supply Chain’. Moving forward, we are looking to take the learnings from the survey to @ Keep cash flowing through our supplychain understand what more can be done to support the industry in tackling the barriers it currently faces, bringing our supply chain on ### How we engage the journey and encouraging other industry partners to do the same. @ We host webinars, conferences and events to engage with our supply chain partners and provide support in emerging areas such In line with the UK’s Prompt Payment Code, we are committed to as cybersecurity paying all of our supply chain partners on time and to mutually agreed terms. We continually invest in our processes and procedures @ Regular performance reviews with our supply chain partners to improve our payment performance and enhance accuracy and across the Group to identify areas of good practice, learning and transparency. In 2022, the percentage of invoices we paid within improvement and provide them with support to upskill 60days has increased from 93% to 96% and the percentage of @ Collaborative and well-established relationships at operational, invoices not paid to terms reduced from 20% to 15%. management, executive and, in most instances, Board level with joint venture partners @ Local ‘Meet the Buyer’ supply chain events INNOVATION IN SUSTAINABILITY ## Next-generation of ##  ## construction sites Our Hong Kong joint venture, Gammon, hascollaborated with a Hong Kong based start-up, Ampd Energy, to develop the nextgeneration of clean energy for construction sites. The result is the Enertainer – a blending of ‘energy’ and ‘container’ – a lithium-ion battery storage system intended as the primary source of power for machinery with high peak demand on site, which significantly reduces CO generation and reduces noise 2 pollution. In 2022, the innovation was a finalist for the ‘Clean our Air’ category at the prestigious The Earthshot Prize awards, which were launched in 2020 by William, ThePrince of Wales. Balfour Beatty plc Annual Report and Accounts 2022 29 INNOVATION IN MODERN METHODS OF CONSTRUCTION ## Better, faster, ## greener ### Rapidly evolving modern methods of construction are ### revolutionising how the built environment is designed, ### constructed and maintained. Balfour Beatty plays a vital role in the integration of the design, manufacturing, logistics and onsite assembly of a construction project. Powered by our digital tool set, the integration of the various work packages in any project is fundamental to managing risk and building better, faster andgreener than ever before – all whilst ensuring the safe operation and sustainability of an asset through its lifecycle and into decommissioning. Digital first is ingrained in Balfour Beatty’s DNA, helping us to continuously improve every element of how we work through data-driven decision making that creates game-changing efficiencies and entirely new ways of working. To ensure our workforce is ready for the digital era, we deliver a range of in-house training programmes and have helped develop professional courses designed to benefit the industry as awhole for generations to come. ## Utilising industry-leading technologies on our projects ### Main picture: 360 cameras Modular integrated construction (MiC) In the US, our team working on the 2000 & 2001 South Bell Street Gammon, our 50:50 joint venture in Hong Kong, successfully adopted residential scheme for Zom Living took part in OpenSpace’s lunch a modular integrated construction approach to deliver a new and learn at National Landing in Arlington. vaccination pop-up centre within a tight timeframe with minimal OpenSpace is a hands-free 360 camera which captures project-based disturbance to the local community. The centre comprised 13modular photo and video documentation. This digital tool streamlines the units which were prefabricated in a factory in mainland China, with photo capture process to provide remote, accurate and instant project production and delivery to Hong Kong taking only seven days. The updatesfor both site teams and theircustomers. related mechanical, electrical and plumbing elements of this project were also prefabricated offsite. Balfour Beatty plc Annual Report and Accounts 202230 Strategic report Watch our video tolearnmore SCAN TO WATCH ### Digital rehearsal Through digital rehearsals, our team at Hinkley Point C successfully lowered six 5,000 tonne intake heads into the Bristol Channel. Working within tight 21-hour weather windows, our team of technical specialists began the operation by transporting each head on a 91m by 27m barge from its berth in Bristol docks out to the two waiting floating cranes code-named Gulliver and Rambiz – a journey that takes six hours. Once in position in the Bristol Channel, the head was hooked to the cranes and tandem-lifted from the barge before the barge was then manoeuvred out of the way to allow the huge structure to be lowered to its final location on the seabed. Using MAIN IMAGE: Sarah Bubak, Digital Delivery Coordinator using survey instruments digitally connected to a station onshore, the team the 360 BIM field tool to access digital drawings and review ensured that the structure was accurately placed sideways to the tidal the real-time project progress. flow with a high degree of precision. Balfour Beatty plc Annual Report and Accounts 2022 31 OPERATIONAL REVIEW # Strong performance across all divisions ## Construction Services Our Construction Services businesses operate across infrastructure and buildings markets in the UK, the US and in joint venture in Hong Kong. ### Financial review Underlying revenue of £7,482 million represents an 11% increase (2021: £6,748 million), or 4% at CER. Underlying profit from operations increased to £149 million (2021: £79 million), driven by the return to profitability in UK Construction. Statutory profit for the year was £150 million (2021: £30 million). The order book increased by 10% to £15.0 billion (2021: £13.6 billion), a 3% increase at CER. **UK Construction:** Revenue in UK Construction increased by 7% to £2,763 million (2021: £2,593 million) due to increased volumes at HS2 and Hinkley Point C more than offsetting reduced regional volumes. In 2022, 91% of UK Construction revenue was from public sector and regulated industry clients (2021: 90%). The return to profitability of UK Construction was the key driver of the improvement in the Group's results. Underlying profit from operations for UK Construction of £59 million (2021: loss of £2 million) represented a PFO margin of 2.1%, which is within the 2-3% UK industry standard range. The UK Construction order book grew by 9% to £6.1 billion (2021: £5.6 billion) and, increasingly, consists predominantly of work for public sector and regulated industry clients (2022: 95%, 2021: 91%) and lower risk target-cost and cost-plus work (2022: 90%, 2021: 86%). ### UNDERLYING REVENUE$^{1}$ **£7,482m** 2021: £6,748m ### STATUTORY REVENUE **£6,409m** 2021: £5,920m ### UNDERLYING PROFIT FROM OPERATIONS **£149m** 2021: £79m ### STATUTORY PROFIT FROM OPERATIONS **£150m** 2021: £30m ### ORDER BOOK$^{1}$ **£15.0bn** 2021: £13.6bn $^{1}$ Including share of joint ventures and associates ## TOTAL REVENUE$^{1}$ ![img-2.jpeg](img-2.jpeg) “Balfour Beatty will continue to be selective in the work that it bids in the UK, through increased bid margin thresholds and utilisation of risk frameworks and contract governance.” 32 Balfour Beatty plc Annual Report and Accounts 2022 ### US Construction: Revenue in US Construction Operational review chain disruption have made it difficult to increased by 9% to £3,651 million (2021: deliver some capital programmes. This has UK Construction | £3,344 million), largely due to the strengthening | | resulted in some schemes, including the | | | --- | --- | --- | --- | | | As part of the Autumn Statement announced | | Strategic report | | of the US dollar during the year. Revenue | | Road Investment Strategy and HS2, taking | | in November, the UK Government reconfirmed decreased by 1% at CER. The business longer than expected. its commitment to deliver major infrastructure operates in the buildings and civils markets, Balfour Beatty’s market-leading position in projects, highlighting investment in infrastructure, with roughly 80% of revenue earned from the UK infrastructure market is built on its alongside investment in people and buildings. Underlying profit from operations unmatched scale and vertically integrated innovation, as a key route to boosting growth for US Construction increased by 14% to capability for delivering major and regional and productivity. This included the pledge to £58million (2021: £51 million), resulting in a projects. In 2022, 91% of UK Construction deliver Sizewell C, HS2 to Manchester and small PFO margin improvement to 1.6% revenue was from public sector and regulated core Northern Powerhouse rail links and is (2021: 1.5%), which is within the 1-2% US industry clients (2021: 90%). Balfour Beatty aligned to the £650 billion National Infrastructure industry standard range. will continue to be selective in the work that Strategy (NIS) set out in 2020. On 9 March The US Construction order book increased by it bids, through increased bid margin 2023, the UK transport secretary announced 11% to £6.0 billion (2021: £5.4 billion), flat at thresholds and utilisation of risk frameworks that £40 billion will be invested in transformational CER. The business currently has an unusually and contract governance. transport schemes over the next two high amount of work which has been awarded financial years, however inflation and supply but not contracted, as clients wait for some clarity in uncertain economic conditions. This work is not included in the order book until the client agrees to proceed. Gammon: At Gammon in Hong Kong, the Group’s 50% share of revenue from the joint venture increased by 32% to £1,068 million (2021: £809 million) or 20% at CER, driven by an increase in major civils volumes, including the Terminal 2 expansion at Hong Kong Airport. Underlying profit increased by 7% to£32 million (2021: £30 million), however profit margins reduced to 3.0% (2021: 3.7%) due to the phasing of contracts. The Group’s 50% share of Gammon’s order book increased by 12% to £2.9 billion (2021: £2.6 billion) but reduced by 3% at CER. SCAN TO WATCH THEVIDEO | CONSTRUCTION SERVICES | | | | 2022 2021 | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Revenue | | 1 | | PFO | Order book | | 1 | Revenue | 1 | PFO | Order book | | 1 | | | | £m | | | £m | | £bn | | | £m | £m | | £bn | | UK 2,763 59 6.1 2,593 (2) 5.6 US 3,651 58 6.0 3,344 51 5.4 Gammon 1,068 32 2.9 809 30 2.6 2 Underlying 7,482 149 15.0 6,746 79 13.6 Non-underlying – 1 – – (49) – Total 7,482 150 15.0 6,746 30 13.6 1 Including share of joint ventures and associates 2 Before non-underlying items (Note 10) A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section Balfour Beatty plc Annual Report and Accounts 2022 33 ### OPERATIONAL REVIEW CONTINUED ### INNOVATION IN OPERATIONS Operational review continued UK Construction continued The UK Construction business comprises: @ Major project work: focused on complex projects in key market sectors such as transportation (road and rail), heavy infrastructure and energy; and @ Regional work: civil engineering, ground engineering, mechanical and electrical engineering, and building, providing private and public customers with locally delivered flexible and fully integrated civil and building services. On major project work, the HS2 works at Area North and Old Oak Common station continue to make good progress. In July, a2,000-tonne tunnel boring machine completed its one-mile journey underneath an ancient Warwickshire wood. The machine, which started boring under Long Itchington Wood in December 2021, made the first tunnel breakthrough on the London to Birmingham route. The second tunnel at Long Itchington Wood is underway and expected to complete in the summer. Over SCAN TO WATCH THE VIDEO the Christmas period, a 12,600-tonne bridge was guided 163 metres into place over the M42 in Warwickshire, which is believed to ## The world's longest box bridge slide bethe world’s longest bridge box slide. The86-metre structure, which will carry | In a huge feat of engineering, our | The 86 metre-long structure was built | trains on the HS2 line over the motorway, | | --- | --- | --- | | Balfour Beatty VINCI HS2 team has | on land next to the motorway over | was built on land next to the motorway over | | delivered the world’s longest box | asix-month period. The structure has | a six-month period. The box slide solution | | slide to move a 12,600 tonne | abase, three walls and top slab. The | meant there was only a ten-day closure | | bridgeinto place over the M42 | sliding mechanism allowed the box | ofthe motorway required in the year, | | inWarwickshire. | tobe pushed into place on a guiding | dramatically reducing disruption for road | | | raft over a distance of 163 metres. | users. At Old Oak Common station, good | The site team worked around the progress is being made on the main box clock to move HS2’s Marston Box On completion, the whole structure construction, with the successful installation bridge into place over the M42. The will be around 190 metres in length, 3 of a conveyor to transport 800,000m of operation took 40 hours, at a speed and will carry trains on the HS2 line London clay 1.7miles to Willesden Euroterminal, of four metres per hour, during a over the motorway. where it isloaded onto freight trains. 10-day closure of the motorway between junctions J9 and J10 At Hinkley Point C, six reinforced concrete (northbound and southbound). heads were lowered onto the seabed of the Bristol Channel requiring tandem lifts using specialist marine plant. The heads are a vital part of the architecture at Hinkley, allowing sea water into the tunnels as part of the cooling water system for the new nuclear power station. Following these installations, the focus has turned to the offsite fabrication of the liners required for the 2023 offshore ## During 2022, the Group took campaign, when the shafts to the six heads will be drilled and installed. ## further steps in its During November, the secondary lining ## commitment to address the works at Thames Tideway were completed on the 7km main tunnel from Acton in West ## growing demand for clean London to Fulham in Southwest London ahead of the target date, bringing to an end ## energy across the UK by 800 sequential concrete pours which had ## signing memorandums of begun in March 2021. ## understanding with partners ## in wind and nuclear energy.” Balfour Beatty plc Annual Report and Accounts 202234 During 2022, the Group took further steps INNOVATION IN MATERIALS inits commitment to address the growing demand for clean energy across the UK by signing memorandums of understanding with Strategic report partners in wind and nuclear energy: @ In October, the Group signed an agreement with Aker Solutions to deliver end-to-end design and construction solutions for the concrete floating and gravity-based UK offshore wind industry, @ In December, the Group 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. Major highways achievements in the year include the completion of the 32-mile upgrade of the M4 from Junction 3 at Hayes to Junction 12 at Theale. The four-and-a-half- year motorway upgrade project included permanent conversion of the hard shoulder, new variable message signs, lower noise surfacing, upgraded environmental noise barriers and new gantries. The A63 project, which will reduce traffic congestion in Hull ## city centre and improve access to the port of A one-of-a-kind, nearly steel-free bridge Hull, continued to progress well and work has ##  begun on the major improvement scheme at Junction 10 of the M25. | | In partnership with the North Carolina | To eliminate the need to perform a | | --- | --- | --- | | In January 2023, Balfour Beatty was awarded | Department of Transportation | full excavation before pile placement, | | a £1.2 billion contract by National Highways | (NCDOT), Balfour Beatty is replacing | the team leveraged a probe during | | to deliver the ‘Roads North of the Thames’ | two 50-year-old bridges connecting | the pre-drilling process. This not only | | package of works for the proposed Lower | the town of Straits to Harkers Island, | met the NCDOT’s quality and safety | | Thames Crossing. The Group will utilise | providing increased capacity for | standards but also saved valuable | | modular construction techniques to build the | emergency access and reduced | time and money. | | structures offsite in a controlled factory | congestion for marine vessels and | | The team is leveraging the latest environment, significantly reducing carbon vehicular traffic. technologies including non-corroding emissions by minimising the number of lorry While the majority of freight in the US carbon fiber reinforced polymer (CFRP) movements and material deliveries to and is moved by truck, the build team strands in place of steel on this from site. Following the announcement by opted to transport the girders on one-of-a-kind, nearly steel-free bridge. the UK transport secretary on 9 March 2023 water by barge. If the team transported CFRP is corrosion-free, so the new regarding the impact of budgetary constraints the girders by truck, it would have Harkers Island Bridge is expected to on public infrastructure spend, the notice to required additional time and labour better withstand the elements in a proceed from the Department for Transport todouble-handle the girders before coastal environment, resulting in less is not expected prior to 2026. | | placement. So far, the team has | maintenance and a longer lifespan | | --- | --- | --- | | For regional work, Balfour Beatty was once | installed 22 of the bridge’s 28 total | forthe bridge. | | again appointed as the sole contractor to | girder spans and poured the first four | | | both the SCAPE Civil Engineering framework | bridge deck sections. | | covering England, Wales and Northern Ireland, and the SCAPE Scotland Civil Engineering framework covering the entirety of Scotland. The frameworks are worth up to £3.25 billion and £750 million respectively. Both frameworks the planning, design and construction of nine Engineers Wales Cymru. In August, work – which enable local authorities and other vital road schemes to alleviate congestion was completed on the East Leeds Orbital public sector bodies to commission works and enhance accessibility in the market town Route, a new 7km dual carriageway which through a procurement process that provides and was completed in 2022. acts as the new outer ring road to ease a quick route to market – cover a period of congestion and is the biggest infrastructure four years, with two one-year extension options. In February 2022, Balfour Beatty, in a 50:50 project delivered by Leeds City Council since joint venture with Welsh infrastructure One of the hundreds of projects which the the completion of the inner ring road half a company Jones Bros, completed the 10km Group has procured under the SCAPE century ago. Caernarfon to Bontnewydd bypass in North frameworks since first being appointed in Wales. The project has since been 2015 is the major highways programme at recognised for outstanding design and Wokingham in Berkshire. The four-year construction by the Institution of Civil package of works awarded in 2018 included Balfour Beatty plc Annual Report and Accounts 2022 35 ### OPERATIONAL REVIEW CONTINUED ### Operational review continued @ Del Sol High School: A high school in @ On the Caltrain contract for the Oxnard, California which will feature electrification of the 52-mile rail corridor US Construction classroom buildings and a library, between San Francisco and San Jose, In the US, the diversification of geographies gymnasium and multipurpose building. Balfour Beatty completed the last of the and market segments in which Balfour 3,092 foundations required for the Beatty operates has provided resilience In the year, the Buildings business booked overhead catenary system. | against the challenge of the economic | material new phases of existing contracts | | | --- | --- | --- | | instability to date. Following the passing of | and standalone new contract awards including: | In February 2023, Balfour Beatty was | | the US$1.2 trillion Infrastructure Investment | | awarded a US$242 million design-build | @ Fort Meade: A US$700 million design-build and Jobs Act (IIJA) in 2021 and the Inflation contract to deliver improvements to contract for a federal building in Maryland, Reduction Act in 2022, the opportunities in Interstate US 70 between the Havelock including the construction of a multi-storey the US civils market are expanding, allowing Bypass and east of Thurman Road in Craven 858,000 square foot facility plus a Balfour Beatty to be more selective in the County, North Carolina. Construction is 1.2million square foot parking garage; work it bids for. expected to take five years, commencing @ Broward County Convention Center Phase inlate 2023. Unlike in the UK, most of the projects 5: A US$400 million project to build an undertaken by US Construction remain on 800-room hotel; fixed price contract terms. The Group continues | to focus on controlling the range of outcomes | @ Knox Street: A multi-use development | | --- | --- | | from these projects with the early issuing of | project in Texas in joint venture with | | subcontracts and bonding of the supply | Andres, of which Balfour Beatty’s share | | chain, which helps to reduce the loss-making | is55% and US$300m of revenue; | portion of the project portfolio. @ Data centres: US$300 million of data The Group continues to have a larger centres for a technology customer presence in US buildings than US civils, inOregon. where their chosen markets are still performing strongly, particularly education Included in ABNC at year end, US Buildings inCalifornia, hospitality and aviation in the has been made preferred bidder for a number Southeast and Federal work in the Mid-Atlantic of material projects including: five residence states. The level of inflation however and halls and one dining facility at The College of higher interest rates are having an impact on William and Mary in Williamsburg, Virginia; the release of work in Texas and generally in Jacksonville International Airport terminal in the Technology sector in the Northwest. Florida; and two projects for the Naval Facilities Engineering Systems Command In the year, Buildings completed several located at Point Mugu to construct an aircraft notable projects including: maintenance hangar and a recruit mess hall. @ The Wharf: Two ten-storey office buildings The US Civils business focuses on highway and two below ground parking garages, in projects in Texas and US Southeast and mass Washington DC; transit rail in major US cities. During the year: @ JP Morgan Chase: A 540,000 square foot @ Balfour Beatty, as part of the Green Line build-to-suit office with parking garage in Extension Constructors joint venture, Plano, Texas; completed the two light-rail lines along @ Justin Tower Hospital: A 160-patient bed thenew 4.7-mile Green Line Extension tower in Fort Worth, Texas; forthe Massachusetts Bay Transportation Authority; @ San Diego Unified School District: Three schools in San Diego, California. @ As part of the LINXS Constructors joint venture at Los Angeles International During the year, progress has been made on ## Airport, the Group completed the 2.25-mile In February 2023, Balfour significant Buildings projects including: Automated People Mover train guideway ## Beatty was awarded a @ Washingtonian North Senior Living: superstructure stage of the project; ## Aseven-storey senior living complex US$242 million design-build @ Balfour Beatty, as part of the Colorado inGaithersburg, Maryland that includes River Constructors joint venture, set the ## contract to deliver 302 units; first bridge beams that support widening ## @ Ilani Hotel: A 14-storey, 300-key luxury activities east of the US 290 and SH improvements to Interstate hotel development on a half block with 71interchange in Austin on the Texas ## US 70 between the Havelock house suites and traditional rooms, a bar, a Department of Transportation’s Oak Hill ## café, a full-service spa, and a restaurant on Parkway project; Bypass and east of Thurman the 14th floor located on Tribal Land in ## @ The Southern Gateway reconstruction Road in Craven County, North Ridgefield, Washington; andimprovement project in Texas was ## Carolina. Construction is @ Midtown Atlanta: A 36-storey multifamily completed by the joint venture between tower project with 376 apartment units Balfour Beatty and Fluor; ## expected to take five years, and a 34-storey student housing project ## with 239 housing units, together with a commencing in late 2023.” shared nine-level parking structure in Atlanta Georgia; Balfour Beatty plc Annual Report and Accounts 202236 | Gammon | policy address in October and the Mass | In Buildings, the focus is on the use of Design | | | --- | --- | --- | --- | | Gammon, Balfour Beatty’s 50:50 joint | Transit Railway (MTR), for which Gammon | for Manufacture and Assembly (DfMA) and | | | venture with Jardine Matheson based in | has a strong track record of delivering work, | modular construction to improve productivity | | | Hong Kong, continues to perform consistently, | is also bringing to market a programme to | and efficiency and expanding the customer | Strategic report | | with a strong share of both the buildings and | expand the rail network. Although inflation in | base on a selective basis. In Civils, the strategy | | | civils markets. Despite the challenge of | Hong Kong remains lower than in the UK and | is to lever engineering excellence, with a key | | | COVID-19 restrictions in 2022, project | US, the high level of construction activity in | area of future work likely to be from significant | | | execution and work winning remained | the region has increased the demand for | infrastructure programmes in Hong Kong and | | | strongand the further relaxation of those | labour, resulting in higher salaries. Consequently, | in Singapore. | | | restrictions is expected to have positive | voluntary attrition remains a challenge. | | | During the year, Gammon’s completed work repercussions in 2023. Furthermore, the new However, Gammon’s employee satisfaction included the Fullerton Ocean Park Hotel Chief Executive of Hong Kong, John Lee, has increased from 76% in 2021 to 82% in Hong Kong, which involved the construction announced a broader programme of major 2022 and retention remains a priority. of two 10-storey blocks on a three-level infrastructure projects as part of his inaugural podium, and a 9-storey building block with a2-storey basement, for which 75% of the prefabrication of the structural steel works and 70% of the modularisation of the Mechanical, Electrical and Plumbing works were completed offsite. INNOVATION IN PRODUCTIVITY Progress has been made at Hong Kong Airport where Gammon is delivering the structures for the Automatic People Mover and Baggage Handling System in addition to working on the Terminal 2 expansion. As part of the Central Kowloon Route project, a 4.7km-long dual three-lane trunk road that will enhance connectivity between the eastand west Kowloon districts, Gammon continues to deliver the Kai Tak West tunnelling contract and the route wide buildings, electrical and mechanical works contract. InDecember, Gammon began work on the world’s largest student hostel, in terms of bed places, to be constructed using modular integrated construction. The entire student hostel consists of six buildings ranging from 13 to 18 storeys and will provide over 2,000 residential units. Having been awarded the student hostel contract in February 2022, Gammon won anumber of further notable new contracts inthe year, including: @ Causeway Bay office building: A HK$2.6billion contract for Mandarin Oriental Hotel Group to construct an A-grade office building, with a podium for retail and food and beverage shops; @ Yau Tong Ko Chiu Road residential ## The world’s largest student hostel built using development: A HK$1.3 billion contract to construct a 33-storey residential tower and ##  podium, providing 792 new flats; | Gammon, our joint venture in Hong Kong | MiC methods will be widely used on | @ Kwun Tong Composite Development: | | --- | --- | --- | | was awarded a contract to build the world’s | theproject, with a total of 1,344 units | AHK$2.7 billion contract to design and | | largest modular integrated construction | manufactured offsite. To facilitate the | build a 25-storey building for a new college | | (MiC) student hostel project, in terms of bed | construction process, Gammon’s digital | and a 9-storey community and welfare | | spaces, to date. | supply chain solution STAMP will be used | amenities building, with the scope of | | | to monitor the manufacturing, delivery and | works also including basement car parks, | The contract includes construction of six installation of the MiC units holistically. elevated walkways and roads; hostel halls ranging from 13 to 18 storeys, Adoption of MiC will not only shorten the providing over 2,100 hostel places for @ Ho Man Tin Station Package One Property construction period but will also reduce students, a basketball court, a gymnasium, Development: A HK$3.4 billion building noise and waste, mitigating nuisance multi-function rooms and a canteen. contract located atop MTR Ho Man Tin toneighbours and improving station to develop five residential towers, environmentalperformance. providing 990 new flats. Balfour Beatty plc Annual Report and Accounts 2022 37 OPERATIONAL REVIEW CONTINUED # Support Services Our Support Services businesses operate principally in the UK, designing, upgrading, managing and maintaining critical national infrastructure. # Financial review Support Services is focused on power, plant, road and rail maintenance and is characterised by profitable recurring revenues underpinned by long-term contracts. Revenue in Support Services reduced by 7% to £989 million (2021: £1,066 million), due to a reduction in gas and water following the Group's decision to withdraw from this sector. In conjunction with the exit from gas and water announced in 2021, the Group upgraded the margin target range for Support Services to 6-8%. A strong performance from Support Services in 2022 resulted in underlying profit from operations of £83 million (2021: £102 million), which represents a PFO margin of 8.4% and outperformance of expectations for the year. The order book for Support Services decreased by 4% to £2.4 billion (2021: £2.5 billion). # Operational review The UK markets for power, road and rail maintenance are all positive. In power, the RHO-T2 spend period (2021-2026) includes £30 billion for investment in energy networks and potential for a further £10 billion on green energy projects, while the focus on improving energy security through growth in domestic generation has increased further following the Russian invasion of Ukraine. 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% over the period. There are also a number of Local Authorities contracts, similar to 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. # UNDERLYING REVENUE¹ £989m 2021: £1,066m # STATUTORY REVENUE £988m 2021: £1,066m # UNDERLYING PROFIT FROM OPERATIONS £83m 2021: £102m # STATUTORY PROFIT FROM OPERATIONS £83m 2021: £57m # ORDER BOOK¹ £2.4bn 2021: £2.5bn ¹ Including share of joint ventures and associates # TOTAL REVENUE¹ ![img-3.jpeg](img-3.jpeg) A strong performance across the business has taken its PFO margin to 8.4%." # SUPPORT SERVICES | | 2022 | 2021 | | --- | --- | --- | | Order book¹ (£bn) | 2.4 | 2.5 | | Revenue² (£m) | 989 | 1,066 | | Profit from operations³ (£m) | 83 | 102 | | Non-underlying items (£m) | — | (5) | | Statutory profit from operations (£m) | 83 | 97 | 1 Including share of joint ventures and associates 2 Before non-underlying items (Note 15). A recalculation of the Group's performance measures to its statutory results is provided in the Measuring our financial performance section. 38 Balfour Beatty plc Annual Report and Accounts 2022 The rail maintenance market also has INNOVATION FOR PRODUCTIVITY apositive trajectory with an additional £10billion of funding for maintenance and renewals as part of Network Rail’s current Strategic report CP6 control period (2019-2024). During the year, the following key milestones were achieved: @ The power and rail maintenance businesses together completed the Eleclink project, providing a 1GW electricity interconnector between France and England through the Channel Tunnel; @ The power business made significant progress on the Hinkley Connection project, a 57km route of 400kV overhead lines in Somerset to connect six million homes and businesses in the surrounding area with low-carbon electricity that will be generated from the Hinkley Point C nuclear power station; @ The power business laid the final piece of UK land cable for National Grid’s Viking Link project, which once complete, will bethe world’s largest land and subsea interconnector and will be able to import enough green power for up to 1.4 million UK homes; @ The new Littlebrook substation was energised by the power business. This will enable 2GW of low carbon and renewable energy, enough to power around 1.5 million homes, to be transmitted through the substation from cross-channel interconnectors and wind farms off the Kent coast. The year also included notable contract awards for Support Services. The road maintenance business was awarded two new contracts, with a £176 million eight-year ## Central Rail Systems Alliance adopts innovative contract to deliver highways services for Buckinghamshire County Council and a ## approach to track renewal £297million seven-year contract for the maintenance of highways assets and the In 2022, the Central Rail Systems rough excavating after the first three delivery of infrastructure services across East Alliance team used six connected panels were lifted. All five panels Sussex. The East Sussex contract will go into specialist railway track removal were lifted safely and re-installed, the order book in 2023 and includes an machines (TRMs) to remove sections plated and lined ahead of schedule. option to extend the term by a further seven of track in one go. The innovative technique was years based on the successful delivery of the The team was able to deliver madepossible thanks to a new 4D initial term. The rail maintenance business 490yards of track renewal in a single computer planning tool which allowed agreed the year four work programme with weekend possession at Water Orton our engineers to simulate the lifting Network Rail at around £120 million as part of station near Birmingham. and moving of the track in advance, the 10-year Central Rail Systems Alliance ensuring it could be completed in the (CRSA) track renewals programme, together The TRM link-up lifted five 100-yard shorter time. with £87 million of further work under the panels which meant the Road Rail CRSA, and won a £50 million contract to Vehicles had the headroom to start deliver essential upgrade works to London Underground’s Piccadilly line. Balfour Beatty plc Annual Report and Accounts 2022 39 ### OPERATIONAL REVIEW CONTINUED Net investment income of £24 million was ## Infrastructure Investments higher than 2021 (£12 million), with the prior 1,2 ### UNDERLYING REVENUE year including £14 million of impairments to subordinated debt and accrued interest ### Our Infrastructure Investments receivable from joint ventures and associates ## £460m ### business develops and finances (2022: £2 million), contributing to an underlying ### both public and private 2021: £468m profit before tax of £105 million (2021: £61million). Statutory profit before tax for ### infrastructure projects in the the year was £100 million (2021: £15 million). | UKand the US. | STATUTORY REVENUE | | | --- | --- | --- | | Financial review | | Operational review | | Underlying pre-disposals operating profit | £232m | Balfour Beatty’s competitive expertise to | | of£11million (2021: £14 million) and gain | | finance, develop, build and maintain | 2021: £219m ondisposals of £70 million (2021: £35 million) infrastructure puts the Group in a strong resulted in underlying profit from operations position to capitalise on new investment ### UNDERLYING PROFIT of £81 million (2021: £49 million) for opportunities, with the Group’s current focus ### BEFORE TAX InfrastructureInvestments. on US P3 projects, US private rental and student accommodation in the UK and the Balfour Beatty continues to invest in attractive US. The Infrastructure Investment and Jobs ## new opportunities, each expected to meet its £105m Act is expected to stimulate P3 activity in the investment hurdle rates. In the year, the 2021: £61m US as it has expanded the scope of projects Group invested £30 million in new and eligible for funding under the Transportation existing projects with one new multifamily ### STATUTORY PROFIT Infrastructure Finance and Innovation Act housing project added to the portfolio. (TIFIA) and doubled the limit of Private ### Balfour Beatty also continues to sell assets, BEFORE TAX Activity Bonds available to the Department of timed to maximise benefit to shareholders. Transportation. Infrastructure Investments is Five assets were disposed of in the year, ## £100m well positioned in the student accommodation with the student accommodation at Purdue market where future cash flows are University contributing £40 million gain on 2021: £15m supported by a growing number of students, disposal and four multifamily housing strong rental growth and partnerships with projects contributing a total of £30 million ### DIRECTORS VALUATION universities in both the UK and the US. The gain on disposals. Group is currently preferred bidder on two All transactions were above the Directors’ student accommodation projects in the UK ## £1.29bn valuation, demonstrating the strength of the and one in the US. secondary market for infrastructure assets 2021: £1.11bn Following the significant disposal gains during the year. Despite the economic achieved in 2022, Balfour Beatty intends to uncertainty, demand for infrastructure assets sell further selected assets to maximise has remained strong and Balfour Beatty will 1 Including share of joint ventures and value in its portfolio, with recent auction maximise shareholder value through selective associates, before non-underlying items. experience indicating that strong demand disposal of assets from its portfolio. inthe secondary market continues to exceedsupply. 1 ### TOTAL REVENUE ### 2022 ## 5% Balfour Beatty will 2021: 6% ## maximise shareholder ## value through ## selective disposal ##  ofassets from ## itsportfolio.” Balfour Beatty plc Annual Report and Accounts 202240 Since Balfour Beatty Communities’ INNOVATION FOR SUSTAINABILITY (Communities) settlement with the US Department of Justice (DoJ) in December 2021, an independent compliance monitor, Strategic report which formed part of the agreed resolution, has been appointed by the DoJ and commenced work. Following the US Permanent Subcommittee on Investigations (PSI) hearing in April 2022, the subsequent US Army investigation into Communities’ operations at Fort Gordon, Georgia, has now concluded. No presence of fraud, gross negligence or data manipulation was found. Communities continues to work with the US Army, Navy and Air Force to further enhance its maintenance provision to military services members and their families. Communities is continuing to pursue opportunities for further infrastructure investment in its military housing portfolio in conjunction with its service branch partners. In July, the US Army and Communities announced the start of demolition at Fort Carson as part of a proposed multi-phased ## project that would see the construction of Award-winning green efforts new townhomes at the base. Elsewhere, ##  other initiatives include an energy modernisation project which resulted in In the US, Balfour Beatty’s Los strategies that goabove and beyond 1,000 homes receiving efficiency upgrades Angeles International Airport (LAX) credit achievement. to reduce consumption and carbon emissions, Automated People Mover (APM) joint Awarded projects reflect their a rooftop solar programme bringing more venture project secured the U.S. emphasis on energy and water than 10MW of photovoltaic systems to five Green Building Council’s Sustainability savings, air quality, waste reduction, US Navy housing communities and an Innovation Award for Honor in Equity good design, community engagement, exterior renovation project to upgrade ten & Environmental Justice.’ This education and equity. USArmy apartmentbuildings. recognises the team’s commitment Photo credit: Los Angeles International Airport to a sustainably built environment by evaluating merit-based sustainable ### INFRASTRUCTURE INVESTMENTS 2022 2021 £m £m Pre-disposals operating profit² 11 14 Gain on disposals² 70 35 Profit from operations² 81 49 Net investment income~ 24 12 Profit before tax² 105 61 Non-underlying items (5) (46) Statutory profit before tax 100 15 1 Including share of joint ventures and associates. 2 Before non-underlying items (Note 10). ~ Subordinated debt interest receivable, net interest receivable on PPP financial assets and non-recourse borrowings, impairments to subordinated debt and accrued interest receivable, and fair value gain on investment asset. A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section. Balfour Beatty plc Annual Report and Accounts 2022 41 ### DIRECTORS’ VALUATION OF THE INVESTMENTS PORTFOLIO ## Strong track record ## of value creation ### The Directors’ valuation increased by 17% to £1,291 million (2021: £1,106 million). ### The portfolio is 58% weighted towards the US (2021: 57%). The number of ### projects in the portfolio decreased to 59 (2021: 64). The half-yearly review of the Directors’ ### PORTFOLIO VALUATION DECEMBER 2022 valuation methodology and assumptions has resulted in changes to the methodology and ### the discount rates for the UK and US. The Value by sector table below shows the movement in the 2022 2021 2022 2021 Directors’ valuation on a like-for-like basis with Sector No. projects No. projects £m £m the prior year, and then shows the effect of Roads 12 12 171 158 the methodology and assumption changes. Healthcare 2 2 126 108 Following the year end, a third-party valuation Student accommodation 5 5 128 95 expert independently reviewed the portfolio OFTOs 3 3 50 44 and the Directors’ valuation is consistent with Waste and biomass 2 2 51 46 their conclusions. Other 2 3 22 23 Balfour Beatty invested £30 million (2021: UK total 26 27 548 474 £19million) in new and existing projects. US military housing 21 21 615 491 During the year, the Group added one new Student accommodation and other project, a US multifamily housing project in PPP 3 4 59 72 San Antonio, Texas. Residential housing 9 12 69 69 Cash yield from distributions amounted to US total 33 37 743 632 £89million (2021: £62 million) as the portfolio Total 59 64 1,291 1,106 continued to generate cash flow to the Group, net of investment. This included £22m of yield | from refinancing a student accommodation | Value by phase | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | project in the US. | | | 2022 | | 2021 | 2022 | 2021 | | | Phase | No. projects | | No. projects | | £m | £m | Balfour Beatty continued disposals in the year | with proceeds of £93 million (2021: £81m). | Operations 55 60 1,239 1,070 | | --- | --- | | This included: £50 million from the sale of its | Construction 3 3 47 34 | | stake in Purdue student accommodation and | Preferred bidder 1 1 5 2 | | £43m from the disposal of its stake in four US | Total 59 64 1,291 1,10 6 | multifamily housing assets. Additionally, a residential accommodation project in the UK ### Value by income type received its final cash flow and is therefore no 2022 2021 2022 2021 longer in the portfolio. Income type No. projects No. projects £m £m Unwind of discount at £85 million (2021: Availability based 17 17 353 311 £83million) is a function of moving the Demand – operationally proven valuation date forward by one year with the (2+years) 36 39 761 580 result that future cash flows are discounted Demand – early stage (less than bytwelve months less. 2years) 6 8 177 215 Operational performance movements resulted Total 59 64 1,291 1,10 6 in a £139 million increase (2021: £27 million). The operational performance movements in the UK were primarily due to high actual and ### 12-month forecast inflation. In the US, Methodology and different discount rates, which are based on operational performance movements were the risk and maturity of individual projects and ### assumptionchanges mainly the impact of higher military housing reflect secondary market transaction The methodology used for the Directors’ rents agreed for 2023 and £47m of gain on experience and the Group’s current valuation for valuing most investments in the the disposals noted above. assessment of the impact of recent rises in portfolio remains the discounted cash flow long-term interest rates. The main exception to Foreign exchange movement contributed an (DCF) method. Under this methodology cash the use of DCF is for US multifamily housing £85m increase to the valuation of the US flows for each project are forecast based on projects which, due to the perpetual nature of portfolio due to sterling weakening against historical and present performance, future the assets and the depth and liquidity of the theUS dollar. risks and macroeconomic forecasts. They also rental housing market, are now valued based factor in secondary market assumptions. on periodic broker reports for each property. These cash flows are then discounted using Balfour Beatty plc Annual Report and Accounts 202242 ### MOVEMENT IN VALUE 2021 TO 2022 Methodology and assumption changes Equity Distributions Sales Unwind of Operational Discount Revised £m 2021 invested received proceeds discount performance FX 2022 rate Other 2022 UK 474 8 (27) – 36 43 – 534 14 – 548 US 632 22 (62) (93) 49 96 85 729 40 (26) 743 Strategic report Total 1,10 6 30 (89) (93) 85 139 85 1,263 54 (26) 1,291 Both forms of valuation methodology reflect ### market values and therefore change with UK PORTFOLIO VALUE AT A RANGE OF DISCOUNT RATES movements in the market. 900 The only change made to the UK portfolio was a reduction of 0.25% in the base reference 800 discount rate applied to each project. This 700 | change has increased the valuation by | | | | 612 | | --- | --- | --- | --- | --- | | £14million. The approach to the project | 600 | | 548 | | | specific risk premia that are added to the | | 495 | | | 500 reference discount rate remains unchanged. 529 The resulting UK discount rates range from 400 474 430 6.75% to 8.75% depending on the maturity Directors’ valuation £m and risk of each project. The implied weighted 300 average discount rate for the UK portfolio is 200 7.9% (2021: 8.1%). A 1% change in the +2% +1. 5% +1% +0.5% DV case -0.5% -1% -1.5% 2% discount rate would change the value of the Discount rate UK portfolio by approximately £59 million. December 2022 December 2021 The changes to the US portfolio comprise discount rates and methodology changes for ### the military housing portfolio. Discount rate US PORTFOLIO VALUE AT A RANGE OF DISCOUNT RATES changes increased the valuation by £40million. Following these changes, discount rates 1,200 applied to the US portfolio now range between 1,000 6.0% and 10.5% and the implied US weighted 838 average discount rate is 7.9% (2021: 8.3%). 743 800 666 A1% change in the discount rate would change the value of the US portfolio 600 714 byapproximately £86 million. 632 566 For the military housing portfolio, specific 400 changes have been made to rental growth Directors’ valuation £m 200 rates, overheads and tax. Rental growth rates on each project are now based on the average 0 growth rate over the last ten years. +2% +1. 5% +1% +0.5% DV case -0.5% -1% -1.5% 2% Theoverheads and tax changes are based Discount rate onan assessment of the minimum amount December 2022 December 2021 that a purchaser of the portfolio would factor inwhen arriving at an acquisition valuation. ### Therental growth, overhead and tax changes PORTFOLIO INVESTMENT, DIVESTMENT AND DISTRIBUTIONS reduced the valuation by £26 million. As demonstrated through the operational 1,500 250 performance gain in the year, the portfolio 1,250 remains positively correlated to inflation. 200 1,000 A1%change in the long-term inflation rate 150 inthe UKportfolio would change the valuation 750 by approximately £28 million and a 1% change 100 500 inthe long-term rental growth rate in the 250 50 USportfolio would change the valuation by approximately £80 million. 0 0 As in previous periods, the Directors’ valuation -250 -50 may differ significantly from the accounting Directors’ valuation £m book value of investments shown in the financial -500 -100 Investment, sales and distributions £m statements, which are produced in accordance | | -750 | | | -150 | | --- | --- | --- | --- | --- | | with International Financial Reporting Standards | | 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 | | | | (IFRS) rather than using a discounted cash | | Distributions | Investment Sales Directors’ valuation | | flow approach. A full reconciliation is provided in section i) of the Measuring Our Financial Performance section. Balfour Beatty plc Annual Report and Accounts 2022 43 Watch our animation to learn about our low-carbon alternatives: SCAN TO WATCH MAIN IMAGE: Royal Botanic Garden Edinburgh - Biomes initiative. Balfour Beatty plc Annual Report and Accounts 202244 INNOVATION IN SUSTAINABILITY Strategic report ## Towards a ##  ## construction site ### With around 39%¹ of global carbon dioxide emissions being directly associated with ### buildings, decarbonising the built environment sector is key to mitigating climate change. With climate change one of the biggest global challenges, we believe our industry must work together at scale to shift the dial on decarbonising construction as a whole. That’s why we have set out a roadmap to deliver a zero carbon construction site, identifying the gaps and challenges preventing zero carbon construction. Working in collaboration with our customer the Royal Botanic Garden Edinburgh, the designer and our supply chain partners, and drawing on the expertise of the whole UK business, we’re trialling this live on the Biomes initiative. From the materials used, developing our people’s green skills, the logistics of transporting people, plant and products to and from the site and all the activities that take place on site during construction up until handover – we’re examining every element of the project to find lower carbon options and solutions. ### KEY PROJECT LEARNINGS | Geopolymer concrete | Recycling glass | Surplus topsoil | Green skills | | --- | --- | --- | --- | | We have been working with Roisin | We have been exploring how we | Topsoil is a precious resource and | Having a construction workforce | | Hyde, a Fulbright award-winning | can reuse the glass that will be | every effort should be made to | that is trained and ready to deliver | | Architect and Doctoral Research | removed from the iconic Victorian | reuse 100% of it. We relocated | net zero is essential. We are rolling | | Student at Queen’s University | Palm house. While glass is an | c.50 tonnes of soil to local | out a UK-wide Carbon Conscious | | Belfast in the area of Novel | easy product to recycle and reuse | allotments as well as supporting | Education programme to ensure | | Materials, Architecture and Design | (and is often in high demand) we | school’s charitable initiatives. | employees understand the carbon | | (NoMAD), on her geopolymer | are keen to use the palm house | Inanagreement with Scottish | costs of their behaviour and how | | concrete solution. This is a | glass which is so critical to the | Environment Protection Agency | they can play their part in helping | | low-carbon concrete substitute | Royal Botanic Garden Edinburgh, | (SEPA), the use of the greenfield | Balfour Beatty reduce its carbon | | made from up to 96% waste | to demonstrate how circular | soils is not subject to regulation as | footprint – as well as reducing the | | materials from mining, quarrying, | economies can work at a local | a waste activity which means we | carbon impact of their own activities. | | metallurgy, water purification, | scale. We are working with our | can work with the material as a | | Our action: We are working with incineration and agriculture. supply chain partners, glass clean material. partners to ensure qualifications specialists, research facilities and Our action: We are exploring how Our action: To continue to Think and training frameworks reflect concrete producers to see if we we can bring geopolymer concrete Global, Act Local and try and the importance of carbon-related can reuse the glass for something into use on a commercial scale on maximise the local reuse of any knowledge and skills, andalso that would be a useful addition to ourprojects. surplus materials from the project. providing training to oursupply chain. the project or the wider Royal Botanic Garden. Our action: Once the trial has concluded in mid 2023, the results will beshared with the rest of the business to ensure as many schemes as possible benefit. We want to encourage others across the sector to take action by sharing our progress and SCAN TO VIEW learnings through a publicly available online diary. 1. https://worldgbc.org/article/bringing-embodied-carbon-upfront/. Balfour Beatty plc Annual Report and Accounts 2022 45 ### HEALTH, SAFETY AND WELLBEING ## Keeping our ## people safe ### Making safety personal. Treating health like safety. ### Project by project, day by day. wewill achieve, day to day, project by Health and wellbeing is an project, business unit by business unit. In important part of Balfour Beatty’s ## Q many places we are already achieving Zero Zero Harm strategy, what do you Harm. Iwas delighted, for example, that our dooutside of work to look after Asset & Technology Solutions business your ownwellbeing? celebrated zero LTIs in 2022, and we will I am certainly not a saint when it comes to continue to work tirelessly to make Balfour wellbeing, but I do try to eat healthily, and Beatty a Zero Harm organisation. keep fit. Sport is a very big part of my life, and a great way to unwind. At the age of 54 Working closely with Balfour Beatty's I’m still playing league cricket to a reasonable leadership teams, and the Board’s ## Q level, and I managed to play rugby till I was Safety and Sustainability Committee, 48 – my last season was in the same team how will you use the governance ## Q&A with our Health, asmy son Lewis which was very special. framework to drive the Company's ## Safety and Environment Zero Harm strategy in 2023? ##  I think there are two angles to our governance framework; sponsorship and accountability. The Safety and Sustainability What’s your career background Committee provides Board-level sponsorship been so far? and a clear mandate: to make Zero Harm a ## Q fundamental tenet of our business, and to I spent 25 years with National Grid take whatever steps are necessary to achieve where I’d say my career trophies were it. The governance framework underpins this, forming large scale, collaborative and ensures we deliver against this mandate. construction delivery vehicles, particularly ## Lee's appointment, together around Alliances. I finished as Head of Within Balfour Beatty we have industry- ## Procurement for the UK, before leaving to leading health and safety processes. The with his regular attendance at work as a contractor in various organisations governance framework holds us to account, ## and reporting to the Safety including Lend Lease, the Commonwealth ensuring that we have the discipline to do ## Games in 2014 and Gatwick Airport. what we say we are going to do, to make and Sustainability Committee, safety personal and send people home safely. I first joined Balfour Beatty in 2017 as a ## have ensured the Committee Project Director and was appointed as HS&E What will your focus be within ## Director in2022. maintains its focus on health HS&Eat Balfour Beatty? ## Q ## What does Zero Harm and safety, and is well-placed For me it is about making sure that we mean to you? extend our operational reach by collaborating ## Q to understand the challenges Personally, I believe Zero Harm is our consistently and effectively with key groups ## guiding principle for keeping all our people of people like the supervisory community, facing the Group.” safe and well. Is it a hard-wired, data-driven thesupply chain, and joint ventures. As ### target? No, it definitely isn’t. But is it a vision? Stuart Doughty, non-executive Imentioned earlier, we have industry-leading ### Absolutely. It’s a real ambition that is processes, but it’s about convertingthe Director and Chair of the Safety eminently possible and is something that behaviours on the ground toaZero Harm reality. ### andSustainability Committee Balfour Beatty plc Annual Report and Accounts 202246 # Governance The Group's safety culture is led by the Board and the Executive Committee. The Board's Safety and Sustainability Committee (SSC) reviews the Zero Harm strategy, monitors progress against the strategy's performance indicators and ensures accountability. The Executive Committee sets strategic priorities and reviews any serious incidents, and Safety, Health & Environment Leadership Team (SI-ELT) meetings provide the opportunity for managing directors to offer insight and input from operations to help inform the Zero Harm strategy. Group-wide oversight and governance are delivered through the SSC and Executive Committee, while the Group Health, Safety, Environment & Sustainability Forum is a vehicle for learning, sharing and strategic development across Balfour Beatty's three geographies. Key outputs from the forum have included the roll-out of the Observation App across the US business, and the successful delivery of the new What3Things? initiative through Balfour Beatty worldwide. See page 49 to find out more. # Performance Through redoubling Balfour Beatty's efforts on preventing serious incidents and injuries, and the rollout of the What3Things? initiative the Group recorded a year with no fatalities, and a 37% reduction in its major injury rate (excluding international joint ventures), from 0.05 in 2021 to 0.03 in 2022. Balfour Beatty also reduced its lost time injury rate (LTR) to 0.15, excluding international joint ventures. Improvement on these key lagging indicators reflects the Group's continued desire to keep colleagues and supply chain partners safe from harm. Balfour Beatty continues to establish challenging leading indicators designed to improve and enhance the organisation's safety culture. These leading indicators stretch and challenge the business on all aspects of health and safety, including the raising of safety-related observations. The Group registered 380,000 safety observations in 2022 – a 28% increase on 2021, and an increase of 79% since 2019. In the US, the continued roll-out and take-up of the Observation App has seen the number of observations double in 2022 to over 80,000. In Florida, the 'Make it Count' challenge saw teams competing to raise large numbers of high-quality observations. Balfour Beatty colleagues continue to recognise the Group's positive safety culture, with 90% of respondents to the employee engagement survey saying that they saw evidence of Zero Harm in their workplace, an increase from 87% in 2021. LOST TIME INJURY RATE AND OBSERVATIONS ![img-4.jpeg](img-4.jpeg) 1 The 2022 LTR adjusted upwards following 2023 internal re-classification of incidents within one business area. 2 Excluding international joint ventures. ![img-5.jpeg](img-5.jpeg) # Post pullers Additionally, vehicle restraint system (VRS) posts are removed using shackles and chains with operatives working near live machinery. On the Smart Motorways Alliance M3 J9-14 improvement scheme project, Balfour Beatty worked with the supply chain to introduce a post puller excavator attachment. The innovation has improved safety and efficiency by removing the need for operatives to work near machinery when removing posts, thereby reducing people/plant interface. The new process also generated a saving of 24 shifts, the equivalent of four weeks and four days, as the speed of post removal increased. The waste products are cleaner as entire concrete footings can be pulled out in one piece before curing broken up, separated, and loaded into wagons which has saved the project £20,000 in mitigated tip fees and reduced the amount of CO₂ produced as each load is classed as clean concrete. Overall, the innovation saved the project over £50,000. It has been shared across Balfour Beatty and across National Highways and the SMP Alliance through the National Learning and Digital Efficiency register. Balfour Beatty plc Annual Report and Accounts 2023 47 Strategic report ### HEALTH, SAFETY AND WELLBEING CONTINUED ### Performance continued ##  Balfour Beatty is committed to learning and continuous improvement. Serious Incident Balfour Beatty understands that inspirational supervision will drive improvement and safety across the Executive Reviews, led by the enabling business and is committed to investing in this community. In the UK, Balfour Beatty has over 1,200 supervisors function, identify learnings from any incidents who are responsible for embodying a Zero Harm culture; motivating and supporting project teams. that occur, either within Balfour Beatty or the The Supervisor Task and Finish Forum (STaFF) was created to give supervisors a voice within the business wider industry. In the UK, the Weekly Best and a platform to share their knowledge and expertise. Comprising a number of different workstreams, and Practice and Incident Report now highlights focusing on competence and leadership, the forum has delivered several initiatives in 2022. details of the relevant Golden Rules and A Supervisor Development Programme Forum has been developed with colleagues across the business What3Things? applicable to any incidents as to give all supervisors the opportunity to complete a six-day ILM3 accredited qualification upskilling them well as key lessons learnt from previous in areas such as performance management, commercial awareness and motivational leadership. Supervisor Passports are also being introduced to give Balfour Beatty and supply chain supervisors a incidents. In the US, ‘Safe & Lean’ briefings digital identity and record of competence, creating an online register of certified, competent supervisors. highlight incident trends and provide personal Individuals must complete 12 e-learning modules based on Balfour Beatty’s Zero Harm strategy 12-point insights from senior leaders. action plan to qualify for a passport. The STaFF is also piloting a structured mentoring programme to protect corporate memory within the supervisor community. The Group’s focus continues to be on risk The Forum has reported on the progress of key workstreams to the SHELT and the Executive Committee. elimination through both design and a back-to-basics focus, as well as supporting Next steps to Build to Last for Zero Harm the key role of supervisors. In the US, targeted campaigns based on key risks have seen hand injuries drop by 30%, while a targeted | Ladders Last campaign reduced the number | | Communications | | | Competence | | Community | | --- | --- | --- | --- | --- | --- | --- | --- | | of ladder incidents by two-thirds. | Harnessing and sharing expertise | | | Right skills and support | | | Planning ahead | | Key outputs of the Zero Harm strategy in | Communications | | Supervisor Development | | | Gated Business Lifecycle | | | 2022 included the Supervisor Task and Finish | @ Effective communication | | Programme ‘A career not just | | | (GBL) involvement | | | | | channels to be established | ajob’ | | | @ Business units to use | | Forum, a group created to give frontline including a supervisor @ 100 nominations for a supervisors as a resource managers a voice in forming the strategy. In directory for Group bespokeBalfour Beatty ILM3 earlier in GBL line with Balfour Beatty’s clear, uncompromising qualification for supervisors @ Quarterly supervisor All vision of Zero Harm. Resourcing Hands Call to be @ Obtain support across Balfour @ Identify existing established Beatty including at Board-level employees within the @ Link into job families business who could Supervisor Forums consider the supervisor @ A quarterly UK forum to Mentorship and cross-learning career pathway bring together supervisors @ Mentoring to be a personal from across different @ Identifying supervisors development review objective business units with from different populations for experienced and aspiring managing directors including those who are supervisors directly employed, @ Forums established within @ A digital peer review form freelance, and different business units forsupervisors subcontracted Supervisor Passports for our supply chain @ Passports to ensure supply chain have the correct training and competency @ Digital access to be rolled out in2023 INNOVATION IN SAFETY ##  | Tragically, the Group was made aware | The technical solution was achieved through | | --- | --- | | ofanumber of fatalities involving other | an interlock system, which can be retrofitted | | contractors in the industry resulting from the | to lorry loaders. While this solution was being | | use of swing-up stabilisers on lorry loaders. | rolled out, Balfour Beatty put in place | | Tohelp eliminate this risk for the entire | additional competency requirements for lorry | | sector, Balfour Beatty led a collaboration, | loader operators, and additional supervision. A | | bringing together the Association of Lorry | passporting system, accessible via QR code, | | Loader Manufacturers and Importers | was introduced in conjunction with ALLMI to | | (ALLMI), other Tier 1 contractors, and | ensure that our sites could tell at-a-glance | | suppliers to bring about industry-wide change. | whether operators entering a site had fulfilled | the additional competency requirements. Balfour Beatty issued asafety alert to the From 1 January 2023 Balfour Beatty will not industry, using its network and influence to permit on its sites any swing-up stabilisers raise awareness, particularly within the that have not been modified. supply chain, of how to control the risks of operator entrapment during the operation of Balfour Beatty collaborated relentlessly across swing-up stabilisers. Balfour Beatty helped the industry to remove this hazard by design, pilot a technical solution and promoted recognising that it is only through industry-wide temporary supervision measures Until such collaboration that the construction industry will a system could be rolled out. move towards Zero Harm. Balfour Beatty plc Annual Report and Accounts 202248 ## What3Things? Strategic report | The What3Things? (W3T?) initiative was | When used alongside the Golden Rules, | While specific themes have varied across | | --- | --- | --- | | launched in 2022, acting as a natural | the simplicity of W3T? empowers everyone | the Group’s geographies, the impact of the | | companion to the focus on our 10 fatal | on site to make safety personal. Colleagues, | clear, simple message of W3T? has already | | risks. Balfour Beatty remains committed | clients and supply chain partners can use | been felt across the business, and is | | todesigning out and eliminating risk; the | the quick reference W3T? pocket cards | reflected in the Group’s positive lagging | | Group’s Fatal Risk Working Groups (FRGs) | and posters to check work activities and | indicator trend. With its focus on operative- | | continue to focus on eliminating risk by | challenge anything they think might be unsafe. | level communication, simplicity of message | | design. W3T? was designed to complement | | and clarity of purpose, it was estimated the | Each region of the Group has adapted the this work by ensuring simple, effective application of W3T? could prevent 80% of W3T? concept to suit their work activities, mitigation of residual risk. incidents on construction sites. Indeed, risk profiles and local regulatory requirements. analysis of the trends of high-potential W3T? is a practical and accessible quick For example, in the US W3T? tied into the incidents across Balfour Beatty showed reference tool for colleagues to use on OSHA ‘Fatal Four’ risks, and in Hong Kong that the application of W3T? could have sites, which highlights the three key safety key messages around working in hot and prevented 96% of high-potential incidents measures for each fatal risk. These humid conditions were added to the that occurred in June and July 2022. measures range from checking permits W3T?topics. Recognising its position and responsibility and personal protective equipment, to The Group’s Safety Stand Up activities in as a respected industry leader, Balfour ensuring appropriate exclusion zones and September 2022 focused on W3T?. Each Beatty shared the W3T? initiative with specific systems of work. They were identified site was encouraged to take ownership of other Tier 1 contractors in September 2022. from a variety of sources, including the the initiative by engaging with the fatal incident review process, horizon scanning risks and associated W3T? most applicable of the industry, and the observation app. to their work activities. Watch our video on What3Things? SCAN TO WATCH ABOVE: colleagues from across the Group stop work for the Safety Stand Up events to discuss What3Things? Also, included above examples of our What3Things? communication materials. Balfour Beatty plc Annual Report and Accounts 2022 49 ### HEALTH, SAFETY AND WELLBEING CONTINUED ##  ## Suicide prevention ##  ## awareness Balfour Beatty recognises that a healthy and safe workforce is essential to achieve a Balfour Beatty US took an active part in successful, sustainable business and remains Suicide Prevention Awareness Month in committed to treating health like safety. It is September to raise awareness of mental pivotal to the Group’s success that innovations health and to create a supportive culture to improve the health of the workforce are where colleagues and supply chain partners shared and promoted across the industry, can help support those experiencing mental protecting the health of the shared supply chain. health challenges. In addition to hosting a | In the UK, the ongoing work on health is | suicide prevention webinar with the | | --- | --- | | underpinned by the Health and Wellbeing | founding leader of the Construction | | Maturity Matrix, which allows each project | Industry Alliance for Suicide Prevention | | and business unit (BU) to benchmark against | (CIASP), Balfour Beatty launched a new | | best practice for 10 categories including | dedicated mental health website, Suicide | | wellbeing, mental health, and governance. | Prevention Awareness, to provide ongoing | | Atthe beginning of 2022, each project and | support to those experiencing difficulties. It | | BU was required to self-assess its level of | is designed to connect individuals to | | progress (beginner, committed, established, | leading support organisations and | | or advanced/leader) and create a detailed | associated resources, and is available to | | plan of how to improve to reach the next | employees and supply chain partners in | | stage. Demanding performance expectations | both English and Spanish. It provides quick | | have been set, with all projects and BUs | access to the 988 Suicide & Crisis Lifeline, | | tasked with achieving Level 4 (advanced/ | the Substance Abuse and Mental Health | | leader) in each category by the end of 2023. | Services Administration (SAMHSA) | | The matrix has successfully driven | National Helpline, the National Domestic | SCAN HERE TO VISIT | improvement as 93% of business units | Violence Hotline and resources from the | THEWEBSITE | | --- | --- | --- | | achieved on average either established or | Construction Industry Alliance for Suicide | | | advanced status in 2022. | Prevention (CIASP). | | Balfour Beatty continues to support and co-chair the Health in Construction Leadership ### Mental health focus on sources of support saw an increase Group (HCLG) and actively participates in its Our Golden Rules are the cornerstone of of 26% in support requests to the employee sub-groups. Building on the organisation’s Zero Harm, they are: be fit for work; always assistance programme in the UK, through strong affiliation with construction mental receive a briefing before starting work; report heightened confidence and knowledge of health charity Mates in Mind, colleagues all unsafe events and conditions; and stop what it provides to employees. In the US, from Balfour Beatty took over the chair of the work if anything changes. The Group’s focus colleagues were signposted to resources during Mental Health Working Group in 2022. In the on Be Fit for Work looks at not only good Stress Awareness Week and educated about HCLG's Respiratory Risk Group, Balfour physical health, but also positive emotional the link between stress and physical health. Beatty has been working with 3M to develop and mental health. In the UK, Balfour Beatty maintains a strong a respiratory protective equipment (RPE) Balfour Beatty has invested heavily in its partnership with Mates in Mind, and standard. Designed to remove reliance on frontline response to mental health in the cohosted a stand at the Safer Highways Live disposable respiratory protection, this folded workplace. In the UK, over 500 trained event. Balfour Beatty supports the charity's pocket card provides guidance and instruction Mental Health First Aiders support ambition to tackle mental health in apprentice for the end user on more effective respiratory colleagues, while in the US over 300 populations. Committed to relentless equipment, and can be distributed to the colleagues have completed the 'Question, collaboration wherever it operates, and supply chain. Persuade, Refer' mental health training. recognising the vital importance of charities, The Group is also committed to improving Trained first responders are the first line of contractors and industry groups working awareness of health issues among its support for those struggling and therefore together to tackle mental ill health, Balfour frontline workforce. A new e-learning health can find themselves in challenging situations. Beatty worked with supply chain partner course, Managing Health Risks in Construction, To help support these colleagues, Balfour Ford, to support the launch of the mental was launched in 2022. Designed to effectively Beatty’s occupational health professionals health campaign ‘Make it Visible’. The manage health risks in the workplace, this have developed in-house trauma support initiative is designed to raise awareness and eight-part course is an enhanced, bespoke training to provide post-incident mental promote the support available for individuals evolution of the course Balfour Beatty health support. struggling with mental health. A fleet of designed in conjunction with the British branded cars signposting individuals to Occupational Hygiene Society. In keeping In the UK, Balfour Beatty marked Mental support will transport Mental Health First with the Group’s focus on relentless Health Awareness Week with a campaign on Aiders to sites across the country. Balfour collaboration, the course has been shared the week’s theme of loneliness. It covered a Beatty piloted the scheme at Lewisham with colleagues from across the Group, and series of related themes, such as bereavement, Gateway, London and was invited to will be shared with the wider industry and and identified specific sources of support for participate in a panel discussion at the contractor groups. people at higher risk of loneliness in our Commercial Vehicle Show at the launch industry, including young people, carers, ofthe campaign. parents and returning workers. The campaign’s Balfour Beatty plc Annual Report and Accounts 202250 INNOVATION IN SAFETY ## Awards Balfour Beatty’s health and safety performance has been recognised by a wide Strategic report array of industry bodies and clients in 2022. In the UK, Crossrail C530 Woolwich won the Health & Safety Excellence Award at the Construction News Awards. The Balfour Beatty-led project team achieved six years of work, just over fivemillion hours, without a statutorily reportable incident and two years and five months without a lost time incident. The judges commented: “Often, our industry thinks that to deliver success, they have to do something new, but this team has demonstrated that focusing on the delivery of the basics and being unrelenting in the approach to doing them well has transformed the culture, behaviours, and standards they expect to deliver every day.” In the UK, Balfour Beatty, in collaboration with Flannery Plant Hire, won the Training Excellence Award for the Operator Skills Hub. The Hub was created to raise industry ## standards, respond to the shortage of skilled  workers in the construction sector, and gear up the industry to tackle the large, ambitious In the UK, Balfour Beatty became the first construction company to roll out an infrastructure projects in its pipeline. Automated Cone Laying Machine (ACLM). The unit was piloted in collaboration In bespoke, state-of-the art facilities, the Hub with National Highways across Balfour Beatty’s Connect Plus Services offers health and safety management training consortium, which operates and manages the M25 and its key arterial routes and enhanced training to meet the needs of on behalf of National Highways. Cone laying traditionally puts roadworkers at the industry such as a two-day advanced risk from exposure to live traffic and potential musculoskeletal injury, with engineers’ utility detection course in a operatives lifting up to five tonnes of equipment per shift. The ACLM has custom-made area that mirrors a live automated this process. The machine can lift and deploy cones in under 10 siteenvironment. seconds, both eliminating the need for manual handling and reducing the amount of time operatives are directly exposed to the live road environment. In Hong Kong, Gammon received a CT Good Balfour Beatty continues to lead the industry in setting new standards for Jobs health and wellbeing award for the third safety and moving towards achieving Zero Harm. year running, receiving the Grand Best Corporate Wellbeing Programme Award. Flagship commercial development project, Anton Street, won no fewer than six awards Watch our video to see from the CIC, including a Gold Considerate the machine in action. Contractor award and a Gold Innovation for SCAN TO WATCH Safety and Excellence Award. Three individuals on the project were also recognised with ‘model worker’ awards. At a national level, Balfour Beatty US received the AGC Safety Award from the Texas Highway, Heavy, Utilities & Industrial Branch of the Associated General Contractors of America for the 25th time in 27 years. This award recognises contractors that achieve a recordable incident rate that is 25% below ## In Hong Kong, Gammon the national average. ## received a CT Good Jobshealth ## and wellbeing award for the ## third yearrunning, receiving the ## Grand Best Corporate Wellbeing ## Programme Award.” Balfour Beatty plc Annual Report and Accounts 2022 51 ### ETHICS AND COMPLIANCE ## Doing the ##  ### Every day we are trusted by customers, business partners and the ### communities we work with and for, to do the right thing, make a difference ### and to behave responsibly. That includes treating each other fairly, respecting ### our business partners and caring for our communities – leaving a legacy we ### can be proud of. It also means being transparent and acting with integrity. ### Ethics programme concerns, with 82% of responders confident that ### SPEAK UP HELPLINE Under the ownership of the Board, the ethics reports of unethical, dishonest or unacceptable ### CASESNUMBER | and compliance programme implements a | behaviour would be acted | upon. The Group's | | | | --- | --- | --- | --- | --- | | framework of policies and procedures to | no retaliation policy encourages | the reporting of | | | | ensure the Group’s commitment to doing | possible ethical breaches and offers | | | | | theright thing. | protection for individual employees. | | | | | | | | 295 | 292 | 279 | In addition to launching a new Code of Ethics | In 2022 a total of 279 reports were received | | | --- | --- | --- | | in June 2022, other improvements to the | across the Group, an increase of 42% from | 236 | | ethics and compliance programme have | 2021. Substantiated cases also saw a | | 196 | included enhancement of the team, with the | significant increase from 9% in 2021 to 23% | | | | | | | --- | --- | --- | --- | --- | --- | --- | | hiring of dedicated ethics and compliance | in 2022. This is a positive trend attributable in | | | | | | | personnel in both the UK and US. In relation | part to the launch of the new Code with | | | | | | | to the US military housing business, Balfour | improved employee awareness of doing the | | | | | | | Beatty continued to cooperate with the US | right thing and the importance of speaking up. | | | | | | | Department of Justice under the terms of a | Employee conduct continued to constitute | | 18 | 19 | 20 | 21 22 | | Monitorship Agreement entered into on | the majority of cases received (45% in 2022, | | | | | | | 6September 2022. | 44% in 2021) followed by cases relating to: | | | | | | | | Code of Ethics violations; fraud, deception | CASES PER 1,000 | | | | | During 2023 the ethics and compliance | programme will be enhanced with the | and dishonesty; and health and safety. | EMPLOYEES | | | | | --- | --- | --- | --- | --- | --- | | completion of an external and independent | Confirmed breaches of the Code of Ethics | (BALFOURBEATTY) NUMBER | | | | | risk assessment across the Group. Further | may result in disciplinary action, including | | | | | | focus will also be given to improving | termination of employment for serious | | | | | | speak-up reporting and analysis with a | breaches. A substantiated breach by a supply | | | | | | | chain partner may result in termination of | | 15.8 | 15.5 | 15.8 | retender and anticipated consolidation of theGroup’s ethics management systems, their contract. together with the engagement of a new 12.0 11.0 ### ethics and compliance e-learning and Data privacy trainingcontent partner to enhance the Balfour Beatty continues its efforts to ensure focus, effectiveness and usability of a defensible position against the requirements trainingcontent. of data protection law, including compliance with the UK GDPR. Recent activities include ### Speak Up helpline rolling out a new method for assessing the severity of personal data breaches, a more 18 19 20 21 22 Fostering a speak-up culture, in which employees | feel empowered to talk about any issue, is | | comprehensive approach to delivering | | --- | --- | --- | | essential. Balfour Beatty actively encourages | | training, developing new guidance notes and | | speaking up in the event of a question or | | updating existing privacy notices. Going | | concern and provides a variety of channels | | forward, we will review our accountability | | through which employees and stakeholders | | measures including documentation obligations | | may do so, including the Balfour Beatty | | and ensuring processing activities are | | Speak Up helpline. The 2022 employee | | accurately mapped and risk-assessed | | engagement survey showed that 83% of | | ifrequired. | | UKand US responders felt | able to express | | Balfour Beatty plc Annual Report and Accounts 202252 real-life scenarios to discuss why business ethics matters and the critical role senior leaders play in setting the Strategic report tone and promoting a culture of doing the right thing. 97% of in-scope senior leaders completed the training. All-employee training included tool-box talks for frontline project-based teams In June 2022 Balfour Beatty launched a and a new e-learning module for all new Code of Ethics across the Group. other employees. All training included Underpinned by the values and scenarios tailored and relevant to the behaviours in our cultural framework, the audience to help bring the Code’s Code sets out clearly the principles that principles to life. 95% of in-scope should guide everyday decision making employees completed the e-learning. to ensure that we all do the right thing. It is there to support everyone in the As a principles-based document the decisions we make, empowering us to Code applies equally to our external hold each other accountable and business partners. Details of the new challenge when we feel Balfour Beatty’s Code and Supplier Standards were standards are being undermined or our issued to all supply chain partners. reputation put at risk. The Code applies Business leaders were also equipped everywhere, every day to everyone who with talking points to communicate works with and for us. It tells others what Balfour Beatty’s approach to ethical they can expect of and from us – the business and the new Code with key ### Improving industry standards standards that we set ourselves in being customers and partners. The Group plays its part in supporting others 'Trusted' and how we ensure that our In 2023 we will continue to embed too, and strives to help improve ethical decisions and actions are consistent with understanding of the Code’s principles business standards across the industry, our Values. through further targeted communications regularly interacting and supporting industry Mandatory ethics training was rolled and training, together with appointing bodies for ethics such as the Institute for out across the Group to support launch an independent organisation to Business Ethics and the Business Ethics of the new Code. For senior leaders conduct a wider ethical culture survey. Leadership Alliance. this involved workshops that used ### Modern slavery Balfour Beatty is a member of the Modern Slavery Construction Protocol and works closely with the Gangmasters and Labour Abuse Authority to prevent exploitation of workers. During 2023 efforts will be focused on improving governance in this area through the creation of a cross-functional steering committee to set and approve the Group’s strategic objectives in relation to modern slavery, and oversee the activities of the modern slavery working group. ABOVE: examples of the Code of Ethics campaign posters. Find more information on Balfour Beatty’s approach to modern slavery including the Group’s modern slavery statement at: www.balfourbeatty.com/services/ Watch our Code of Ethics video: modern-slavery/. ## 96% of responding UK and US employees confirmed they were familiar with the new Code of Ethics in the employee SCAN TO WATCH engagement survey. Balfour Beatty plc Annual Report and Accounts 2022 53 ### TAX STRATEGY ## Being a responsible ## taxpayer ### This tax strategy has been prepared and published in accordance with ### paragraph 16 (2), Schedule 19, Finance Act 2016, on behalf of Balfour ### Beatty plc and all UK tax resident entities in the Balfour Beatty Group. ### Being a responsible taxpayer Tax risk appetite @ tax risks in relation to compliance and Balfour Beatty recognises that paying taxes The Group manages its tax affairs in a reporting are managed by meeting arising from its activities is an important part proactive manner that seeks to maximise regularly with professional advisers, of how it supports the communities in which shareholder value and as such utilises tax industry groups and the tax authorities to it operates. The Group makes a major incentives or opportunities for obtaining tax both keep abreast of changes in these contribution to the tax revenues of efficiencies where appropriate and where areas and to seek information on new governments in the numerous territories in they support genuine commercial activity. systems and software; and which it operates. For example, the Group’s The Group does not enter into artificial @ risk in relation to tax in general is managed tax contribution extends considerably beyond arrangements that lack commercial purpose by the internal tax team and if a position is corporation tax and the collection of in order to secure a tax advantage. The aim is uncertain the Group may obtain third-party substantial amounts of income tax and to ensure full compliance with all statutory advice in order to gain clarity or support for includes the payment of significant employer obligations and as a consequence attempt to a particular stance or approach. social security contributions. minimise risk wherever possible. Any tax risks are included in the Group Risk The Group’s tax strategy, approved by the Balfour Beatty does not tolerate tax evasion Register as part of Balfour Beatty’s Group- Board, is to sustainably minimise tax cost or the facilitation of tax evasion. Balfour Beatty wide approach to risk management, as set whilst complying with the law. In doing so, applies appropriate procedures and controls out in further detail on pages 84 to 88. Balfour Beatty ensures it acts in accordance which seek to prevent any person acting on with its cultural framework, which provides a its behalf from facilitating tax evasion. ### Interaction with tax authorities simple and clear view of the purpose, values Balfour Beatty’s approach to its tax affairs is ### and behaviours of the Group’s Build to Last Managing tax risk supported by an open, honest and positive strategy. The Group aims to meet all legal There are a number of factors that affect the working relationship with the tax authorities, requirements, filing all appropriate tax returns Group’s tax risk and these arise both with regular dialogue. Should any dispute and making tax payments accurately and on internally and externally. Balfour Beatty’s arise with regard to the interpretation and time. The Group’s tax strategy applies to all ability to control these factors varies and its application of tax law, the Group is committed territories in which it does business. internal tax team works to minimise these to addressing the matter promptly and resolving risks to an acceptable level. For example: it in an open and constructive manner. ### Tax governance @ new and developing tax legislation is Balfour Beatty has clear tax policies, monitored and, where it is relevant, Balfour procedures and controls in place which are Beatty participates in consultations issued overseen by the Chief Financial Officer. by the tax authorities. When new or A dedicated internal tax team, led by the changed legislation is announced, the Group Head of Tax, is responsible for the impact on the Group is assessed and implementation of the Group’s tax strategy active measures are taken to ensure there and supporting tax policies. Members of the are adequate processes in place to comply tax team are highly experienced with with any change; appropriate professional qualifications and experience which reflect the responsibilities required for their roles. Balfour Beatty plc Annual Report and Accounts 202254 ### SUSTAINABILITY Strategic report ## Building for ##  ## Introduction Governance HOW WE MANAGE SUSTAINABILITY As one of the world’s biggest economic The Board’s Safety and Sustainability engines, the construction and infrastructure Committee (SSC) reviews the Group’s ### Safety and Sustainability industry has a major part to play in achieving sustainability strategy and monitors progress ### Committee the United Nations Sustainable Development on sustainability and climate-related issues Goals. Since Balfour Beatty launched its including carbon emissions, materials and The Safety and Sustainability Committee refreshed sustainability strategy – Building waste management, and social and community reviews the Group’s sustainability strategy; New Futures – in 2020 the Group has made matters. The Group Chief Executive has overall monitoring progress and ensuring | significant advances in key areas, including | responsibility for setting Balfour Beatty’s | accountability at Board level. | | --- | --- | --- | | achieving almost 50% of its 2030 £3 billion | sustainability policy and overseeing how | | | social value target. It has also prioritised | Environmental, Social and Governance (ESG) | | | pushing technological boundaries given one | related matters are managed. | | of the main barriers to progress is the gap in The Executive Committee sets the Group’s the technology that is available to help drive sustainability ambitions and targets, directing ### down carbon emissions. Executive Committee each strategic business unit (SBU) to develop | Balfour Beatty is now focused on moving | its own sustainability action plan. Each SBU | | | --- | --- | --- | | from the ambition phase of reduction | has a sustainability lead, who is responsible | The Executive Committee sets overall | | strategies to updating action plans in line | fordeveloping bespoke sustainability action | sustainability targets and ambitions. | | with the latest scientific basis for | plans aligned to the Group’s 2030 targets | | | sustainablemanagement, following the | and2040 ambitions. | | clearpathway set by the UN Sustainable The senior leadership of each SBU is Development Goals. responsible for agreeing its sustainability action Balfour Beatty is aware of the Transition Plan plan and ensuring it is delivered and adequately ### Strategic Business Units Taskforce (TPT) disclosure framework and its resourced. The plans detail how projects proposed development of sector specific should deliver sustainability at a local level, Each strategic business unit has a guidance documents during 2023. The Group recognising that Balfour Beatty has a sustainability lead who is responsible for will work towards integrating the TPT responsibility to ensure it is not negatively bespoke sustainability action plans that are disclosure framework guidance as it develops impacting the environment and bringing about aligned to the Group’s 2030 targets and 2040 ambitions. They ensure projects are managed its own Transition Plan. To support with the environmental benefits wherever possible. sustainably while reviewing and sharing development of this plan, the UK business has Areas of focus within the sustainability action best practice and identifying opportunities formed a cross-functional ESG leadership for improvement. plans include reductions in waste and water, group consisting of its senior leadership which using responsibly sourced timber, reducing have the biggest role to play in delivering ESG GHG emissions, supporting local employment commitments and compliance requirements. and skills including local businesses, and community engagement through charitable fundraising, volunteering, and mentoring. ### Internal audit and external PricewaterhouseCoopers LLP (PwC LLP) ### assurance provides limited assurance over selected greenhouse gas and social value performance Internal audit teams review performance data for annual reporting purposes. against the Group’s sustainability strategy. PwC LLP is engaged by Balfour Beatty to provide independent limited assurance over the reporting of social value, and the Group’s Scope 1 and 2 greenhouse gas emissions. Balfour Beatty plc Annual Report and Accounts 2022 55 ### SUSTAINABILITY CONTINUED What is your visionfor 2023 energy management experts, this easy-to- andbeyond? understand tool will support everyone at ## Q | | There are no ‘silver bullet’ solutions | Balfour Beatty and its supply chain partners | | --- | --- | --- | | when it comes to sustainability. In 2022, we | | to select the right energy sources for plant, | | began to enhance our focus on an ‘every | | equipment, vehicles and buildings – which | | person, every decision, every time’ | | generate the vast majority of the Group’s | | approach, with the aim of embedding a | | Scope 1 and 2 emissions. | sustainability mindset across the workforce in all of the Group’s core geographies. How does your regular attendance at the Safety and Sustainability ## Q What does the sustainability team Committee and direct engagement have in store for Balfour Beatty? with the Board enable you and your ## Q We need to widen our focus to address function to embed a culture of ## Q&A with our Group the Group’s environmental impact beyond sustainability across the Group, and carbon emissions. For example, biodiversity is deliver against the challenges of ## Director of Sustainability | | | not a lesser goal than carbon reduction – they | achieving Zero Waste and Net Zero? | | --- | --- | --- | --- | | Jo Gilroy | | must go hand-in-hand. Balfour Beatty took a | To be truly effective, sustainability in any | | | | principled stand in 2022, declining to transition | organisation must be led from the top down. | | | What has your career background | from diesel to hydrotreated vegetable oil | The active engagement of the Board, and in | | | been so far? | (HVO) in heavy plant. | particular the Safety and Sustainability | ## Q My career as a sustainability professional Committee, provides an additional layer of Procuring HVO at scale while remaining is diverse having worked across multiple governance, and enables me to draw on the transparent, traceable and sustainable is a geographies and sectors. I began my career extensive expertise of the Board and significant challenge. There is real risk that working for IKEA in Sweden before moving Committee members to ensure that our doing so would create a worse environmental to Australia. I returned to the UK to take up sustainability strategy is embodying Balfour problem in the process – with the impact on a position with the FTSE 100 distribution Beatty’s core values, and ultimately doing biodiversity in parts of the world like South and logistics group, Bunzl, as their Head of theright thing. East Asia not yet understood. Sustainability & Corporate Responsibility. I Our priority is therefore not to be distracted worked closely with Government and key by transition options such as HVO but to customers in the hospitality and retail move as quickly as possible to decarbonise sectors to help address ocean pollution Balfour Beatty’s operations and to develop from single use plastics. Ientered the the use of genuinely sustainable alternatives construction sector as Group Head of to diesel – guided by the Fuel Hierarchy² we 2 https://balfourbeatty.com/media/319635/ Sustainability & Environment at Kier before set out in 2022. Developed by our in-house balfour-beatty-fuel-hierarchy.pdf joining Balfour Beatty in April 2022. ### OUR SUSTAINABILITY STRATEGY - BUILDING NEW FUTURES ### ENVIRONMENT MATERIALS COMMUNITIES Responding to climate Choosing the right Improving the prosperity change and managing materials, using less and wellbeing of our impact on the materials and creating individuals and ## Balfour Beatty continues environment value from the materials communities we no longer need ## to make a meaningful ## contribution to the ### Positively Impact | | Beyond Net | Generate | | | | --- | --- | --- | --- | --- | | | | | More than | communities it works in.” | | 2040 | Zero Carbon | Zero Waste | | | ### 1million People AMBITIONS Achieve our £3bn social science-based 40% reduction in value 2030 carbon reduction waste generated generated TARGETS target Local Sustainability Action Plans Balfour Beatty plc Annual Report and Accounts 202256 To meaningfully decarbonise, the Group must ##  ### FIVE-YEAR ROLLING AVERAGE, secure buy-in from clients and design partners ### In its sustainability strategy, Building New SCOPE1AND 2 GHG EMISSIONS to design carbon out from the beginning. The Futures, published in 2020, Balfour Beatty set Group will also continue to engage with supply Strategic report out its 2030 target of halving 2020 carbon 000 tCO 2 e t / £m revenue chain partners to drive innovation to plug emissions (Scope 1, 2 and 3) and an ambition 350,000 35.00 technology gaps. of going Beyond Net Zero Carbon by 2040 on 300,000 30.00 an absolute reduction basis. 2023 actions to cut emissions @ Implementing business-by-business The Group continues to implement and explore 250,000 25.00 improvement plans, supported by better new opportunities to reduce Scope 1 and 2 carbon data and clear annual greenhouse gas (GHG) emissions and its 200,000 20.00 improvementtargets. reliance on fossil fuels. Examples include: | | | 150,000 | 15.00 | | --- | --- | --- | --- | | @ using low or no carbon technologies | @ Where appropriate, mandating low-carbon | | | | andalgorithms to assist decision | solutions in the UK so business units need to | | | | | | 100,000 | 10.00 | | makingandtodrive sustainability | ‘opt out’ rather than ‘opt in’, including | | | | performance improvement, | deploying EcoSense cabins on all new | | | | | | 50,000 | 5.00 | project sites; linked into the EcoNet energy @ reducing onsite generation of electricity management tool, and using the Power 0 from fossil fuels in diesel generators Profiler tool to identify low-carbon through early adoption of temporary 11-15 12-16 equipmentoptions. 10-14 13-17 14-18 15-19 16-20 17-21 18-22 electricity supplies and battery storage technologies; and @ Completing the validation process for a Scope 1 Scope 2 Normalised science-based target validated by the (£m/tCO e) 2 @ electricity purchased via the UK-wide Science Based Targets initiative (SBTi) as supply contract is backed by renewable aligning with limiting global warming to 1.5C energy guarantee of origin (REGO) or <2C as advised by climate scientists. certifications from solar and wind renewable technologies. @ Sharing knowledge across the workforce, and analytics and performance-reporting In November 2022, Gammon, our joint venture capabilities where this is necessary for in Hong Kong, mobilised the Causeway Bay theirrole. office project deploying the Enertainer, an construction and influencing the supply chain electric-powered battery storage system The UK business has also published a Carbon to provide low or no carbon solutions. developed in partnership with its key supply Reduction Plan (available on its website) to From prior year 2021 to 2022 the Group’s chain partner, AMPD Energy. illustrate carbon reduction initiatives and total Scope 1 and Scope 2 GHG emissions provide further information on its carbon In the UK, many of the energy efficiency increased when using a location-based performance and actions to improve. As part improvements and related innovations have approach from 240,781 tCO e to 253,695 or of this plan, the UK business has also 2 been driven by an in-house team which is 5%. Using the market-based approach there committed to a 1.5 degree decarbonisation certified to ISO 50001, the Energy Management is a similar upward trend from 2021 by 8%. pathway and will be submitting its System standard. Gammon, our joint venture in reportingmethodology to the SBTi for The Group’s GHG emissions intensity in 2022 Hong Kong, is also certified to that standard. validation in 2023. decreased by 11% in comparison to 2021 Despite significant progress in reducing from 25.3 tCO e/£m revenue to 22.4 2 material emissions, applying new technologies ### Scope 1 and 2 GHG emissions tCO e/£m revenue when using a location- 2 and accessing renewable energy sources, the Balfour Beatty operates in three principal based approach. Using the market-based Group’s absolute carbon emissions increased geographies – the United Kingdom, the United approach, there is a smaller 9% reduction to in 2022. | | States, and through Gammon in Hong Kong. | 22.3 tCO | e/£m revenue from 24.5 tCO | e/£m | | --- | --- | --- | --- | --- | | | | | 2 | 2 | | Construction is an innately carbon intensive | | revenue. | | | Since establishing its initial sustainability industry and the reasons for the increase are strategy over a decade ago in 2010, Balfour GHG emissions increased in the UK complex. The balance between economic Beatty has reduced its total Scope 1 and compared to prior year by 15%, and in the design, satisfying general public requirements Scope 2 GHG emissions from 357,983 East Asia region increased to a lesser extent for the built environment and delivering against tonnes of carbon dioxide equivalent (tCO e) by 5%. The US decreased overall by 14%. 2 environmentally satisfactory requirements that to 253,695 tCO e or a 29% reduction. 2 align to net zero emissions remains a challenge ### Scope 3 emissions Since the rebaselined absolute reduction given two of these three elements are outside Scope 3 emissions are those not directly target of 2020, the Group's Scope 1 and 2 of the Group’s control. controlled by Balfour Beatty. They occur emissions have increased from 205,517 tCO e 2 In addition, there is a lack of proven low-carbon largely in the Group’s supply chain and make to 253,695 tCO e or a 23% increase. Whereas 2 scalable technology solutions, the impact of up the bulk of the GHG emissions associated the 2020 Scope 1 and 2 absolute emissions global supply chain problems, rising energy with the Group’s activities. As such, measuring are significantly lower than those in 2010, prices and the fallout from the COVID-19 and reducing these emissions is a priority for consistent increases in the past two reporting pandemic which has reduced opportunities to the Group. years beyond the baseline demonstrate that drive low carbon solutions as customers have the construction industry is still heavily reliant The Group engaged the Carbon Trust in 2021 looked to drive efficiencies and in 2022 Balfour on fossil fuels. These increases in its Scope 1 to support the development of a robust and Beatty also saw an increase in the amount and 2 emissions incentivise the Group to go replicable reporting methodology for Scope 3 oftunnelling and earthworks which are further and deeper with alternative low or no Category 1, defined as the most material amongst the most carbon intensive carbon technologies, implementing these as ofthe 15 Scope 3 categories to the elementsof construction. standard, adopting modern methods of Group’soperations. Balfour Beatty plc Annual Report and Accounts 2022 57 ### SUSTAINABILITY CONTINUED ##  SCOPE 1, 2 AND 3 GHG EMISSIONS Base year ## continued Carbon emissions (tCO e) 2020 2021 2022 2 Achieving net zero emissions throughout the Scope 1 162,816 199,002 217,757 Group’s entire supply chain will require effective Scope 2 (location-based) 42,701 41,779 35,938 and coordinated collaboration across many Scope 2 (market-based) 38,596 34,340 34,629 diverse stakeholders, the ability to share Total Scope 1 and 2 carbon emissions information and correctly designed incentives. (location-based) 205,517 240,781 253,695 In 2023, Scope 3 net zero roadmaps will be Total Scope 1 and 2 carbon emissions per £m developed for the largest Scope 3 categories. revenue (location-based) 18.8 25.3 22.4 While Balfour Beatty has made significant Total Scope 1 and 2 carbon emissions per £m progress in collecting Scope 3 data and revenue (market-based) 18.4 24.5 22.3 establishing a 2020 baseline, the final figures Scope 3 3,699,647 3,588,073 3,288,390 remain subject to internal data quality control checks as well as external validation by the Note 1: Scope 1 emissions include those resulting from the activities relating to the direct combustion of fossil fuel and use of refrigerants. SBTi. For this reason the Group is disclosing the Group’s Category 1 Scope 3 emissions Note 2: Scope 2 emissions are indirect from the use of electricity. only to illustrate the scale of these emissions Note 3: The Group’s Greenhouse Gas disclosure metrics and descriptions can be found in Part 2 of the Global Sustainability of this scope in comparison to Scope 1 and Reporting Guidance version 1.6 https://balfourbeatty.com/ sustainabilityreporting. 2emissions. Note 4: Data includes all joint venture operations where Balfour Beatty has operational control including Gammon Construction. In the 2023 Annual Report a full breakdown of Note 5: To calculate the carbon intensity an adjustment to the final revenue has been made from £9,243,759,515 to £11,301,238,688. This includes inter company revenue and revenue from operations where Balfour Beatty has the Scope 3 emission categories will be operational control in line with the Group’s GHG reporting operational control methodology. Where Balfour Beatty provided. The Group has determined that does not have operational control, the Group does not account for any associated emissions or the associated Scope 3 emissions have accounted for more revenue. Where Balfour Beatty has operational control of a joint venture or joint operation, the Group reports 100% than 90% of the Group’s total carbon footprint of the emissions and adjusts the revenue to account for 100% of the associated revenue; an example of this is the in 2020, 2021 and 2022. Scope 3 emissions Gammon joint venture in Hong Kong where an adjustment is made accordingly. are measured using the GHG Protocol Corporate Included within PwC LLP’s limited assurance scope. Value Chain (Scope 3) Standard. ### GHG reporting methodology ### andassurance IEA, EPA or Defra (as appropriate). Balfour does not pay for. In 2022, the Group generated Balfour Beatty’s GHG emissions are reported Beatty’s total energy consumption in MWh is 173 MWh of renewable electricity from the in accordance with the UK Government’s shown on page 59 to allow readers to make widespread adoption of solar cabins, solar GHG reporting requirements covering all more informed comparisons of the Group’s tower lights, solar mobile signage and hybrid seven UNFCCC/Kyoto gases. The Group energy use. generation on project sites. A further 413 MWh uses the operational control approach under Although Balfour Beatty’s Scope 1 and 2 was generated from green hydrogen, see the the GHG Protocol Corporate Accounting and | | emissions measured in tCO | | e increased by 5% | case study below for more information. | | --- | --- | --- | --- | --- | | Reporting Standard as at 31 December 2022 | | | 2 | | | | (12,914 tCO | e) from 2021 to 2022, energy use | | | | to report emissions from its operations | | 2 | | The Group has determined and reported the | measured in MWh decreased by 2% (21,460 around the world. emissions it is responsible for within this MWh). This difference can be explained by the boundary and does not believe there are any In 2022, alongside the location-based method, fact that different fuels have different carbon material omissions. The Group uses the UK Balfour Beatty reported against the GHG intensities, with some fuels attracting greater Government’s carbon conversion factors, Protocol Scope 2 market-based reporting carbon conversion factors than others. The updated in 2022, to calculate its emissions into methodology. This method allows the MWh table does not include fugitive emissions. | | | | equivalent tonnes of carbon dioxide (tCO | e) and | | --- | --- | --- | --- | --- | | application of an emissions factor of zero | | | | 2 | | | | The energy use table illustrates that there has | the IEA’s 2022 international conversion factors | | | tCO | e per kWh to supply contracts from | | | | 2 been a significant shift from the predominant for electricity (Scope 2) except for the UK and suppliers of purchased electricity from use of red diesel in 2020 to 5% biodiesel use in the US where the UK Government and the US renewable sources with a guarantee of origin 2022. This is reflective of the reform of red EPA conversion factors were applied as they certificate. For example, in 2022 in the UK circa diesel and other rebated fuels entitlement in the more accurately reflect geographical carbon 16,000 MWh of Renewable Electricity UK and the replacement of dyed diesel for 5% intensities of local grids. Guarantees of Origin (REGO) certificates for biodiesel blends in Hong Kong. Whereas electricity were procured for electricity PwC LLP was engaged to undertake an comparatively biodiesel blends are less carbon purchased through the Group’s utility independent limited assurance engagement intensive this displacement reiterates the procurement contract. A residual mix emission of the Group’s Scope 1 and 2 emissions, and significant challenges faced by the sector in factor is applied to electricity where a REGO is resulting emissions intensity (expressed as a terms of adopting low-carbon alternative not available. For electricity which does not ratio of emissions to revenue), reporting to technologies for large operational plant and come from a renewable source and a country Balfour Beatty plc using the assurance onsite generation. | specific residual mix emission factor is not | | standards ISAE 3000 (Revised) and ISAE | | --- | --- | --- | | available, Balfour Beatty has applied either the | Balfour Beatty’s Scope 1 and 2 GHG emission | 3410 over the GHG data that has been | | appropriate supplier factor based on the | sources include emissions from assets that are | highlighted in this report with the symbol . | | supplier’s published fuel mix where it is known | otherwise not referred to across the rest of the | PwC LLP’s full statement is available at: | | and can be evidenced, or the country average | financial statements, such as energy provided | www.balfourbeatty.com/ILA. | | electricity emission factor provided by the | by landlords or customers that Balfour Beatty | | Balfour Beatty plc Annual Report and Accounts 202258 ## ENERGY USE IN MWH | Fuel | 2020 | 2021 | 2022 | | --- | --- | --- | --- | | Electricity purchased - green tariff | 12,536 | 15,812 | 21,768 | | Electricity purchased - other | 76,984 | 78,623 | 73,732 | | Electricity from solar renewables | 35 | 372 | 173 | | Electricity from green hydrogen | - | - | 413 | | Electricity total | 89,555 | 94,807 | 96,077 | | Natural gas (includes CNG) | 8,147 | 8,867 | 12,878 | | Industrial gases | 4,687 | 3,358 | 3,666 | | 5% biodiesel blend | 245,452 | 305,510 | 675,875 | | 5% biofuel petrol blend | 54,799 | 123,906 | 53,284 | | Biodiesel | 53 | 33 | 83 | | EBS petrol | 188 | 896 | 221 | | Gas oil (red diesel) | 344,754 | 437,246 | 111,871 | | 100% mineral diesel | 14,071 | 14,614 | 14,281 | | 100% mineral petrol | 3,701 | 3,988 | 3,261 | | LPG | 57 | 143 | 113 | | GTL | - | 3,154 | 3,422 | | Solar fuel | 454 | 472,27 | 423 | | HVD | - | - | 81 | | **Global total** | **765,917** | **996,986** | **975,526** | | **UK energy use % of total** | **50%** | **33%** | **40%** | | **MWh per £m revenue** | **79** | **105** | **86** | Note 1: The figures in this table include energy from all joint venture operations where Balfour Beatty has operational control, including batteries. Note 2: The MWh per £m revenue is calculated using the adjusted revenue figure disclosed in Note 5 to the Scope 1, 2 and 3. GHG emissions table on page 58. The level of assurance provided for limited assurance is substantially lower than a reasonable assurance engagement. In order to reach its opinion, PwC LLP performed a range of testing procedures over the GHG data. A summary of the work PwC LLP performed is included within its assurance opinion. Non-financial performance information, GHG quantification in particular, is subject to more inherent limitations than financial information. The limited assurance statement should be read in the context of the reporting criteria and metrics as set out in Balfour Beatty's Global Sustainability Reporting Guidance available at: www.balfourbeatty.com/sustainabilityreporting. The guidance outlines the non-financial KPIs measured by the Group, their definitions, and evidence requirements. ## TOTAL SCOPE 1 AND 2 CARBON EMISSIONS PER £m REVENUE (MARKET-BASED) ![img-6.jpeg](img-6.jpeg) Source: mwh ### INNOVATION IN SUSTAINABILITY ![img-7.jpeg](img-7.jpeg) ## Hydrogen fuel cell generator On the A63 road improvement scheme we energized Balfour Beatty's first ever hydrogen power unit, which has replaced the 100kVA diesel generator powering site welfare and office accommodation. Using a combined heat and power (CHP) unit, the HPU recycles waste heat (usually rejected to the atmosphere) to provide space and water heating to the cabins. This innovation has been achieved through collaboration, from concept to delivery, by the A63 project team and Balfour Beatty's Highways business with the support of the Asset & Technology Solution team. The unit is fuelled with green hydrogen, produced by an electrolyser powered by renewable electricity and will save 58,000 litres of diesel and 164 tCO$_{2}$ @ GHG emissions. Balfour Beatty plc Annual Report and Accounts 2020 59 ### SUSTAINABILITY CONTINUED ### Biodiversity Business unit sustainability action plans are Climate change and biodiversity loss are being developed to incorporate more detailed mutually reinforcing global issues, often supporting actions covering carbon referred to as twin crises. Biodiversity loss emissions reduction, materials and waste ## The Group works with impairs ecosystem functionality. This adversely efficiency, biodiversity, responsible sourcing impacts ecosystems from delivering a range and social impact. ## itscustomers and design of services fundamental to the quality of ## partners to carefully ### human life, such as carbon sequestration, Environmental impacts ### supporting air and water quality, food and risk management ## measure and minimise production and flood prevention. Balfour Beatty’s business management ## impacts and to deliver The Group works with its customers and systems include environment and sustainability design partners to carefully measure and policies, procedures and tools for identifying ## extensive and innovative | minimise impacts and to deliver extensive | and managing environmental impacts and | | | --- | --- | --- | | and innovative Green Infrastructure (GI) to | risks at an organisational and project level. In | Green Infrastructure | | protect and enhance biodiversity. | 2022 the Group had no breaches in | | ## (GI)toprotect and environmental compliance. However, the In the UK, Balfour Beatty provided all clients ## case raised against Gammon’s project joint enhancebiodiversity.” on the SCAPE frameworks with a free venture, Sanfield-Gammon Construction JV Biodiversity Net Gain (BNG) feasibility limited, for a suspended soilds exceedance in options report which detailed the their water discharge in July 2021 was opportunities to deliver BNG on each project. concluded. The joint venture was issued a The Group is collaborating with leading summons in early 2022, pleaded guilty to the technical experts to earn a reputation in charge and was fined HK$15,000. multiple GI disciplines such as sustainable soilmanagement, habitat creation, habitat translocation and delivery of innovative, multipurpose interventions such asgreen bridges, green walls and sustainable urbandrainage. ## Environmental Social Governance (ESG) ratings and scores | In 2022, Balfour Beatty plc | In September 2022, Balfour | In January 2022, Balfour Beatty | In December 2022, Balfour | | --- | --- | --- | --- | | achieved a FTSE4Good ESG | Beatty plc received an ESG Risk | plc received a rating of AA (on a | Beatty achieved a CDP rating of | | score of 3.3 on a scale from 0 of | Rating of 28.9 from | scale of AAA-CCC) in the MSCI | B which demonstrates that it is | | 5 (higher scores are better) | Sustainalytics and was assessed | ESG Ratings assessment. This | taking coordinated action on | | compared to 3.1 in 2021. | to be at medium risk of | MSCI ESG AA rating, which | climate issues. | | | experiencing material financial | measures resilience to long- | | | | impacts from ESG. The industry | term industry material ESG | | | | average rating is 37.6. | risks, benchmarks Balfour | | Beatty as a leader in managing ESG risks. Balfour Beatty plc Annual Report and Accounts 202260 ##  | | WASTE LANDFILLED | WASTE GENERATED | WASTE GENERATED | | | --- | --- | --- | --- | --- | | The Group’s sustainability strategy includes a | (TONNES/£m REVENUE) | (TONNES/£m REVENUE) | (TONNES) | | | 2040 ambition to generate zero waste from | | | | Strategic report | operations and a 2030 target to reduce the amount of waste generated per £1m of 12 315 revenue by 40%. The target is against a 2021baseline. 3,455,954 8 Conservation of natural resources and 7 204 materials used for its projects is a priority for 198 Balfour Beatty. The Group’s approach to materials and waste management 2,240,945 encompasses avoiding waste by better 1,942,372 design through Design for Manufacturing Assembly and Modern Methods of 22 22 2220 20 2021 21 21 Construction, the procurement of materials and products, and better management of Note 1: Waste generated refers to waste generated to be recycled and waste generated to be landfilled. residual waste by applying the waste Note 2: The Group’s Waste disclosure metrics and descriptions can be found in Part 1 of the Global Sustainability Reporting Guidance version 1.6 https://balfourbeatty.com/ sustainabilityreporting hierarchy. Taking this holistic approach helps to support a circular economy by using Note 3: The waste intensity calculations follow the same principles as the carbon intensity calculations as described in Note 5 on page 58. materials efficiently, keeping them in use and retaining their value for as long as possible. The Group’s sustainable procurement strategy is aligned to ISO 20400 in the UK and Hong Kong, embedding sustainability into the procurement process. INNOVATION IN SUSTAINABILITY 2,149,769 tonnes of waste that Balfour Beatty produced was avoided from landfill in2022, representing 96% of total waste generated, but this does not include materials that were reused directly without entering the waste stream. ### WASTE AVOIDED FROM LANDFILL ## 2,149,769 tonnes Comparing waste data year-on-year will vary depending on the type of projects the Group undertakes and the stages of those projects. Balfour Beatty is working with all business units to improve its waste data and support projects to implement waste and materials management plans. ## Carlyle Crossing (formerly Hoffman Tower) At the Carlyle Crossing project in Alexandria, Virginia, the team’s commitment to sustainability paid off in a big way. This US$300million joint venture project with Walsh Construction includes five floors of garage space, three residential towers and a retail base, totalling 980,000 square feet of mixed-use space. From the outset of the project, sustainability was top of mind for the owners and project team, and they established a goal of recycling at least 75 percent of project waste as well as reducing the project’s carbon footprint. This required meticulous tracking of waste in both pre- and post-consumer material. The team also focused diligently on onsite cleanliness and housekeeping to limit the amount of debris inadvertently produced. The team exceeded their recycling goal, with 81% of construction waste diverted from landfill. ® The project is also on track to become LEED Gold certified. In addition to reducing and recycling construction and demolition waste, the team also placed an intentional focus on sourcing local and regional materials. By doing so, they reduced the transportation of materials and truck emissions, while stimulating the local economy. Balfour Beatty plc Annual Report and Accounts 2022 61 ### SUSTAINABILITY CONTINUED of the social value generated in the UK, ## Positively impact more SOCIAL VALUE reporting to Balfour Beatty plc, using the ### GENERATED TO DATE |  | assurance standard ISAE 3000 (Revised) on | | | --- | --- | --- | | Balfour Beatty continues to make a meaningful | the social value data that has been highlighted | | | contribution to the communities in which it | in this report with the symbol | . PwC LLP’s | 2030: £3bn operates. The Group’s sustainability strategy full statement is available at: (target) | includes a 2040 ambition to Positively Impact | www.balfourbeatty.com/ILA. | | --- | --- | | more Than 1million People and a 2030 target | In order to reach its opinion, PwC LLP | | to generate £3billion of social value. | performed a range of testing procedures over | | The Group has made significant progress in | the social value data. A summary of the work | | this area, achieving almost 50% of its 2030 | PwC LLP performed is included within its | | £3 billion social value target already. | assurance opinion. Non-financial performance | information is subject to more inherent Using the National Social Value Measurement limitations than financial information. Framework, as a method of reporting and | measuring social value to a consistent and | The limited assurance statement should be | | | --- | --- | --- | | recognised standard, Balfour Beatty’s UK | read in the context of the reporting criteria as | | | business delivered £816m of social value in | set out in Balfour Beatty’s Global Sustainability | 2022: £816m | | 2022. A consistent method for measuring the | Reporting Guidance available at: www. | | | social value generated for both the US and | balfourbeatty.com/sustainabilityreporting. | | | Gammon is currently being developed. | The guidance outlines the non-financial KPIs | | | To benefit local areas, the Group uses local | measured by the Group, their definitions, and | | | supply chain partners and employees | evidence requirements. | | 2021: £717m wherever possible and invests in future talent Community investment through through apprenticeship schemes and work volunteering and charitable fundraising placement opportunities. In the UK over Balfour Beatty has a long and proud history £1.5bn was spent with SMEs in 2022. of supporting charities and social enterprises. In the UK, Balfour Beatty employees volunteered ### Social value reporting 19,645 hours for charitable causes and ### andassurance £339,835 in charitable donations were made. PwC LLP was engaged to undertake an This included £100,000 to support its three independent limited assurance engagement Corporate Charity Partners, The Prince’s Trust, Groundwork and Project RECCE. In addition, The Group’s US business donated US$504,262 to charitable causes and our Hong Kong joint venture Gammon contributed HK$2.1m. In December, Balfour Beatty made a significant donation of £24,000 to FareShare, a charitable food redistributor in the UK, and in the US US$29,500 was donated to Feeding America, a charity helping to end world hunger. Balfour Beatty also made a donation of £24,500 to the British Red Cross General Fund Appeal in response to the humanitarian crisis in Ukraine. Balfour Beatty continues to work with associate charity partners who support its business objectives, including The 5% Club, Mates in Mind and Women into Construction, as well as local charity partners which ## Project Together provide the opportunity to positively impact local people and communities within the To help support communities Gammon, our 50:50 joint venture in Hong Kong, joined Link areas we operate. REIT in ‘Project Together’. This initiative partners with social welfare organisations, helping to strengthen their facilities’ function as social hubs, creating happy spaces for the community to enjoy and thrive in. Activities so far include improvement works for two NGOs in Tai Po, including repainting, Scan to find out more about our UK Corporate Charity Partners. floor levelling and ventilation window replacement. Gammon also supported in painting murals on the walls surrounding the facilities. Balfour Beatty plc Annual Report and Accounts 202262 ### Supply chain sustainability into design through its The supply chain are key stakeholders in StrategicDesign Partnership with Atkins, enabling the Group to deliver against its Mott MacDonald and WSP. Strategic report sustainability targets and ambitions. The UK The minimum requirements cover carbon, ## Balfour Beatty recognises | and Hong Kong businesses align to the ISO | material efficiency, social value, biodiversity, | | | | --- | --- | --- | --- | | 20400 sustainable procurement standard to | and Equality Diversity and Inclusion. Furthermore | , | that influencing decision- | | embedsustainability into their procurement | during 2022 the Strategic Design Partnership | | | | strategies. The Supply Chain Environment and | | | making at design stage to | co-created a Carbon Charter to improve Sustainability Requirements document was collaboration onthis agenda. ## encompass sustainability updated during 2022 to bring greater clarity for ## the supply chain on the Group’s expectations. criteria has a significant ### Greening the Supply Chain In 2022 Balfour Beatty launched a new Code In 2022, Balfour Beatty and the Supply Chain ## influence on sustainability | of Ethics, which applies through Supplier | Sustainability School conducted a follow-up | | | --- | --- | --- | | Standards to all suppliers of goods and | survey to the construction supply chain | impact during delivery.” | | services and was supported by communications | survey carried out in 2021 in advance of | | | to the supply chain to make them aware of the | COP26 for England, Ireland and Wales, and | | | new expectations. | aseparate survey for Scotland, which has a | | different net zero approach. | The Supply Chain | Despite the positive steps that have already | | --- | --- | | SustainabilitySchool | been taken across the industry, 68% of | | Balfour Beatty continues to work closely with | respondents said that the sector is not well | | the Supply Chain Sustainability School in the | enough prepared to achieve net zero carbon, | | UK and participates in 14 working groups to | 53% said that the development pipeline for | | further knowledge of sustainability and the | low-carbon materials is not sufficient to meet | | work of the school. During 2022, priority | demand and 81% indicated that construction | | supply chain partners received 5,302 hours | practices are changing too slowly. | of training from the Supply Chain Sustainability In addition, 96% of those who responded said School and accessed over 14,000 that they are experiencing a shortfall in access e-learningmodules. to skilled people, specifically relating to carbon, sustainability, digital and other related Scan to read the results of our ### Strategic Design Partnership roles, which risks holding back efforts to supply chain surveys: Balfour Beatty recognises that influencing decarbonise the sector. The survey results England, Ireland and Wales decision making at design stage to were communicated widely to customers, encompass sustainability criteria has a Government, supply chain partners and to our significant influence on sustainability impact own workforce, particularly our frontline Scan to read the results of our during delivery. In 2022, the UK business Procurement and Sustainability teams, to supply chain surveys: developed and trialled a series of minimum ensure that the findings were understood Scotland reporting requirements to embed andcould help shape our future approach inthis area. SCAN TO FIND OUT MORE ABOUT OUR STRATEGY AND TO READ OUR BEST CASE STUDIES. Balfour Beatty plc Annual Report and Accounts 2022 63 ### OUR PEOPLE ## Helping our ##  People contribute to the strength and success of our business. Pride and passion, diversity of expertise, background and thinking, combined with collaborative behaviours ensure we can deliver and innovate for our customers. Against a backdrop of global skills shortages and a competitive labour market, our people offer and culture are vital ‘magnets’ to help our ability to attract and retain. We are uniquely placed to offer job security and career opportunities with our pipeline of work. Our HR Plan embraces this context and drives focus on the retention of people and ‘Growing our Own’ skills, how we refresh and diversify our talent pools to attract new employees and nurturing a great place to work to enable everyone to perform, grow and thrive. ### OUR STRATEGIC PEOPLE PILLARS Attract Retain Grow Thrive Understanding the skills we Ensuring that great people Growing our own talent and Build an inclusive culture where neednow and in the future with critical skills choose to skills and developing great people flourish and can bring andattracting and recruiting stay in thebusiness careers for our people to their whole self to work and thebest people meet businessneeds perform to their highest ability ### In 2022, the UK business continued its work % OF OUR UK to ensure it is reaching diverse audiences, ## Attract WORKFORCEINEARN developing its partnerships with ### ANDLEARN POSITIONS organisations such as Evenbreak (disability), Balfour Beatty wants to be the employer of Rest Less (older workers), Association for choice to all and is increasingly using more Black and Minority Ethnic Engineers (AFBE) innovative approaches to how and where it 4.6% 4.3% 5.3% 5.6% 5.4% 6.0% 6.2% 6.5% and Women into Construction. The UK attracts talent, so that the Group becomes 7.0 business also continued to work with Renaisi, attractive to a broader spectrum of candidates a Social Enterprise, hiring a number of to deliver its future pipeline of work while 6.5 refugees. So far six individuals have been proactively addressing the industry successfully integrated into the business and skillsshortage. 6.0 this partnership will be developed further in 2023 as part of Balfour Beatty's commitment ### Broadening channels 5.5 to social value and inclusion. ### forrecruitment The US business continued to specifically New strategies have been developed to 5.0 target recruitment efforts in 2022 on widen talent pools, aimed at securing the historically black colleges and universities right skills and increasing the diversity of the 4.5 such as Florida A&M University and North Group's work force. Carolina A&T University (NCA&T). 4.0 181716 19 20 21 2215 Balfour Beatty plc Annual Report and Accounts 202264 ### Investment in Early Careers ### 2022 EARLY CAREERS HIRES: The Early Careers programme is a key part ### GRADUATES, APPRENTICES, ofthe Group's ‘Growing our Own’ strategy, ### TRAINEES, INTERNS Strategic report bringing fresh talent, perspectives and ### ANDINDUSTRIAL energy into the business – Balfour Beatty is ### PLACEMENTS proud to continue its long-term investment inyoung people and skills development. In2022, the Early Careers cohort was 409 significantly large and the Group continued ## positive progress on the diversity of hires,  with 39% of UK graduates from a minority ##  ethnic background and 32% female, while 272 17% of Gammon graduate engineers hired Building on existing Armed Forces in2022 were female. Covenant activity and working with 229 | In the UK, in addition to the large graduate | ourArmed Forces Steering Group, | | --- | --- | | and apprentice intake, 50 ‘year out’ and | ourMilitary Talent Pathway (MTP) was | | 51summer placements were taken up, | anew initiative in the UK in 2022. The | | representing an investment in the pipeline of | Pathway provides structured ‘transition | | talent for future Early Careers programmes. | in’ support for career changers with | transferable skills into a range of our HKUK US With 6.5% of UK employees in 'earn and keyroles. learn' positions at December 2022, Balfour Beatty retained its Gold Membership of The Balfour Beatty recognises and values 5% Club in its Employer Audit for 2022-23. In existing experience and leadership ### FEMALE EMPLOYEES addition, Balfour Beatty was placed 23rd skillsand builds on this to develop the ### ACROSS THEWORKFORCE %* technical, professional skills relevant inthe Top 100 Apprentice Employers by RateMyApprenticeship for 2023, a significant toeach role. improvement on previous rankings. The business recruited 32 ex-military | | 19 | | | | 19.6 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Beyond formal programmes, the Group has | personnel through our pilot for a | | 18 | | 18 | 18.7 | 18.7 | | | | | | | | | | | focused on inspiring the next generation to | varietyof different roles ranging from | | | | | | | | join the construction and infrastructure sector | Construction Plant Operative to Site | | | | | | | | in all of its geographies. Balfour Beatty has | Supervisor. The recruits have now | | | | | | | | participated in a wide range of events | transitioned into our business, | | | | | | | | andprogrammes to ensure it stands as | benefitting from a bespoke six-month | | | | | | | | adestination for enriching careers which | formal pathway based on 70/20/10 | | | | | | | | leavea lasting legacy. | learning experiences. | | | | | | | | The US Buildings business developed a | The next step is to review options | | | | | | | | summer intern programme where 168 interns | toscale up from the pilot. | were given the opportunity to work alongside the teams on key projects. The programme is designed to help participants expand their networks and get a true sense of what it is 20 21 2217 18 19 like to work for Balfour Beatty and in the ## industry. In addition, the business enabled I'm really pleased to see the * Excluding international joint ventures in acolleague to volunteer their time as Camp 2020 andearlier years. ## Director to deliver a construction camp for MTP launched. I'm sure that 35middle school girls, teaching them ## this is going to make a construction skills. The camp was organised ## by the Austin chapter of the National Association dierence to veterans of Women in Construction and garnered ## leaving the armed services national media attention, highlighted in an ## Inspired Life article on The Washington and help to bridge the skills Post’s website as well as in Texas Contractor. ## gap in Balfour Beatty." Gammon continued its programme of Graham Martin, secondary school visits with the aim of WorkWinningDirector inspiring students to choose engineering subjects and careers. Two of Gammon's female engineers shared their career journey to attract more young women to join the construction industry. Balfour Beatty plc Annual Report and Accounts 2022 65 ### OUR PEOPLE CONTINUED ### Reward and recognition ## Retain Balfour Beatty was delighted that the 2022 annual engagement survey delivered best | Balfour Beatty remains focused on being a | ever results. The Group engagement index | | --- | --- | | great place to work. At the heart of this is | score, which measures satisfaction, motivation, | | nurturing a culture of respect; valuing | advocacy and retention increased for the | | employees for who they are and the individual | fifthconsecutive year to 80% (76% in 2021) | | experience and perspectives they bring to | Response rates were also up to 77% (from | | Balfour Beatty. This is achieved by driving the | 65% in 2021). | Company's cultural framework, creating a These outstanding results have bucked the sense of team and investing in employees so industry trend on engagement: Balfour Beatty they have the opportunity to grow, learn and is 6 basis points (bps) above the industry be the best they can be. average and 13bps above companies of a ##  similar size. ### Outstanding levels of ##  Importantly, 88% of responders across the ### employeeengagement Group said that they see themselves working Engaged employees are more likely to We were delighted to receive the UK here in 12 months’ time (85% in 2021) and perform strongly and stay with the business, Engage Award for ‘Best Use of Technology 75% of UK and US responders trust their which is why employee engagement is a in Employee Engagement Award’ in leadership teams to lead Balfour Beatty in the core element of Balfour Beatty's people and partnership with Inpulse. We won the right direction. Trust and psychological safety retention strategy. A variety of channels are award for our innovative use of technology are known to be important factors for used to gather feedback on what employees to evolve our employee listening approach employees in a world that can feel full of need to support them in being at their best and elevate employee engagement, challenge and change. and ensuring a great place to work. In the supporting our aim to attract and retain UK, a new starter survey was relaunched The Group believes in a fair, transparent and talent in a highly competitive market. which provides actionable insights to help sustainable approach to employee reward and refine the approach for the next cohort of recognition, to demonstrate to employees that new starters to make a great first impression they are appreciated and valued. As part of and enable them to hit the ground running this, Balfour Beatty ensures competitive pay from day one. A leaver survey was also and recognition of professional qualifications ## introduced together with exit conversations and memberships as well as access to   to better understand why people might development opportunities in an environment choose to leave and factors that might enable of support and encouragement. Balfour Beatty encourages, supports and retention. This insight enables action to be empowers its people to create their own The Group is committed to taking proactive taken on root cause issues and continuous future. Helping employees to grow is critical action in response to feedback from improvement in employee experience. for positive engagement and equally employees. "I feel recognised for doing a great important to ensure the Group has the critical job" has historically been a lower scoring skills needed for today and tomorrow. result in the engagement surveys in the US and UK. In response, recognition strategies In the UK, the Balfour Beatty Academy ## 88% were examined and refreshed in both continues to evolve its development offer to ### OF RESPONDERS ACROSS THE GROUP geographies in 2022. remain fresh, relevant and aligned to business needs. In 2022 the focus was on broadening ### TOLD US THAT THEY SEETHEMSELVES @ The UK business has developed a the accessibility and inclusivity of learning, ### WORKING HEREIN 12 MONTHS’ TIME recognition framework that will be launched empowering people to take ownership of in 2023, which provides a simple guide to their learning, unlock their untapped potential support the business and line managers and shape their career at Balfour Beatty. In with a range of activities that will aid better December 2022, the UK business celebrated recognition of teams and individuals. Learning at Work Week designed around the ### ENGAGEMENT INDEX Covering small, regular actions that really theme of ‘learning for all’. Balfour Beatty ### SCORES %* matter to people to more specific awards, encourages employees at every level to itempowers managers to provide monetary develop their skills and ensures resource and and non-monetary thank-yous to their team 80 support are made visible in pursuit of this. 75 76 as recognition. After successfully launching its core Human 65 66 @ In the US, a number of Company-wide Resources Information System (HRIS) 60 employee recognition programmes have 'MyGammon' in 2021, Gammon introduced a been implemented which offer employees learning module in March 2022. The launch of the opportunity to recognise and thank this system has made e-learning, external each other. The US Buildings business training approvals and training records received 1,472 submissions in 2022 using become more accessible to its whole team. the KUDOS online recognition system and 2,587 recognitions have already been submitted to the BRAVO REWARDS system launched in July 2022 by the Investments business. 21 221817 19 20 * Excluding international joint ventures in 2020 and earlier years. Balfour Beatty plc Annual Report and Accounts 202266 ### Leaders, line managers ## andsupervisors   ## 66,718 Supervisors and managers play a crucial role Strategic report | | in supporting employee wellbeing and | Balfour Beatty's engagement strategy has | | --- | --- | --- | | TRAINING COURSES FOR | engagement, helping their teams to perform, | support for the whole person at its heart, | | 10,321UKEMPLOYEES | develop and thrive, and ultimately to keep | with a focus on enabling people to thrive and | | | talented people and skills in the business. | be their best at work and ensuring that | employees’ physical and mental health and Following the success of the UK Line wellbeing are supported. | 52,668 | Manager Development Pathway, a refreshed | | | --- | --- | --- | | | Supervisor Development Programme was | It is great to see that these efforts are bearing | | TRAINING COURSES FOR | designed and piloted, certified by Institute of | fruit – with 95% of UK and US responders | | 5,342USEMPLOYEES | Leadership Management level 3 and signed | feeling cared for at work and acknowledging | | | off by the Supervisor Task and Finish Forum. | this formally in the engagement survey. | 10 supervisors were supported to develop We are also proud to report a continued their leadership, technical and digital skills increase in UK engagement scores for diverse ### Technical competence and togain professional accreditation. groups. Female colleagues had an engagement ### professional development score of 85% and multi-cultural colleagues had Growing core technical competence the highest engagement score of 86%; remained a strong focus for all parts of the disability 73%; LGBTQ+ 73%; carer 76%. Group's business. ## 100% These results demonstrate Balfour Beatty’s Gammon has placed significant focus on commitment to supporting all employees and ### OF DELEGATES SAID THEY increasing the competence of its team, with creating an inclusive culture. ### WEREVERYLIKELY OR EXTREMELY 6.4% of employees taking part in sponsored ### LIKELYTORECOMMEND THE ### training programmes in 2022. 23 people also Supporting work and life ### SUPERVISOR DEVELOPMENT attended the Gammon Project Management Balfour Beatty encourages and supports a ### PROGRAMME TOOTHERS | Programme (the 3rd cohort) with an enhanced | healthy work-life balance, enabled by its 'smart | | --- | --- | | programme offering. This included new topics | working' approach. Feedback has confirmed | | such as megatrends, coaching and a visit to | that this is important to employees and it is | Balfour Beatty's talent development strategy Gammon’s immersive smart lab which contains equally key to being able to attract and hire into enables progression and internal mobility for a Building Information Modelling Computer- the business. In 2022, to further improve its employees with the potential and motivation Aided Virtual Environment (BIM). To support people offer, the UK business enhanced its to become senior leaders. In 2022, the UK the increased use of BIM, Gammon has focused Family Friendly Policies, making them available business welcomed a further 54 highly on upskilling its people to obtain BIM to all colleagues, regardless of gender or family engaged individuals, across four business qualifications. Promotion of the BIM Viewer structure. Maternity, Adoption and Surrogacy units, to participate in the Aspiring Leaders course by the Construction Industry Council Leave was increased to 28 weeks at full pay, Programme which focuses on emotional (CIC) put Gammon first on the CIC leader plus 11 weeks statutory pay, and Paternity and intelligence, authentic leadership and board for BIM Viewer, with over 1,000 Gammon Partners Leave has been increased to four technical development. employees now holding this accreditation. weeks’ full pay. In the US, a year-long Propel programme was Gammon also launched a new Carbon launched for 60 managers. It consisted of six Essential and Science-based Target course face-to-face sessions and pre-programme and for project managers with the aim to improve post-programme independent 360 work with carbon literacy with over 250 attending an executive coach. In addition, the US todate. Executive Leader Development Programme was expanded to employees from all Within the UK, professional competence divisions in 2022. This year’s programme remains a priority with 18 programmes on consisted of 41 participants, each completing offer supporting Project Management, two multi-day sessions. The programme Design Engineering, Win Business, Planning offers opportunity to grow as a leader at and Commercial. A Modern Methods of Balfour Beatty and support the Group to Construction (MMC) development programme develop its strong succession pipeline. has also been created in the UK. Business experts and the Learning & Development team collaborated to create a new programme to support influential leaders in the organisation ##  to continue to develop a ‘modern methods mindset’, moving to offsite construction and Gammon received the Gold Award of a manufacturing, assembly-led approach. The 'Actively Supporting Contractor and pilot was held at an MMC research centre, Outstanding Training Employer (semi- thereby enabling learners to see real-life skilled)' from the Construction Industry examples in action and broadening the Council in appreciation of its efforts to learning experience beyond the expertise upskill workers. Gammon also won a inthe business. Grand Award from CTgoodjobs: Best Innovative L&D Initiative for its BIMtraining initiatives. Balfour Beatty plc Annual Report and Accounts 2022 67 ### OUR PEOPLE CONTINUED ### Supporting work and life colleagues. These localised events included community service opportunities and ### continued employee-centric team building activities. Shared Parental Leave has been made The UK business relaunched BBLife, a social available to all colleagues who are starting or scheme which encourages inclusion and growing their family: it allows two parents to networking, empowering employees to get share up to 50 weeks of leave and up to 28 involved in localised committees which weeks’ full pay between them. Support has develop and offer office or site events. These also been increased for employees undergoing programmes help to engage employees and fertility treatment and those who give birth to create opportunities for them to connect. a baby requiring neonatal care. Balfour Beatty recognises that employers ### Giving something back have an important role to play in helping staff Balfour Beatty encourages employees to see who are victims of domestic abuse. In the ## the link between their effort and role and the  UK, 14 trained Allies Against Domestic positive impact its business has in the world, ## Abuse are supporting employees with  helping to Build New Futures. This nurtures a confidential conversations, providing sense of purpose and positive engagement guidance and signposting, as well as helping Balfour Beatty Communities Foundation around how as individuals and a collective we line managers to identify and support any hosted its 14th annual Swing 4 Scholarships can ‘give back’ to society. To further enable team members who may be in need of help. Golf Tournament & Vendor Summit. Swing 4 giving something back, the UK business allows Scholarships is the premier fundraiser for At Balfour Beatty, mental health is a vital pillar employees to take 16 hours of paid leave to the non-profit’s charitable efforts, including of the Zero Harm culture that prioritises the volunteer for charities in line with its their annual scholarship programme which holistic wellbeing of colleagues and partners. volunteering policy. 3,888 volunteering helps support the post-secondary The US business has focused on building a hours/486 volunteering days were used for educational goals of residents who live at positive and open culture on mental health, 2022. In the UK, there was an increase from properties owned and managed by raising awareness about its importance, and 62% in 2021 to 77% in the engagement BalfourBeatty Communities. | de-stigmatising mental health issues through | survey score for “At Balfour Beatty, if I want | | | --- | --- | --- | | information, understanding and acceptance. | to, I’m able to give something back to the | Since 2008, Balfour Beatty | | Find out more in the health, safety and | community or a charity.” | CommunitiesFoundation has awarded | | wellbeing section on page 50. | | more than US$1.5million in scholarships | The US business has also significantly improved to its residents. | Balfour Beatty's caring and inclusive strategies | its engagement result, with 81% of responders | | | --- | --- | --- | | have earned a number of awards. The UK | feeling that they had the opportunity to give | | | business was awarded Menopause Friendly | something back in 2022 (up from 72% in | 2021), | | Employer accreditation – one of only 30 UK | and has continued to facilitate opportunities | for | | employers to achieve this status and the only | employee involvement in the community. In | | | one in the construction industry. The US | 2022, US employees volunteered 4,144 | | | business was recognised as a Best Place to | hours/518 days. | | Work by Sacramento Business Journal, San Diego Business Journal and Orange County ### Creating an inclusive culture Business Journal. To help it to develop core and new capabilities and improve the diversity of its business, Balfour Beatty must be able to attract from as wide a talent and skills pool as possible. All people, including those from underrepresented groups, must be supported to both perform and thrive in the business. With this in mind, Balfour Beatty has continued its work to nurture an inclusive and supportive workplace culture. The UK business has actively invested in career development for underrepresented groups; via the Empower programme for ### Creating a sense of team female employees, and its equivalent Thrive Across the UK and US, the value of programme for other underrepresentedgroups. promoting a sense of team is recognised. | Work on this was positively reflected in the | Throughout 2022, the UK business has | | --- | --- | | engagement survey with 83% responding | developed and piloted ‘Right to Respect’ and | | positively to “I feel a strong connection to my | pilots will follow in the US business. This | | team and colleagues.” | focuses on creating a respectful, inclusive | culture, making clear the behaviours expected Continuing a long-standing tradition, throughout and empowering colleagues and partners to 2022 the US business' BBSpirit! programme hold each other to account.‘Right to Respect’ focused on celebrating its people-first culture will be rolled out throughout 2023. by organising 181 group events for its Balfour Beatty plc Annual Report and Accounts 202268 Diversity and inclusion Gammon held an inaugural Diversity & Balfour Beatty has continued to focus on Inclusion event with the theme ‘Building diversity and inclusion. Belonging through Allyship’, raising awareness of what an ally is and how to Strategic report In 2022, the US business addressed become one. ‘Allyship’ plays an important role feedback from the 2021 DE&I employee in achieving an inclusive culture. survey by launching a DE&I Executive | Steering Committee comprising two senior | The Group’s Affinity Networks (AF) continue | | --- | --- | | leaders from each of the three business units | to grow, with membership of just over 10% | | and shared services to identify focus areas | of UK employees, raising awareness of | | and priorities to attract and retain top diverse | issues for diverse groups across the business | | talent and listen to employees’ voices. | and helping to shape our approaches to | ensure inclusivity. In 2022 for example, the The UK business has continued to implement Gender AF introduced a female mentoring its Value Everyone Action Plan and progress scheme to create connections between with its Black Inclusion Plan. women at Balfour Beatty and increase the In 2022, a new set of ambitious high-level visibility of senior women across the business. 2030 UK Diversity and Inclusion targets was The US business hosted a Together Allies published to accelerate the pace of change. Diversity Summit focused on understanding These are underpinned by more granular the value DE&I brings to its operations and internal targets and action plans. Progress how intentional actions make it 'Stronger against these targets will be formally Together'. Following the feedback from this reported to the Board and Executive initiative, the Investments business will Committee and in the Annual Report. conduct a DE&I employee survey in early Using the UK headcount on 31 December 2023 to identify areas of opportunity. 2021 as the benchmark, we’re committing to: Balfour Beatty’s UK gender pay gap increased slightly in 2022 compared to 2021, although both the mean and median measures show a ## 50% narrowing of the gap compared to the pre-COVID reporting period. The focused ### INCREASE IN FEMALE COLLEAGUES activity implemented through the Value ### BY31 DECEMBER 2030 Everyone Action Plan remains pivotal in our As at 31 December 2022: 20.1% female aims to narrow the gap. Detailed analysis has been undertaken to further understand how specific actions impact the pay gap which ### VALUE EVERYONE highlights that a significant reduction will only ## 60% ### be achieved over the longer term. We will ACTION PLAN ### INCREASE IN MINORITY continue to develop this analysis to support the identification of targeted activities ### ETHNICCOLLEAGUES BY moving forward. Details of this can be found ### 31DECEMBER2030 in Balfour Beatty’s gender pay report on: ### BLACK INCLUSION PLAN As at 31 December 2022: 10.6% minority ethnic www.balfourbeatty.com/investors/results- reports-and-presentations/. ## 60% ### INCREASE IN BLACK EMPLOYEES ### BY31DECEMBER 2030 As at 31 December 2022: 2.8% black ### GENDER BREAKDOWN At 31 December 2022 Male Female Total % Male % Female Board 6 3 9 66.7% 33.3% 1 Senior managers 95 31 126 75.4% 24.6% Directors of subsidiaries not 2 includedabove 30 13 43 69.8% 30.2% 3 Employees 20,277 4,953 25,230 80.4% 19.6% 1 Senior managers are employees of the Company, its subsidiaries and Gammon, who have responsibility for planning, directing or controlling the activities of the Group, or a strategically significant part of it, excluding Directors of Balfour Beatty plc. 2 Directors of all subsidiaries have not been included as senior managers as this would not accurately reflect the Group’s executive pipeline. 3 All employees of the Company and its subsidiaries, together with all employees of Gammon, the Group’s 50:50 joint venture with Jardine Matheson based in Hong Kong. Balfour Beatty plc Annual Report and Accounts 2022 69 ### MY CONTRIBUTION ##  ## My Contribution ### Engaging our employees and their ideas to bring ### about positive business change. | My Contribution (MyC) is the way in which all | 2022 MyC Kudos awards | | --- | --- | | employees can connect to Build to Last, | In April 2022, Leo Quinn, Group Chief | | enabling each and every one of them to make | Executive hosted Balfour Beatty's first in | | a difference and help build a stronger business | person annual MyC Kudos Awards at the | | from the inside out. | prestigious Royal College of Physicians | inLondon. My Contribution is the tool used to crowd | source good ideas, harness collective | The event brought together sixty finalists to | | --- | --- | | expertise and directly engage every | celebrate the creativity of the eleven teams | | colleague at every level of the business by | who made it through to the final, competing | | enabling them to suggest and drive positive | for three awards – the People’s Vote, Most | | changes. It was launched across Balfour | Creative Video and the CEO Building New | | Beatty in 2015 as a fundamental way of | Futures Award. | working that enables and encourages The competition was open to all UK employee-led innovations. employees. Submissions needed to clearly | The scheme was relaunched in 2019 across | demonstrate both the benefits delivered as | | --- | --- | | the UK using a new Yammer-based platform | well as the potential future impact for wider | | to make it easier for the Group's thousands | roll out across the business. | of employees across multiple locations to The finalists were chosen by the Executive share their ideas and develop them through Committee (ExCom) members who each | conversation with their colleagues. | | Watch our video to find out more | | --- | --- | --- | | | sponsored their chosen idea with their | about our winners. | | In July 2022, My Contribution was relaunched | personal endorsement as to why it | | SCAN TO WATCH in the US following a successful three-month represented such a great example pilot using a new platform, Microsoft Teams, ofMyContribution in action. for a collaborative approach to developing ideas with colleagues and supporting employees to bring their ideas to life. ##  ##  In 2020, Leigh Clark, Construction Manager, won the MyC Kudos People’s Vote Award for her QR code permits idea. In 2022, Leigh went to the US to support their MyCre-launch. "Winning the MyC Kudos Award has been career-changing for me. The networking opportunities have given me a level of visibility across the business I could never haveimagined." Balfour Beatty plc Annual Report and Accounts 202270 | 10,000 ideas milestone | MyC 10,000 idea | | --- | --- | | In June 2022 we reached a huge milestone: | celebrationevents | | the MyC 10,000th idea. | The significant 10,000 ideas milestone was | Strategic report celebrated with 17 local MyC celebration The landmark 10,000th idea was submitted events in some of our larger offices in by Darren Lindsay, Construction Manager partnership with BBLife, Balfour Beatty's from Balfour Beatty's Highways business, social scheme which encourages inclusion toimprove visibility of site compounds data. and local networking. The events focused on When new contracts are mobilised the recognising the great impact MyC has had property team helps project managers find across Balfour Beatty and all the efforts of the land for the building of temporary offices for people who have made it happen. employees or site compounds for storing The celebrations kicked off in Raynesway, plant, fleet, equipment and materials. Derby, with 220 attendees enjoying the food Darren’s idea was to create a visual map of market hosted by local vendors and a where Balfour Beatty has or has previously showcase of good ideas delivered through had, site compounds, as well as a register of MyC, and taking part in a MyC quiz. ### IN 2022 the local people who have been part of the enabling works phase, making it easier to re-use or co-share compounds across thebusiness. Reflecting on his idea, Darren said: “My idea will help provide precise data for important locations such as egress and access points. ## 1,600 Going to the correct location first time saves My Contribution ideas were submitted time, improves safety and reduces carbon too, by not wasting fuel.” BELOW: A selection of photos from the MyC 10,000 ideas celebration events. ## >460 solutions were implemented ### GENERATING ##  of cost savings ## 101,000 hours of time saved ## 360 ideas delivered to make Balfour Beatty aBetter Place to Work Balfour Beatty plc Annual Report and Accounts 2022 71 ### NON-FINANCIAL DISCLOSURE SECTION This section of the Strategic report constitutes the Group’s non-financial information statement, produced to comply with Sections 414CA and414CB of the Companies Act. The non-financial information is contained within the various sections of the Strategic report and is cross-referenced below to help stakeholders find relevant information. Reporting requirement Policies and standards which govern our approach Additional information necessary to understand impact Page Anti-corruption and Code of Ethics Ethics and compliance 52 briberymatters Supplier Standards Human rights Modern Slavery Statement Ethics and compliance 52 Code of Ethics | Employees Code of Ethics | | Health, safety and wellbeing | 46 | | --- | --- | --- | --- | | | Health and safety policy | Our people | 64 | | | | Stakeholder value: Employees | 27 | | | | Ethics and compliance | 52 | | Environmental | Our sustainability strategy – Building | GHG reporting | www.balfourbeatty.com/ILA | | matters | New Futures | | | | | | Sustainability: Beyond Net Zero Carbon | 57 | Sustainability policy | | Climate change and Task Force on Climate- | 98 | | --- | --- | --- | | Sustainable procurement policy | related Financial Disclosures (TCFD) | | | Environmental policy | Carbon Reduction Plan (PPN 06/21) | www.balfourbeatty.com/carbon- | reduction-plan ISO 14001:2014 & ISO 20400:2017 | Social and | Our sustainability strategy – Building | Social value reporting | www.balfourbeatty.com/ILA | | --- | --- | --- | --- | | community matters | New Futures | | | | | | Ethics and compliance | 52 | Social value policy Stakeholder value: Communities 28 Code of Ethics Discover more about the Group’spolicies at: WWW.BALFOURBEATTY.COM/POLICIES Balfour Beatty plc Annual Report and Accounts 202272 ### MEASURING FINANCIAL PERFORMANCE ##  Strategic report ##  ##  ### The Group includes this section in its Annual Report and Accounts ### with the aim of providing transparency and clarity on the measures ### adopted internally to assess performance. | Following the issuance of the Guidelines on | These financial performance measures are | Underlying profit before tax (PBT) | | --- | --- | --- | | Alternative Performance Measures (APMs) | also aligned to measures used internally | The Group assesses performance in its | | by the European Securities and Markets | toassess business performance in the | Infrastructure Investments segment using | | Authority (ESMA) in June 2015, the Group | Group’sbudgeting process and when | anunderlying PBT measure. This differs | | has included this section in its Annual Report | determiningcompensation. | fromthe underlying PFO measure used to | | and Accounts with the aim of providing | | measure the Group’s Construction Services | Equivalent information cannot be presented transparency and clarity on the measures and Support Services segments because by using financial measures defined in the adopted internally to assess performance. inaddition to margins generated from financial reporting framework alone. operations, there are returns to the Throughout this report, the Group has Investments business which are generated presented financial performance measures ### Performance measures used to from the financing element of its projects. which are considered most relevant to ### assess the Group’s operations Balfour Beatty and are used to manage the These returns take the form of subordinated Underlying profit from operations (PFO) Group’s performance. debt interest receivable, interest receivable Underlying PFO is presented before on PPP financial assets and fair value gains These financial performance measures are non-underlying items, finance costs and on certain investment assets, which are chosen to provide a balanced view of the investment income and is the key measure included in the Group’s income statement in Group’s operations and are considered useful used to assess the Group’s performance in investment income. These are then offset by to investors as these measures provide the Construction Services and Support the finance cost incurred on the non-recourse relevant information on the Group’s past or Services segments. This is also a common debt associated with the underlying projects future performance, position or cash flows. measure used by the Group’s peers and any impairment of subordinated debt and operating in thesesectors. The APMs adopted by the Group are also accrued interest receivable, which is included commonly used in the sectors it operates in the Group’s income statement in This measure reflects the returns to the Group inand therefore serve as a useful aid for financecosts. from services provided in these operations investors to compare Balfour Beatty’s that are generated from activities that are Operating cash flow (OCF) performance to its peers. notfinancing in nature and therefore an The Group uses an internally defined measure underlying pre-finance cost measure is more The Board believes that disclosing these of OCF to measure the performance of its suited to assessing underlying performance. performance measures enhances investors’ earnings-based businesses and subsequently ability to evaluate and assess the underlying to determine the amount of incentive financial performance of the Group’s operations awarded to employees in these businesses and the related key business drivers. under the Group’s Annual Incentive Plan (AIP). This measure also aligns to one of the vesting conditions attributable to the Group’s 2020, 2021 and 2022 PSP awards. Refer topages 161 to 163. Readers of the Annual Report and Accounts are encouraged to review thefinancial statements in their entirety. Balfour Beatty plc Annual Report and Accounts 2022 73 ### MEASURING FINANCIAL PERFORMANCE CONTINUED ### Measuring the Group’s Where contracts fall under framework b) Underlying performance agreements, an estimate is made of orders The Group adjusts for certain non-underlying ### performance to be secured under that framework items which the Board believes assists in The following measures are referred to in this agreement. This is based on historical trends understanding the performance achieved Annual Report and Accounts when reporting from similar framework agreements bythe Group. These items include: performance, both in absolute terms and also delivered in the past and the estimate of in comparison to earlier years. @ gains and losses on the disposal of orders included in the order book is that businesses and investments, unless Statutory measures which is probable to besecured. thisispart of a programme of releasing Statutory measures are derived from the In accordance with IFRS 15 Revenue from value from the disposal of similar Group’s reported financial statements, which Contracts with Customers, the Group is businesses orinvestments such as have been prepared in accordance with required to disclose the remaining infrastructure concessions; International Accounting Standards and in transaction price allocated to performance accordance with UK-adopted International @ costs of major restructuring and obligations not yet delivered. This can be Financial Reporting Standards (IFRS) in reorganisation of existing businesses; found in Note4.3. This is similar to the conformity with the requirements of the Group’s order book disclosure however it @ costs of integrating newly Companies Act 2006. differs for the following reasons: acquiredbusinesses; Where a standard allows certain @ The Group’s order book includes its share @ acquisition and similar costs related interpretations to be adopted, the Group has of orders that are reported within its joint tobusiness combinations such as applied its accounting policies consistently. ventures and associates. In line with transactioncosts; These accounting policies can be found section (e), the Board believes that onpages 187 to 193. @ impairment and amortisation charges including orders that are within the pipeline onintangible assets arising on business The Group’s statutory measures take into of its joint ventures and associates better combinations (amortisation of acquired account all of the factors, including those reflects the size of the business and the intangible assets); and thatit cannot influence (principally foreign volume of work to be carried out in the currency fluctuations) and also non-recurring future. This differs from the statutory @ impairment of goodwill. items which do not reflect the ongoing measure of transaction price to be These are non-underlying costs as they underlying performance of the Group. allocated to remaining performance donot relate to the underlying performance obligations which is only inclusive of the Group. Performance measures ofsecured revenue from the In assessing its performance, the Group Group’ssubsidiaries. From time to time, it may be appropriate hasadopted certain non-statutory measures todisclose further items as non-underlying @ As stated above, for contracts that fall because, unlike its statutory measures, items in order to reflect the underlying under framework agreements, the Group thesecannot be derived directly from its performance of the Group. includes in its order book an estimate of financial statements. | | what the orders under these agreements | Further details of non-underlying items are | | --- | --- | --- | | The Group commonly uses the following | will be worth. Under IFRS 15, each | provided in Note 10. | | measures to assess its performance: | instruction under the framework | | A reconciliation has been provided on page 75 agreement is viewed as a separate a) Order book to show how the Group’s statutory results performance obligation and is included in The Group’s disclosure of its order book is are adjusted to exclude non-underlying items the statutory measure of the remaining aimed to provide insight into its pipeline of and their impact on its statutory financial transaction price when received but work and future performance. The Group’s information, both as a whole and in respect estimates for future instructions are not. order book is not a measure of past of specific line items. performance and therefore cannot be derived @ The Group’s order book does not include from its financial statements. revenue to be earned in its Infrastructure Investments segment as the value of this The Group’s order book comprises the part of the business is driven by the unexecuted element of orders on contracts Directors’ valuation of the Investments that have been secured. Where contracts are portfolio. Refer to section (i). subject to variations, only secured contract variations are included in the reported orderbook. Balfour Beatty plc Annual Report and Accounts 202274 Reconciliation of order book to transaction price to be allocated to remaining performance obligations 2022 2021 Strategic report £m £m Order book (performance measure) 17,390 16,057 Less: Share of orders included within the Group’s joint ventures and associates (3,275) (2,974) Less: Estimated orders under framework agreements included in the order book disclosure (25) (60) Add: Transaction price allocated to remaining performance obligations in Infrastructure Investments* 2,009 1,664 Transaction price allocated to remaining performance obligations for the Group* (statutory measure) 16,099 14,687 * Refer to Note 4.3. Reconciliation of 2022 statutory results to performance measures Non-underlying items | | 2022 | | | Release of | | UK deferred | | | | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | statutory | | Intangible | | | Heery | tax assets | | performance | | | | | results | amortisation | | provision | | revaluation | | | measures | | | | £m | | £m | | £m | | £m | | | £m | Revenue including share of joint ventures and associates (performance) 8,931 – – – 8,931 Share of revenue of joint ventures and associates (1,302) – – – (1,302) Group revenue (statutory) 7,629 – – – 7,62 9 Cost of sales (7,202) – – – (7, 202) Gross profit 427 – – – 427 Amortisation of acquired intangible assets (6) 6 – – – Other net operating expenses (251) – (2) – (253) Group operating profit 170 6 (2) – 174 Share of results of joint ventures and associates 105 – – – 105 Profit from operations 275 6 (2) – 279 Investment income 50 – – – 50 Finance costs (38) – – – (38) Profit before taxation 287 6 (2) – 291 Taxation – 1 – (2) (1) Profit for the year 287 7 (2) (2) 290 Reconciliation of 2022 statutory results to performance measures bysegment Non-underlying items | | | 2022 | | | Release of | | | | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | statutory | | Intangible | | | Heery | performance | | | | | results | | amortisation | | provision | | | measures | | | Profit/(loss) from operations | | £m | | £m | | £m | | | £m | Segment Construction Services 150 1 (2) 149 Support Services 83 – – 83 Infrastructure Investments 76 5 – 81 Corporate activities (34) – – (34) Total 275 6 (2) 279 Balfour Beatty plc Annual Report and Accounts 2022 75 ### MEASURING FINANCIAL PERFORMANCE CONTINUED ### Measuring the Group’s performance continued Performance measures continued Reconciliation of 2021 statutory results to performance measures Non-underlying items Repayment of grant | | | | | income in | | | | Provision in | | | | | Settlement | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | relation to | | | | relation to | | | | | | charge | | | | | | | | 2021 | | | UK Job | | Release of | | rectification | | | | | following | | | | | | 2021 | | statutory | | Intangible | | Retention | | | Heery | | works in | | Release of | | resolution | | | UK deferred | | performance | | | | results | amortisation | | Scheme | | provision | | | London | | PB accrual | | with DoJ | | | tax asset | | measures | | | | £m | | £m | | £m | | £m | | | £m | | £m | | | £m | | £m | | £m | Revenue including share of joint ventures and associates (performance) 8,263 – – – – – 17 – 8,280 Share of revenue of joint ventures and associates (1,078) – – – – – – – (1,078) Group revenue (statutory) 7,185 – – – – – 17 – 7,202 Cost of sales (6,904) – – – 42 – – – (6,862) Gross profit 281 – – – 42 – 17 – 340 Gain on disposals of interests in investments 26 – – – – – – – 26 Amortisation of acquired intangible assets (5) 5 – – – – – – – Other net operating expenses (262) – 19 (6) – (1) 24 – (226) Group operating profit 40 5 19 (6) 42 (1) 41 – 140 Share of results of joint ventures and associates 57 – – – – – – – 57 Profit from operations 97 5 19 (6) 42 (1) 41 – 197 Investment income 39 – – – – – – – 39 Finance costs (49) – – – – – – – (49) Profit before taxation 87 5 19 (6) 42 (1) 41 – 187 Taxation 52 (1) (4) 1 (8) – (4) (29) 7 Profit for the year 139 4 15 (5) 34 (1) 37 (29) 194 Reconciliation of 2021 statutory results to performance measures bysegment Non-underlying items Repayment of grant | | | | | | income in | | | | Provision in | | | | | Settlement | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | relation to | | | | relation to | | | | | | charge | | | | | | | | | 2021 | | | UK Job | | Release of | | rectification | | | | | following | | | | | | 2021 | | | statutory | | Intangible | | Retention | | | Heery | | works in | | Release of | | resolution | | | UK deferred | | performance | | | | | results | amortisation | | Scheme | | provision | | | London | | PB accrual | | | with DoJ | | tax asset | | measures | | | Profit/(loss) from operations | | £m | | £m | | £m | | £m | | | £m | | £m | | | £m | | £m | | £m | Segment Construction Services 30 – 13 (6) 42 – – – 79 Support Services 97 – 5 – – – – – 102 Infrastructure Investments 3 5 – – – – 41 – 49 Corporate activities (33) – 1 – – (1) – – (33) Total 97 5 19 (6) 42 (1) 41 – 197 Balfour Beatty plc Annual Report and Accounts 202276 # **c) Underlying profit before tax** As mentioned on page 40, the Group's Infrastructure Investments segment is assessed on an underlying profit before tax (PBT) measure. This is calculated as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Underlying profit from operations (section (b) and Note 5) | 81 | 49 | | Add: Subordinated debt interest receivable* | 27 | 23 | | Add: Interest receivable on PPP financial assets* | 2 | 5 | | Add: Fair value gain on investment asset* | 4 | 9 | | Less: Non-recourse borrowings finance cost* | (8) | (11) | | Less: Impairment of subordinated debt receivable* | - | (4) | | Less: Impairment of accrued interest receivable* | (2) | (10) | | Underlying profit before tax (performance) | 105 | 61 | | Non-underlying items (section (b) and Note 5) | (5) | (46) | | Statutory profit before tax | 100 | 15 | \* Refer to Note 6 and Note 9. # **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. Reconciliation from statutory basic EPS to performance EPS | | 2022 Pence | 2021 Pence | | --- | --- | --- | | Statutory basic earnings per ordinary share | 46.9 | 21.3 | | Amortisation of acquired intangible assets after tax | 1.2 | 0.6 | | Other non-underlying items after tax | (0.4) | 7.8 | | Underlying basic earnings per ordinary share (performance) | 42.5 | 29.7 | # **e) Revenue including share of joint ventures and associates (JVAs)** The Group uses a revenue measure which is inclusive of its share of revenue generated from its JVAs. As the Group uses revenue as a measure of the level of activity performed by the Group, the Board believes that including revenue that is earned from its JVAs better reflects the size of the business and the volume of work carried out and more appropriately compares to RFG. 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 statement of cash flows (page 185). Reconciliation from statutory cash generated from operations to OCF | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash generated from operating activities (statutory) | 188 | 353 | | Add back: Pension payments including deficit funding (Note 30.2) | 43 | 42 | | Less: Repayment of lease liabilities (including lease interest payments) (Note 28) | (54) | (59) | | Add: Operational dividends received from joint ventures and associates (Note 19.5) | 89 | 60 | | Add back: Cash flow movements relating to non-operating items | (12) | 1 | | Less: Operating cash flows relating to non-recourse activities | (11) | (5) | | Operating cash flow (OCF) (performance) | 219 | 392 | The Group includes/excludes these items to reflect the true cash flows generated from or used in the Group's operating activities: Pension payments including deficit funding (£4.9m): the Group has excluded pension payments which are included in the Group's statutory measure of cash flows from operating activities from its internal OCF measure as these primarily relate to deficit funding of the Group's main pension fund, Balfour Beatty Pension Fund (BBPF). The payments made for the deficit funding are in accordance with an agreed journey plan with the trustees of the BBPF and are not directly linked to the operational performance of the Group. Strategic report Balfour Beatty plc Annual Report and Accounts 2022 77 ### MEASURING FINANCIAL PERFORMANCE CONTINUED ### Measuring the Group’s performance continued Performance measures continued f) Operating cash flow (OCF) continued Repayment of lease liabilities (including lease interest payments) (£58m 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 (£89m 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 are 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 (£12m): the Group’s OCF measure excludes certain working capital movements that are not directly attributable to the Group’s operating activities. Operating cash flows relating to non-recourse activities (£11m): the Group’s OCF measure is specifically targeted to drive performance improvement in the Group’s earnings-based businesses and therefore any operating cash flows relating to non-recourse activities are removed from this measure. Under IFRS, there is no distinction between recourse and non-recourse cash flows. g) Recourse net cash/borrowings The Group also measures its performance based on its net cash/borrowings position at the year end. This is analysed 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 | | 2022 | | | | 2022 | | 2021 | | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | statutory | | Adjustment | | performance | | statutory | | Adjustment | | performance | | | | £m | | £m | | £m | | £m | | £m | | £m | Total cash within the Group 1,179 (19) 1,160 1,033 (17) 1,016 Cash and cash equivalents – infrastructure concessions 19 (19) – 17 (17) – – other 1,160 – 1,160 1,016 – 1,016 Total debt within the Group (738) 393 (345) (615) 389 (226) Borrowings – non-recourse loans (261) 261 – (260) 260 – – other (345) – (345) (226) – (226) Lease liabilities (132) 132 – (129) 129 – Net cash 441 374 815 418 372 790 h) Average net cash/borrowings The Group uses an average net cash/borrowings measure as this reflects its financing requirements throughout the year. The Group calculates its average net cash/borrowings based on the average opening and closing figures for each month through the year. The average net cash/borrowings measure excludes non-recourse cash and debt and lease liabilities, and this performance measure shows average net cash of £804m for 2022 (2021: £671m). Using a statutory measure (inclusive of non-recourse elements and the lease liabilities recognised) gives average net cash of £430m for 2022 (2021: £279m). i) Directors’ valuation of the Investments portfolio The Group uses a different methodology to assess the value of its Investments portfolio. As described on pages 42 and 43, the Directors’ valuation has been undertaken using forecast cash flows for most investments 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. The Directors have valued the Investments portfolio at £1.29bn at year end (2021: £1.11bn). The Directors’ valuation will differ from the statutory carrying value of these investments, which are accounted for using the relevant standards in accordance with IFRS rather than a discounted cash flow approach. Reconciliation of the net assets of the Infrastructure Investments segment to the comparable statutory measure of the Investments portfolio included in the Directors’ valuation 2022 2021 £m £m Net assets of the Infrastructure Investments segment (refer to Note 5.1) 593 599 Less: Net assets not included within the Directors’ valuation – Housing division (30) (24) Comparable statutory measure of the Investments portfolio under IFRS 563 575 Balfour Beatty plc Annual Report and Accounts 202278 # Comparison of the statutory measure of the Investments portfolio to its performance measure | | 2022 £m | 2021 £m | | --- | --- | --- | | Statutory measure of the Investments portfolio (as above) | 563 | 575 | | Difference arising from the Directors' valuation being measured on a discounted cash flow basis compared to the statutory measure primarily derived using a combination of the following IFRS bases: | | | | – historical cost | | | | – amortised cost | | | | – fair value | 728 | 531 | | Directors' valuation (performance measure) | 1,291 | 1,106 | The difference between the statutory measure and the Directors' valuation (performance measure) of the Group's Investments portfolio is not equal to the gain on disposal that would result if the portfolio was fully disposed at the Directors' valuation. This is because the gain/loss on disposal would be affected by the recycling of items which were previously recognised directly within reserves, which are material and can alter the resulting gain/loss on disposal. The statutory measure and the Directors' valuation are fundamentally different due to the different methodologies used to derive the valuation of these assets within the Investments portfolio. As referred to in the Strategic report on page 42, 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 reporting period. 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. # ii 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 year. The Group's key exchange rates applied in deriving its statutory results are shown in Note 3. To measure changes in the Group's performance compared with the previous year 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 year's figures at the current year's exchange rates, using average rates for revenue and closing rates for order book. A comparison of the Group's statutory growth rate to the CER growth rate is provided in the table below: 2022 statutory growth compared to performance growth | | Construction Services | | | | Support Services | Infrastructure Investments | Total | | --- | --- | --- | --- | --- | --- | --- | --- | | | UK | US | German | Total | | | | | **Revenue (£m)** | | | | | | | | | 2022 statutory | 2,763 | 3,646 | – | 6,409 | 988 | 232 | 7,629 | | 2021 statutory | 2,593 | 3,327 | – | 5,303 | 1,046 | 219 | 7,185 | | **Statutory growth** | **7%** | **10%** | **–** | **8%** | **(6)%** | **6%** | **6%** | | 2022 performance* | 2,763 | 3,651 | 1,068 | 7,482 | 989 | 460 | 8,931 | | 2021 performance retranslated* | 2,593 | 3,702 | 898 | 7,185 | 1,066 | 500 | 8,751 | | **Performance CER growth** | **7%** | **(1)%** | **25%** | **4%** | **(7)%** | **(8)%** | **2%** | | **Order book (£m)** | | | | | | | | | 2022 | 6.1 | 6.0 | 2.9 | 15.0 | 2.4 | – | 17.4 | | 2021 | 5.6 | 5.4 | 2.8 | 13.8 | 2.5 | – | 16.1 | | **Growth** | **9%** | **11%** | **12%** | **10%** | **(4)%** | **–** | **8%** | | 2022 | 6.1 | 6.0 | 2.9 | 15.0 | 2.4 | – | 17.4 | | 2021 retranslated | 5.6 | 6.0 | 3.0 | 14.8 | 2.5 | – | 17.1 | | **CER growth** | **9%** | **–** | **(3)%** | **3%** | **(4)%** | **–** | **2%** | * Performance revenue is underlying revenue including share of revenue from joint ventures and associates as set out in section (a). Balfour Realty plc Annual Report and Accounts 2022 79 CHIEF FINANCIAL OFFICER'S REVIEW # Out performance in 2022, with growth in profit and order book Chief Financial Officer ![img-8.jpeg](img-8.jpeg) ## Group financial summary The underlying profit from operations for the year increased to £279 million (2021: £197 million), primarily due to the improved profitability in Construction Services. Within the Construction Services underlying profit of £149 million (2021: £79 million), the significant improvement arose from the return to profitability in UK Construction following write-downs on private sector property projects in central London in 2021, with the increases in US Construction and Gammon supported by exchange rate movements. Support Services underlying profit from operations was lower at £83 million (2021: £102 million), however its 8.4% PFD margin exceeded the 6-8% margin target range set by the Group in 2021. At Infrastructure Investments, underlying profit increased to £81 million (2021: £49 million) due to higher gains on investment disposals. Statutory profit from operations was £275 million (2021: £97 million). The order book has increased by 8% to £17.4 billion (2021: £16.1 billion), up 2% at constant exchange rates (CER), largely due to an increase in the UK Construction order book. Underlying revenue increased by 8% to £8,931 million (2021: £8,280 million), or 2% at CER. Within this, Construction Services revenue increased by 11% (4% at CER), while Support Services revenue reduced by 7% following the exit from the gas and water sector. Group statutory revenue, which excludes joint ventures and associates, was £7,629 million (2021: £7,105 million). | RESULTS FOR THE YEAR | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | --- | | | | £m | | £m | | | | Underlying | 2 | Total Underlying | 2 | Total | Strategic report 1 Revenue 8,931 8,931 8,280 8,263 Profit from operations 279 275 197 97 Pre-tax profit 291 287 187 87 Profit for the year 290 287 194 139 Basic earnings per share 47.5p 46.9p 29.7p 21.3p Dividends per share 10.5p 9.0p 2 ### UNDERLYING PROFIT/(LOSS) FROMOPERATIONS 2022 2021 £m £m UK Construction 59 (2) US Construction 58 51 Gammon 32 30 Construction Services 149 79 Support Services 83 102 Earnings-based businesses 232 181 Infrastructure Investments pre-disposaloperatingprofit 11 14 Infrastructure Investments gain on disposals 70 35 Corporate activities (34) (33) Total 279 197 1 Including share of joint ventures and associates. 2 Before non-underlying items (Note 10). A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section. | Net finance income increased to £12 million | The underlying basic earnings per share were | | --- | --- | | (2021: net finance costs of £10 million) as a | 47.5 pence (2021: 29.7 pence), which, along | | result of higher cash balances, higher interest | with a non-underlying loss per share of | | rates and a lower level of impairment to | 0.6pence (2021: 8.4 pence), gave total basic | | subordinated debt and accrued interest | earnings per share of 46.9 pence (2021: | | receivable from joint ventures and associates | 21.3pence). | than in 2021. Underlying pre-tax profit was £291million (2021: £187 million). ### Non-underlying items | Tax on underlying profits was a charge of | The Board believes non-underlying items | | --- | --- | | £1million (2021: credit of £7 million), | should be separately identified on the face | | comprising a £57 million tax charge (2021: | ofthe income statement to assist in | | £27 million) on underlying profits and a | understanding the underlying financial | | £56million tax credit (2021: £34 million) | performance achieved by the Group. | relating to the recognition of additional UK Non-underlying items after taxation were a tax losses. Going forwards, however, the net charge of £3 million for the year (2021: effective tax rates in each of the three £55 million) and included a £6 million charge geographies are expected to be close to relating to the amortisation of acquired statutory rates, albeit with cash tax payments intangible assets, a £2 million credit for the in the UK remaining below statutory levels in release of an indemnity provision which is no the medium term as losses are utilised. longer required and a net £1 million tax credit. Underlying profit after tax for the year was £290 million (2021: £194million). Total statutory profit after tax for the year was £287 million (2021: £139 million), after a net charge of £3 million from non-underlying items (2021: £55 million). Balfour Beatty plc Annual Report and Accounts 2022 81 ### CHIEF FINANCIAL OFFICER'S REVIEW CONTINUED ### Cash flow performance In 2022, the Group delivered a net cash inflow of £25 million (2021: £209 million), with a year-end net cash balance of £815 million (2021: £790million) and average net cash of £804 million (2021: £671 million). Cash from operations of £185 million (2021: £354 million) was largely offset by, amongst other items, the second year of the Group’s multi-year share buyback programme (2022: £151 million; 2021: £151 million). ### CASH FLOW PERFORMANCE 2022 2021 £m £m Operating cash flows before working capital movements and pension deficit payments 282 127 Working capital (outflow)/inflow (54) 269 Pension deficit payments+ (43) (42) Cash from operations 185 354 Lease payments (including interest paid) (58) (59) Dividends from joint ventures and associates∞ 89 60 Capital expenditure (31) (36) Share buybacks (151) (151) Dividends paid (58) (29) Infrastructure Investments – disposal proceeds 93 81 – new investments (30) (19) Other (14) 8 Net cash movement 25 209 Opening net cash* 790 581 Closing net cash* 815 790 * Excluding infrastructure investments (non-recourse) net borrowings ∞ Excludes £59 million dividends received in 2022 in relation to Investments asset disposals within joint ventures and associates (2021: £8 million) + Including £2 million (2021: £3 million) of regular funding | Working capital | long-term average of 11-13% (2022: 15.3%; | will be monitored during the lifetime of the | | --- | --- | --- | | Changes in the Group’s working capital | 2021: 15.6%) with the range dependent on | facility and depending on the outcomes | | position during the year resulted in a cash | contract mix and the timing of project starts | achieved, a credit margin reduction or increase | | outflow of £54 million (2021: inflow of | and completions. | will be applicable. The purpose of the facility is | | £269million). This reduction in the negative | | to provide liquidity from a set of core relationship | | working capital position was a net result | | banks to support Balfour Beatty in its activities. | ### Net cash/borrowings ofseveral movements including outflows The facility remained undrawn throughout The Group’s average net cash in 2022 increased relating to the private sector property theyear. to £804 million (2021: £671 million). The projects in central London and the US military Group’s net cash position at 31 December 2022, In June, the Group raised US$158 million of housing DoJ resolution and inflows relating excluding non-recourse net borrowings, was debt in the form of new US Private Placement to major infrastructure projects in the UK. £815 million (2021: £790 million). (USPP) notes on terms and conditions materially the same as the USPP notes issued 2022 2021 Non-recourse net borrowings, held in Working capital flows^ £m £m in 2013. The new debt comprises Infrastructure Investments entities consolidated Inventories (6) 11 US$35million of notes maturing in 2027 at by the Group, were £242 million (2021: afixed coupon of 6.31%, US$80 million of Net contract £243million). The balance sheet also notes maturing in 2029 at a fixed coupon of assets (137) 221 included £132 million for lease liabilities 6.39% and US$43 million of notes maturing Trade and other (2021: £129 million). Statutory net cash at in 2032 at a fixed coupon of 6.45%. In receivables 34 (34) 31December 2022 was £441 million December 2022, the Group secured a new Trade and other (2021:£418 million). £30 million bilateral committed bank facility payables 57 43 which remained undrawn at 31 December ### Provisions (2) 28 Banking facilities 2022. This facility expires in December 2024, Working capital The Group’s £375 million sustainability linked with an extension option for a further three (outflow)/inflow^ (54) 269 loan (SLL) facility extends to October 2024. years subject to certain specific conditions. Under the terms of the loan, the Group is Following the year end, the funds raised ^ Excluding impact of foreign exchange and disposals. incentivised to deliver annual measurable through the new USPP notes and the bilateral performance improvement in three key areas: Including the impact of foreign exchange bank facility were utilised towards repayment carbon emissions, social value generation, and andnon-operating items, negative (i.e. of the US$209 million of USPP notes which an independent Environmental, Social and favourable) working capital increased to matured in March 2023. The refinancing Governance (ESG) rating score as determined £1,167 million (2021: £1,118 million). In the exercise has extended the debt maturity by Sustainalytics, an ESG research, ratings medium term, the Group continues to expect profile of the Group. and data provider for institutional investors and negative working capital as a percentage of companies. Performance in these three areas revenue to be in line with its historical Balfour Beatty plc Annual Report and Accounts 202282 | Going concern | Following the formal triennial funding valuation | | | --- | --- | --- | | The Directors have considered the Group’s | of the Railways Pension Scheme (RPS) as at | | | medium-term cash forecasts and conducted | 31 December 2019, the Group agreed to | | | | continue to make deficit contributions of | Strategic report | stress-test analysis on these projections in | order to assess the Group’s ability to continue | £6million per annum which should reduce | | --- | --- | | as a going concern. Having also made | the funding deficit to zero by 2025. The triennial | | appropriate enquiries, the Directors consider | valuation of the RPS as at31 December 2022 | | it reasonable to assume that the Group has | is in progress and isexpected to be finalised | | adequate resources to continue for the | in the first half of2024. | foreseeable future and, for this reason, have The Group’s balance sheet includes net continued to adopt the going concern basis retirement benefit assets which are broadly inpreparing the full year Group financial unchanged at £223 million (2021: £231 million) statements. Further detail is provided in as measured on an IAS 19 basis, with the Note2 Going Concern. surpluses on the BBPF (£225 million) and RPS (£37 million) partially offset by liabilities | Pensions | in relation to other schemes (£39 million). | | --- | --- | | Balfour Beatty and the trustees of the Balfour | Whilst a sharp increase in the yields on | | Beatty Pension Fund (BBPF) have reconfirmed | corporate bonds has significantly reduced | | their commitment to a journey plan approach | thepresent value of the schemes’ pension | | to managing the BBPF whereby the BBPF is | obligations, the value of the schemes’ assets | | aiming to reach self-sufficiency by 2027. The | has also fallen in a corresponding manner. | Company and the trustees have agreed the principles of the 31 March 2022 formal valuation. ### Dividend Under these principles, Balfour Beatty will The Board is committed to a sustainable pay deficit contributions to the BBPF of £24m ordinary dividend which is expected to grow in 2023, £24m in 2024 and £6m in 2025. The over time, targeted at a pay-out ratio of 40% Company and the trustees expect to take of underlying profit after tax excluding gain further steps over the coming months to on disposal of Investments assets. reduce the investment risk in the scheme | and the Company has agreed that additional | Following the 3.5 pence per ordinary share | | --- | --- | | amounts will become payable at £2m per | interim dividend declared at the half year, | | month from March 2025 if the BBPF’s | theBoard is recommending a final dividend | | performance is materially different from that | of7.0pence per share, giving a total | | expected. The next formal triennial funding | recommended dividend for the year of | | valuation is due with effect from 31March 2025. | 10.5pence per share (2021: 9.0 pence | pershare). As a result of an acceleration mechanism | agreed previously between the Group and | Going forward, the Board expects the interim | | --- | --- | | the trustees, the Group made deficit | dividend to be roughly one third of the prior | | contributions to the BBPF of £35 million | year’s full year dividend. | in2022. | During the year, the trustees of the BBPF | Philip Harrison | | --- | --- | | entered into a longevity swap covering the | Chief Financial Officer | | majority of the existing pensioner members, | 15 March 2023 | which removes from the BBPF the risk of these people living longer than expected and represents a further substantial step in de-risking the BBPF. During the Gilt yield crisis in Autumn 2022, the BBPF’s Fiduciary Manager, together with the BBPF’s Investment Committee, closely monitored the collateral being held within the scheme’s liability hedging portfolio. As Gilt yields rose, action was proactively taken to ensure that throughout the crisis the BBPF held sufficient collateral to support its liability hedging programme. Balfour Beatty plc Annual Report and Accounts 2022 83 ### RISK MANAGEMENT ##  ##  ## Introduction The uncertainty and turbulence seen in 2022 undoubtedly presented increased risk to many businesses, both within the construction sector and beyond. For Balfour Beatty, this materialised ## 1 2 as a driver in a number of existing Group risks across the portfolio in areas such as people risk, economic uncertainty and inflation. ### IDENTIFY ASSESS TheGroup's risk management processes were @ Objective-focused risk @ Assessment of the impact of the effective in responding to this, with the business identification linked to risk and the probability of it correctly forecasting increased risk during Operational, Business and occurring, using the Group PI reporting updates made in the latter half of Group objectives (Probability Impact) Matrix 2021 which reflected the potential exposure (page88) | tothe business anticipated by the likely | @ Identification of core drivers | | | --- | --- | --- | | uncertainty in 2022. This meant these risks | (causes) and anticipated | @ Assessment based on the | | were adequately monitored and managed | outcomes (consequences) | effectiveness of current controls | throughout the year, minimising the potential @ Identifies and captures current @ Consistent assessment utilising exposure posed by the instability within control environment and its Group PI Matrix allows risks and theeconomy. effectiveness opportunities to be prioritised Further to this, the inclusion of a specific inflation category into Balfour Beatty’s ### Enterprise Risk Management (ERM) system, Applying a standard process from project IRIS, in the first half of 2022 meant that ### operations up to Group level ensures risks are businesses were able to track and monitor any ### captured, assessed and communicated inflation risk identified within their operational ### consistently at each level of the organisation portfolios to assess the exposure and focus management actions. As reported in 2021, the identification and capture of climate-related risks and opportunities was integrated into the existing ## 4 3 ERM framework. In 2022, work continued to review existing processes to improve how ### climate-related risk is considered as part of MONITOR RESPOND the Gated Business Lifecycle review process @ Risk environment monitored to @ Response of Accept or Manage within the ERM framework and how to build identify change in, or emergence Further assigned to each risk in prompts for climate-change considerations of, causes and consequences andopportunity based on for both physical and transition risk into currentassessment @ Risk response is reviewed in line tender and project risk reviews. with current risk assessment @ Response of Manage Further This has helped enhance Balfour Beatty's risk drives identification of Actions @ Completion of Actions and their management processes, and put them at the effect on reducing exposure @ Actions are assigned ownership heart of decision making, which is underpinned and due dates and are tracked for by the integration of the ERM framework completion alongside risk exposure across the Group. Balfour Beatty plc Annual Report and Accounts 202284 | During 2022, output generated from an | operational and business environments ensures | The guidance reflects experience and | | | --- | --- | --- | --- | | improved understanding of operational risk | the consideration of risk and opportunity | lessons learned from a comprehensive range | | | profiles has allowed the Group to focus on | remains central to making decisions. | of projects across a diverse customer base | | | enhanced reporting of risk and to utilise this | | and contains examples of specific risks and | Strategic report | | information to improve the link between |  | mitigations aligned to the Group’s operating | | | operational profiles and existing or emerging | | and commercial principles. | | Balfour Beatty’s Circles of Risk tool frames a Group risks. discussion early in the Gated Business This approach allows Balfour Beatty to make The Group’s risk process continues to Lifecycle review process to ensure appropriate decisions in the context of its risk appetite underpin the ERM framework to maintain a consideration of risks associated with the and stay ahead of potential exposures consistent approach and taxonomy across project such as location, customer, supply byensuring: the organisation. As the integration of the chain, project scope and contractual terms. @ the opportunity aligns to Group objectives, ERM framework evolves, the central Risk Circles of Risk guidance remains essential to business growth strategies and defined Management function maintains oversight the Work Winning approach across the risk tolerances; toensure processes remain current and Group, ensuring high-level risk profiles are continues to ensure Group adherence to @ all pursuits are assessed consistently so understood early in the pursuit of an regulatory requirements and good practice that potential opportunities that do not fit opportunity and are aligned to the Group’s inits approach to identifying, assessing, with approved business objectives are risk appetite. Building key considerations into responding to and monitoring risk. qualified out; and the Gated Business Lifecycle ensures prospects do not proceed to the next stage @ appropriate mitigation strategies are ### Our risk management process gate without the identification of potential developed in order to pursue the Balfour Beatty’s simple four-step process significant risks and the response that would opportunity whilst protecting the Group’s ensures the consistent identification, be required to manage or avoid these. This operating and commercial principles. assessment, response and monitoring of risk guidance continues to be a core decision across the organisation. Utilising this standard making tool when assessing new and/or process from project operations up to Group large-scale opportunities. level ensures risks are captured, assessed and communicated concisely at each level of the organisation. Embedding this process into ### CIRCLES OF RISK PROJECTTEAMCUSTOMERGEOGRAPHY CONTRACTSUPPLY CHAIN ## Balfour Beatty’s simple ## four-step process ## continues to underpin the ## consistent identification, ## assessment, response and ## monitoring of risk across ## the organisation.” Balfour Beatty plc Annual Report and Accounts 2022 85 ### RISK MANAGEMENT CONTINUED ##  Enhancing business risk oversight through consistent framework and process application. Risk Process and Tools | Internal Control Effectiveness | Risk Management Operating Standard ### GROUP ### RISK EXEC RISK STEERING GROUP | ERM TEAM Strategic Risk Continuous Improvement | Risk Culture Escalate Cascade Risk Process ### BUSINESS RISK Strategic business units / Business units Risk Process /Enabling functions Escalate Cascade AUDIT AND RISK COMMITTEE | EXECUTIVE COMMITTEE ### OPERATIONAL RISK Governance and Oversight | Risk Policy Setting | Risk Appetite and Tolerance Setting | Risk Culture Project / Contract / Asset Risk Risk Process ### Governance Group risk Business risk Gated business lifecycle ### and oversight management management riskmanagement The Board accepts overall The Group’s risk management Balfour Beatty’s business units are The Gated Business Lifecycle continues responsibility for risk management process allows the Group Chief distinct and diverse, meaning risk to be a fundamental internal control for and has established procedures to Executive to monitor the risk profile profiles differ across operations. Balfour Beatty’s operations. The manage risk, oversee the internal of the business through the Executive Having a consistent approach in both assessment of risk is undertaken at control framework, and to determine Committee (ExCom) and the Executive UK and US based businesses is each review gate to ensure risk-based the nature and extent of the principal Risk Steering Group (ERSG). essential to gaining insight into decision making remains at the heart of risks the Company is willing to take in business risk and rolling this up to future prospect pursuits and live project Executive sponsorship for risk the pursuit of its longer-term strategic Group. The comprehensive adoption reviews. Improvement to PowerBI management is provided by members objectives. The Directors continue to of the IRIS ERM system by strategic Reporting developed in 2022 gives the of the ERSG who provide valuable review the overall effectiveness of business units (SBU) has increased business greater access and insight to input to Group risk themes based on the risk management framework and transparency of operational and risk to aid timely escalation of project profiles within their respective internal control systems, including business risk profiles as well as risk to business leadership. The quality businesses and functions. the financial, operational and increased the support for businesses of risk information continues to improve, Maintaining all Business, Functional compliance processes and controls in making risk-based decisions. Work supported by alignment with internal and Operational risk registers that are in place to prevent the commenced in 2022 to establish SBU and operational audit activities and alongside the Group risk register occurrence or limit the impacts of specific risk appetites to better driven by tone set from Senior Leadership within the IRIS ERM system, enables risks. In addition, they undertake a full inform risks requiring escalation to on the importance of risk. The greater visibility of core and common assessment biannually of the Group senior management in the context of enhancement of risk library content themes and linkage of these themes risk profile which includes a review of each SBU's business objectives. within IRIS ensures core and common between the Group and business risk emerging and principal risks faced by risks specific to the Group's operations profiles to better inform half and full the Group. The Audit and Risk reach those involved in risk assessment year reviews. Work was undertaken Committee provides independent and suggested mitigation strategies in 2022 to link Business specific risks oversight of the effectiveness of the within the library support work winning with Group risks based on their Group’s risk management and teams by leveraging existing relationship as ‘parent’ and ‘child’ associated internal control knowledge from across the Group and risks to improve reporting and insight environment. outcomes of lessons learned. on trends and movements. Balfour Beatty plc Annual Report and Accounts 202286 ##  | Risks that the Group are exposed to | to accept or tolerate risk supports the pursuit | faced by the Group in achieving its long-term | | | --- | --- | --- | --- | | throughout day-to-day delivery and the | of its objectives. The strength and ongoing | strategic objectives. This requires biannual | Strategic report | | longer-term pursuit of strategic objectives | effectiveness of the internal control environment | review of the effectiveness of its internal | | | continue to be monitored in line with appetite | within the risk structure outlined on pages | control environment within the risk | | | – and decisions taken in line with the | 136 to 141 has been considered in setting out | management structure outlined on pages 136 | | | organisation’s attitude to risk. | thebelow. | to 141. The outcome of this assessment | | represents the Group’s risk appetite and can The Group’s risk appetite continues to be The Board, its sub-committees and executive be set out in the context of the Group’s aligned to its Build to Last strategy, ensuring management discuss and measure the nature values as shown below. that risk-based decision making on whether and extent of current and emerging risks Risk attitude Appetite Related principal risksBuild to Last strategy We create value for Balfour Beatty remains committed to challenging ways of 7 9 12 our customers and working to improve outcomes and become more p93 p94 p96 ## drive continuous competitive. M improvement In delivering better for less, the Group is prepared to accept REMAINS a level of operational risk. MODERATE Such risks must not be at the expense of meeting customer requirements. ## Lean The Group’s risk appetite for efficiency remains moderate. Our highly skilled Balfour Beatty continues to develop its expertise in 2 3 6 7 13 colleagues and engineering, computer science, robotics, data analytics, p89 p90 p92 p93 p96 ## partners set us apart electronics and electrical and mechanical engineering to M deliver the very best solutions to its customers. REMAINS This drive for sustained innovation is undertaken with MODERATE industry experts in managed and safe environments to minimise risk. ## Expert The Group continues to have a moderate appetite for expert risk. We deliver on our Balfour Beatty must deliver on its promises to stakeholders. 2 3 4 5 6 promises and we do Aligning delivery objectives to those of the customer is p89 p90 p90 p91 p92 ## the right thing L critical to ensuring successful outcomes – the Group strives for Right First Time delivery. 7 8 9 10 11 REMAINS Ensuring integrity is embedded throughout the Group and LOW p93 p93 p94 p95 p95 its supply chain partners is key to doing the right thing. ##  The Group retains a low appetite for risks around meeting customer expectations. We make Conducting business in a safe way and providing a Zero 1 7 safetypersonal Harm environment for Balfour Beatty’s people and p89 p93 ## stakeholders is paramount. 0 The Group’s appetite for health and safety risk remains REMAINS atzero. ZERO ##  We act responsibly Balfour Beatty is committed to leaving a positive legacy for 732 to protect and the society and communities it serves. p93p90p89 ## enhance our planet M The Group seeks to minimise its impact on the and society environment, working with supply chain partners, REMAINS customers and communities to ensure its choices are MODERATE sustainable, whilst delivering customer objectives, and pursuing new initiatives and technologies to achieve this. ##  The Group’s appetite for risk around sustainability is moderate. Balfour Beatty plc Annual Report and Accounts 2022 87 ### RISK MANAGEMENT CONTINUED sufficiently defined or developed to enable an current controls that have already been ##  informed assessment to be made of their impact implemented to manage the risk – provides The Group requests specific emerging risk on the ongoing viability of the Group and more accurate insight into the potential identification by each SBU and Enabling whether they pose a threat or an opportunity. exposure being faced by the organisation in Function (EF) as part of the Group’s biannual The review of emerging risks considers: real-time and better positions the Group to half year and full year risk submissions. The make a decision on how to respond to the functionality in IRIS to flag emerging risks on @ economic and political factors (e.g. risk in line with its risk appetite. respective strategic risk registers enables government or policy changes in areas greater visibility of emerging risks, allowing ofoperation); The impact descriptors that form part of the SBUs and EFs to monitor emerging risks Group PI Matrix are built into Balfour Beatty’s @ environmental and social factors (e.g., change alongside their existing review of current risks. IRIS ERM system to ensure consistency in in people or organisation behaviours); Reports on emerging risks can also be the assessment of risks across the Group. obtained through Power BI Reporting to form @ legal and regulatory risks (e.g., introduction The matrix is calibrated to cater for financial part of the discussion between Group and of or significant change in the regulations impacts across the three tiers of the risk SBU management and where required, are which govern how the Group operates); and management framework: Gated Business presented to the Executive Risk Steering Lifecycle, business risk and Group risk. This @ technological risks (e.g., development of Group for further review and validation. allows the same matrix to be utilised for innovative solutions and new common assessment whilst providing a Balfour Beatty considers emerging risks in technologies). flexible, tailored approach for risks to be relation to their longer-term impact and measured in the context of project or ## shorter-term risk velocity and examines them  business financial objectives, whilst catering in the context of its viability statement. The The Balfour Beatty Group PI Matrix supports for adjustment on roll-up to Group level. Group has defined emerging risks as those consistent assessment and prioritisation of risks faced by the business that: The three Principal risks that increased in the risks across the business. second half of 2021 have maintained their @ are likely to be of significant scale beyond a Each risk impact is assessed across three ratings throughout 2022. This is reflective of three-year timeframe; or | | main themes: delivery; health, safety and | anticipating an increased exposure associated | | --- | --- | --- | | @ have the velocity to significantly increase | sustainability; and financial. | with economic uncertainty arising from | | in severity within the three-year period. | | post-COVID-19 factors, rising global energy | Balfour Beatty’s approach that assessment prices and ongoing political and societal The discussion and review of emerging risks should focus on the ‘current’ exposure – that factors. includes ‘horizon scanning’ activities around is, the probability of the risk occurring and potential uncertainties that are not the potential impact it may have based on the Whilst significant exposure has been effectively managed to date through reinforced controls, the Group remains prudent in ensuring any continued exposure ### Group Probability and Impact (PI) Matrix is accurately assessed and that controls remain effective to maintain this position of Principal risks into 2023, reflecting minimal movement in overall risk profile. ### 8 12 ### 3 | 7 | | 1 | 2 4 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | 1 | Health and safety p89 | | | | | 6 | 13 | | | | | | | | | | | 2 | Managing commercial terms p89 | | | | | | | | 3 | Project delivery p90 | | | 9 | | 5 | | 10 | | | | | | | | | | 4 | Joint ventures p90 | IMPACT | 5 | Cybersecurity p91 | | --- | --- | | 6 | People and talent p92 | | 7 | Sustaining focus on Build to Last strategy p93 | ### 11 | | 8 | Financial strength p93 | | --- | --- | --- | | | 9 | Supply chain p94 | | | 10 | Code of Ethics compliance p95 | | Minor Moderate Significant Major Catastrophic | 11 | Legal and regulatory p95 | | | 12 | Legacy pension liabilities p96 | | | 13 | Economic uncertainty p96 | Rare Unlikely Possible Likely Almost certain PROBABILITY Balfour Beatty plc Annual Report and Accounts 202288 ##  | Balfour Beatty’s decision making remains | risk appetite. The principal and emerging | The risk profile comprises both interconnected | | | --- | --- | --- | --- | | centred on a comprehensive and detailed | risks are mapped to strategic business plans | and discrete risks at strategic, operational and | Strategic report | | understanding of the exposures faced by the | to ensure there is comprehensive coverage | project level and focuses on understanding the | | | organisation. Identifying risks that could | of risks and allow the Board to undertake an | worst-case scenarios that could threaten the | | | impact on the achievement of business and | assessment of the potential exposures faced | Group’s strategy and business model, and | | | strategic objectives, and consistently | by the Group and whether these represent | ongoing viability (see pages 12 and 97). The | | | assessing and responding to these, is | new, increased or decreased threats and the | Group’s principal risks are described on | | | essential to balancing risk taken in line with | level of response required to manage them. | pages 89 to 96. | | DESCRIPTION AND IMPACT CAUSES MITIGATION | | 1 | HEALTH AND SAFETY | | | | | --- | --- | --- | --- | --- | --- | | The Group works on and delivers | | | Common themes which drive health and | Balfour Beatty’s Zero Harm strategy and its | Owner | | significant, complex and potentially | | | safety risks include: | supporting policies and procedures continue to | Safety and Sustainability Committee | | hazardous projects which require | | | | act as key controls in managing the risks | | | | | | ‡ inadequate risk identification/ | | Risk movement | | continuous monitoring and | | | | presented in the industry and across the Group's | | assessment; management of health and safety operations. The strategy and associated action risks. ‡ lack of competence or training; plans are regularly reviewed and monitored by ‡ processes that fail to deliver risk management and external accreditation bodies. ## What impact it might have – elimination or mitigation; Failure to manage these risks presents Experienced and competent health and safety the potential for significant harm, ‡ lack of clear safety leadership, professionals provide advice and support, including fatal or life-changing injuries to impacting broader safety culture; monitor culture and undertake regular reviews. No movement employees, subcontractor staff, third ‡ ineffective management of The risk continues to be managed by The Safety and Sustainability Committee of the parties or members of the public. It also subcontractors, JV partners and well-established and embedded Board and business Health and Safety executive presents the threat of potential criminal other third parties; controls and mitigations throughout leadership teams meet regularly throughout the prosecutions, significant fines, debarring the Group and within operational DNA ‡ failure to cascade and follow Health year to capture lessons learnt and develop a from contract bidding and reputational to represent a stable control and Safety procedures; and/or consistent approach to health and safety best damage. environment. ‡ lack of focus on the wellbeing and practice. KPIs are reported and closely mental health of staff faced by daily monitored. Appointment of new Health, Safety For more information please see | | work and life pressures. | | and Environment Director in2022. | | --- | --- | --- | --- | | ‘Health, safety and wellbeing’ | | Training programmes (including behavioural | | | onpages 46 to 51. | | training) are in operation across the business, | Multiple contemporaneous failures | | | | including a focus on mental health and wellbeing. | within this environment would be | required for the risk to be realised. | | 2 | MANAGING COMMERCIAL TERMS | | | | | --- | --- | --- | --- | --- | --- | | The Group repetitively delivers high | | | Key causes that could drive this risk | The Group Tender and Investment Committee | Owner | | profile, complex and significant | | | include: | reviews and challenges all proposals in line | Group Tender andInvestment Committee | | projects that regularly carry | | | | with minimum commercial expectations and | | | | | | ‡ lack of clearly defined bid strategy; | | Risk movement | | specialised deliverables together | | | | the Circles of Risk. | | | with intricate, multifaceted, and | | | ‡ misalignment between Balfour Beatty | | | Clear, defined delegated levels of authority are occasionally onerous commercial and client approach; in place for approving all tender and | terms. Establishing the right | ‡ working with a new or unknown | | | | | --- | --- | --- | --- | --- | | | | infrastructure investment decisions. | | – | | contractual terms and delivering | customer with no known established | | | | | customer obligations within these | relationship; | Customer adoption of the UK Government | | | | terms often alongside technical | | Construction Playbook steers an approach | | | | | ‡ supply chain lacking the capability to | | No movement | | | complexity, can pose a risk if not | | towards increased collaboration, which results | | | | | accept and manage back-to-back | | Risk increased in 2021 in existing | | | managed correctly. Maintaining a | | in reduced risk, and an increased focus on | | | | | terms, resulting in increased risk | | portfolio and rating is maintained in | | | balance to protect the interests of all | | quality of bid rather than being solely cost | | | | | carried by Balfour Beatty; | | 2022. Controls to champion a more | | | parties, including the supply chain, | | driven. | | | | | ‡ failure to engage in an early | | collaborative approach with customers | | whilst maintaining a profitable and collaborative approach with the A ‘getting left early’ approach adopted prior to continue to improve and remain key in sustainable order book, and customer; the procurement process enables influence over seeking fair terms commensurate with delivering stakeholder value requires contracting and procurement model and a risk profiles. Controls to prevent the competency, skill and, where ‡ clients taking a risk adverse attitude two-stage tender, supports an early Group from bidding for unsustainable possible, collaboration with clients. resulting in a lack of balanced collaborative, solution-based approach with work influence decision making, to approach to allocation or sharing of What impact it might have customers and minimises risk on both sides. limit any potential exposure. Regular risk; and/or Failure to fully understand or manage the reporting of risk profiles alongside ‡ lack of early identification of a contracting A wide and ongoing range of work winning application of commercial terms across mitigation strategies to management strategy between all parties. initiatives (including Cash is our Compass, contracts can result in potential disputes, throughout execution remain key. High Value Selling and the Win Business requiring the use of valued time and Leadership community of practice) are in An improvement in governance associated cost of resource to manage place across the Group to drive increased controls for approvals increases them. Potential losses or reduction in commercial and customer awareness and alignment with Circles of Risk, profits and damage to relationships with further embed an understanding of improving focus on documenting key customers and supply chain partners expectations on margins and cost. tender risk profiles and achieving a could also impact the Group. more balanced-risk portfolio. The Gated Business Lifecycle review process Failure to effectively engage and highlights key commercial risks closely aligned to Close monitoring of inflation risk in collaborate with customers and supply Circles of Risk to ensure adequate qualification 2022 across existing portfolio coupled chain partners to manage contract terms and early mitigation of key exposures. with negotiating inflation mechanisms could additionally result in opting out of in new contracts. certain works or may even limit access to Monthly business reviews pick up any early certain targeted markets in the future. indicators with potential for disputes arising on contracts, including across the subcontractor base. Balfour Beatty plc Annual Report and Accounts 2022 89 ### RISK MANAGEMENT CONTINUED ##  DESCRIPTION AND IMPACT CAUSES MITIGATION | | 3 | PROJECT DELIVERY | | | | | --- | --- | --- | --- | --- | --- | | Failure to deliver projects consistent | | | Failure to implement, maintain and | The Gated Business Lifecycle continues to | Owner | | with customer expectations and | | | challenge operational and commercial | maintain focus on identifying and reporting | Group management | | required specifications and/or quality, | | | controls (as detailed within checklists at | risks, including planning, programme | | Risk movement in line with schedule and budget. and Gateway Business Lifecycle reviews) accuracy, cost and cash forecasting and minimise the risk of increased costs, allowing: resource reviews. delay related damages and defect ‡ lack of comprehensive understanding Early engagement of integrated work liabilities. ## of contract obligations; winning and project delivery teams across – What impact it might have the Gated Business Lifecycle processes ‡ inadequate resource (people, plant Failure to manage and/or deliver against ensures customer expectations are and materials) or competency of customer expectations, scope understood and realistic. No movement resource; specifications and key deliverables to Consistent application of the Group’s ‡ unrealistic project schedules; Deployment and ongoing monitoring of schedule and budget could result in reporting systems and diligent use of strong commercial management and concerns such as design issues, contract ‡ unrealistic progress assessments short interval control processes contract administration processes through disputes, rejected claims, liquidated and cost to complete judgements remain in place across all stages of the project lifecycle. damages, cost overruns and failure to which could arise due to poor project delivery, providing greater achieve anticipated customer savings training, lack of supervision, or lack Optimal scheduling of key staff and certainty of operational outcomes. which in turn could reduce the Group’s of accountability; associated competencies within project UK Quality Leadership Team (QLT) profitability and damage its reputation. ‡ overly optimistic claim recovery delivery teams and senior management, champions a consistent approach to assumptions; with ongoing and focused training. The Group may also be at risk of improving quality awareness and longer-term exposures including litigation ‡ incomplete visibility and appreciation The site mobilisation hub facilitates early champions the organisation's Right and costs to rectify defective or unsafe of scale of commercial judgements; and effective start-up on site. First Time approach to project work. Such failure may also result in ‡ failings in administering the contract delivery. Drive for Right First Time delivery including | liability under the new Building Safety Act | terms to safeguard or protect future | | | | --- | --- | --- | --- | | | | digital progressive assurance of project | Verification of the effectiveness of | | 2022. | claims, change orders and | | | | | | delivery championed by UK Quality | controls remains key to managing this | | Delivery failure on a high-profile project | extensions of time (EOTs); and/or | Leadership Team with Executive Committee | risk together with an enhanced focus | | could result in significant reputational | ‡ poor management, selection and | sponsorship. | on quality performance. | | damage, debarring from future work and | governance of subcontractors. | | | Pre-qualification and competency/capacity significant associated costs of Customer intervention and additional verification of supply chain partners, close rectification or dispute resolution. pressure to complete could also be a monitoring of subcontractor and supplier driver to this risk. performance throughout the project lifecycle. Professional indemnity cover in place to provide further financial safeguards. | | 4 | JOINT VENTURES | | | | | --- | --- | --- | --- | --- | --- | | Failure to implement robust controls | | | The risk could be realised through: | The Group Tender and Investment | Owner | | around the selection of joint venture | | | | Committee process applies to all joint | Group Tender and Investment | ‡ ineffective assessment of potential (JV) partners, define a clear venture proposals. Committee JV partners including liquidity, governance structure to monitor capacity and capability; The Group’s primary course is to self-deliver Risk movement delivery or establish a ‘one team’ projects where possible rather than as part culture may result in failure to deliver ‡ failure to ensure ‘fit for purpose’ of a JV, whilst recognising that establishing expected returns and minimise the terms with the right JV partner; the right partnership can be an opportunity risk of unexpected liabilities. ‡ lack of clarity of the delegated levels ## to deliver work. – of authority between partners; What impact it might have Appointment of an appropriately constituted Inability to select the right JV partner, ‡ delayed and fettered decision- JV board to act as the main governance aligned to Balfour Beatty’s culture and making process between partners; No movement vehicle for the Group. values, may result in a mismatch of ‡ segregation of management systems New joint venture arrangements are partner objectives, with a knock-on (financial and operational); The Gated Business Lifecycle provides subject to strong governance controls impact on the effective delivery of governance over the selection of JV that underpin decision making. ‡ lack of understanding of contract contract requirements, and a partners, and highlights partner-related risks requirements and expectations; Monitoring of health and safety misalignment in approach. This could closely aligned to Circles of Risk including ‡ lack of oversight over JV reporting progress of existing key and result in a significant impact to profitability those related to capacity, capability, and application of processes high-profile JVs continues. and reputational damage. previous experience with the Group and implemented across the project; liquidity. The failure of a JV partner may expose and/or the Group to increased resourcing costs Experienced project directors are appointed ‡ failure to align Balfour Beatty and JV and ongoing liability, warranty and to manage the JV and provide an ongoing partner cultures, values and practices. insurance risks. assessment of operational delivery risk. Disputes with JV partners could impact Good practice, including the use of joint the Group’s ability to operate successfully reporting systems where appropriate, is and/or expand within its chosen markets. shared between all partners to embed the Group’s expectations and culture throughout Failure to align and integrate with the JV delivery teams. Group’s health and safety management expectations could result in increased Balfour Beatty monitors the performance of potential for injury and/or fatality. its JV partners throughout the lifecycle of a project. Balfour Beatty plc Annual Report and Accounts 202290 DESCRIPTION AND IMPACT CAUSES MITIGATION Strategic report | | 5 | CYBERSECURITY | | | | | --- | --- | --- | --- | --- | --- | | Failure to protect key Group and | | | There are several internal and external | The risk is managed via the following | Owner | | employee data or other confidential | | | factors that could contribute to the | controls: | Group management | | information due to a breach of system | | | realisation of this risk including: | | | | | | | | ‡ network and endpoint protection, | Risk movement | security. ‡ poor internal governance; encryption, patching and data back-up; What impact it might have ‡ failure to embed preventative culture; ‡ awareness training with mandated Realisation of this risk could result in: annual refresher in place across all ‡ lack of or inadequate staff training ## users; – ‡ reputational harm (loss of market and and awareness; customer confidence); ‡ employee vetting; ‡ increased exposure to phishing ‡ potential fines and prosecution; attacks and ransomware due to ‡ data governance framework regularly No movement ‡ loss of intellectual property and increased use of personal devices reviewed, and supported by policies and The risk posed by cyber-attack is competitive advantage; and and remote working; certifications; continually growing and increasing in ‡ lack of retention policy applied to ‡ incident management feedback sophistication but a continuous ‡ operational impact restricting ability to data; mechanism (embeds lessons learnt); improvement in control environment carry out business critical activities remains commensurate with the (disruption to business as usual). ‡ operational failure; ‡ partner and supplier controls in place increased exposure to reduce the including vendor risk management ‡ inconsistent approach to data security likelihood of a major incident. Ongoing assessments and established with joint venture / external partners; monitoring and review of controls relationships with external security For more information please see ‡ increased use of cloud services remains key in managing this risk. authorities; 'Ethics and compliance' on pages without equivalent investment in 52 to 53. ‡ infoSec actively monitoring for security modern threat prevention; and/or incidents and remediating where ‡ cyber-attack. necessary; ‡ access to all core systems subject to multi-factor authentication; ‡ systems are subject to 24/7 monitoring; ‡ strong focus on supply chain partners to ensure they are resilient to fraud and cyber-attacks; ‡ knowledge sharing initiatives with supply chain partners and wider industry; ‡ reviewing core controls to provide additional protection in areas which have potential to be new attack paths; and ‡ cyber-security maturity assessment providing assurance and oversight of the operation and effectiveness of the cyber controls. Balfour Beatty plc Annual Report and Accounts 2022 91 ### RISK MANAGEMENT CONTINUED ##  DESCRIPTION AND IMPACT CAUSES MITIGATION | | 6 | PEOPLE AND TALENT | | | | | --- | --- | --- | --- | --- | --- | | Inability to attract and retain the | | | The failure to effectively mitigate the | Providing a positive working environment to | Owner | | required levels of skilled and | | | Group’s people risks may arise through: | support the development of its employees has | The Board | | competent staff and capability, as | | | | been central to Build to Last. | | | | | | ‡ overheating of market causing | | Risk movement | well as develop emerging talent, to significant increase in demand or Specific controls to mitigate this risk include: deliver current and future pipeline competition for people, specifically and meet the Group’s objectives. ‡ implementation of HR strategy and plan and in certain sectors and regions; associated measurement of KPIs to inform ## What impact it might have – ‡ overbidding or ineffective workload decision making against budgets; Failure to recruit and retain and location scheduling; | appropriately skilled people or grow | | ‡ an increased focus on longer term | | | --- | --- | --- | --- | | | ‡ lack of visibility of long-term pipeline | resourcing needs and solutions with a | | | in-house talent could harm the Group’s | | | No movement | | | or perceived career progression | Group overview to overcome the risk of | | | ability to win or perform specific | | | Risk rating increase in 2021 has been | | | resulting in existing workforce leaving | siloed thinking and action; | | | contracts, manage delivery cost | | | held throughout 2022. This reflected an | the Group or sector; increases, grow business and/or meet ‡ a focus on strategic workforce planning increased upturn in people movement strategic objectives including ‡ inability to recruit and retain strong protocol to prevent resource conflicts; and increasing pressure on wage acquisition of future order book. performers; inflation within the sector and wider ‡ work winning and project delivery aligned to ‡ failure to maintain a culture of pride economy. Whilst risk is anticipated not A high level of staff turnover or low internal and external recruitment activities, and advocacy across the workforce; to increase further currently, retention employee engagement could result in a with early review of people and resourcing of key skills alongside future access to loss of competency, reducing business ‡ ineffective and/or lack of adequate needs via the Gated Business Lifecycle to required talent pool, remains a key confidence within the market, a loss of investment and decision making in ensure adequate capability and capacity to focus, reflecting no reduction in current stakeholder confidence and an inability the development of existing skills deliver work prior to bidding; risk exposure. to drive business growth or and capabilities; ‡ competency frameworks within core job improvements. ‡ lack of a diverse workforce; families identify and support the development of key knowledge, skills For more information please see ‡ issues throughout labour supply andexpertise; ‘Our people’ on pages 64 to 69. chain including onerous immigration controls; ‡ increased focus on internal mobility to develop broader careers and redeploy ‡ cost of living pressures and other people post project completion. New economic factors driving increase in careers portal launched in July and internal attrition and people movement; and/ mobility measurement and targets or established; ‡ pressure from wage inflation and ‡ recruitment and retention rates are increase in competitive offers from measured and regularly reviewed across all other infrastructure opportunities. parts of the business, with succession plans identified for core roles and disciplines; ‡ annual OPR (people and talent reviews), with regular reviews of remuneration and incentive arrangements to ensure they are appropriate to help the Group attract, motivate and retain key employees; ‡ benchmarking of total remuneration package versus peers and participation in industry forums to track position in market; ‡ Group-wide employee engagement surveys are undertaken to measure engagement and appropriate actions are developed and communicated; ‡ the Balfour Beatty Academy has been established in the UK to support professional and personal development in line with role requirements; ‡ training needs analysis and competency tools (including COMAEA) identify role capability requirements and highlight development gaps to inform investment decision making; ‡ strong employee communication channels are in place celebrating individual, business and Group-level successes and increasing visibility of future pipeline and opportunities; ‡ affinity networks established to create a diverse and inclusive working environment; and ‡ increased investment in emerging talent such as strong graduate, apprenticeship, trainee, conversion programmes and industrial placement/internship schemes. Balfour Beatty plc Annual Report and Accounts 202292 DESCRIPTION AND IMPACT CAUSES MITIGATION Strategic report | | 7 | SUSTAINING FOCUS ON BUILD TO LAST STRATEGY | | | | | --- | --- | --- | --- | --- | --- | | Failure by the Group to sustain and | | | Failure to deliver and/or demonstrate | Ensuring Build to Last continues to drive | Owner | | build upon the strong foundation | | | sustained focus and momentum could | business improvements and value is a | The Board | | and culture created through its | | | arise from: | strategic priority for the Group and is led by | | Risk movement Build to Last strategy and the Group Chief Executive. ‡ complacency and/or localised incorporating its core values of adaptations within core disciplines or Controls include: Lean, Expert, Trusted, Safe and siloed cultures; Sustainable. ‡ continuous measurement and reporting of ## ‡ ineffective communication and – KPIs aligned to Lean (cash flow and profit What impact it might have reinforcement of messaging through from operations), Expert (employee Inconsistency in working practices and a lack of leadership; engagement), Trusted (customer siloed cultures could drive No movement ‡ inadequate resourcing (financial, satisfaction), Safe (Zero Harm) and inefficiencies including increased costs The Build to Last strategy is key to the physical assets and people) with the Sustainable (carbon emissions) within each and operational errors resulting in continuing success of the business right level of skill and competency; business; reputational harm impacting all of the and underpins the Company culture Group’s stakeholders as well as an ‡ lack of joined up approach across ‡ cultural framework under Build to Last is across all operations. impact on the Group’s ability to deliver each of the geographies of operation embedded in systems and processes, The importance of delivering against sustainable profitable growth. and to cater for varying customer aligning the UK and US under one unified the Group’s Build to Last strategy will demands; cultural framework and reinforcing Delivering against the Group's core continue to be essential to the expected values and behaviours; values of Lean, Expert, Trusted, Safe ‡ new systems and processes being success of the business. and Sustainable is integral to its used without appropriate controls ‡ clear and frequent senior leadership longer-term viability. being in place and/or tested; and/or engagement across the businesses and functions; ‡ new people joining the organisation | | (including in leadership roles). | ‡ upskilling, training, and business and | | --- | --- | --- | | For more information please see | | development initiatives at key levels | | ‘Our strategy: Build to Last’ on | | throughout the business to reinforce Build | | pages 24 to 25. | | to Last strategies, values and behaviours | for all employees and in key job families i.e. commercial, project management, engineering etc; ‡ induction, recognition and PDR approach heavily weighted around Build to Last values and behaviours; ‡ Zero Harm provides a consistent approach for the Group on the health and safety agenda and delivery against the Safe value; ‡ Building New Futures strategy provides a consistent approach for the Group on the Sustainability agenda and delivery against the Sustainable value; and ‡ regular programme of communications to reinforce strategic priorities across the Group. In 2022 this included a Group Leadership conference with an audience of circa 1,000 to align leadership around business priorities and business strategy. | | 8 | FINANCIAL STRENGTH | | | | | --- | --- | --- | --- | --- | --- | | The Group’s inability to maintain | | | Failure to manage financial risks, | The Group continues to operate with a low | Owner | | the financial strength required to | | | including forecasting material | level of financial risk as evidenced by the | The Board | | operate its business and deliver its | | | exposures, and the financial resources | robust net cash position. | | Risk movement objectives. of the Group that underpin its ability to: The Group operates with a centralised Treasury What impact it might have ‡ meet ongoing liquidity obligations so function that is responsible for managing key Failure to protect and effectively that it remains a going concern; and/ financial risks, cash resources and the ## deliver the required financial strength or availability of liquidity and credit capacity. – will mean the Group: ‡ meet financial covenants as set out The Group maintains significant undrawn term ‡ fails to meet financial covenant in financing facility agreements. committed bank facilities with a banking group No movement tests, as set out in its financing of high credit quality to underpin the liquidity Robust controls within Finance and facility agreements, leading to a requirements of the Group. Treasury functions continue to default event if not remedied within The Group maintains significant bank and demonstrate a clear ability to manage a specific grace period; surety bonding facilities to deliver trade finance existing and anticipated risk. ‡ fails to pass the required tests that requirements of the Group on an ongoing allow it to continue to use the going basis. concern basis of accounting in The Group operates standardised reporting, preparing its financial statements; forecasting and budgeting financial processes. ‡ loses the confidence of its chosen This allows monitoring of the impact of markets; and/or business decisions on financial performance ‡ loses the ability to compete for key over future time horizons. long-term contracts that are critical Assets from the Investments portfolio can be to its viability and delivery of its sold to generate cash. long-term objectives. Balfour Beatty plc Annual Report and Accounts 2022 93 ### RISK MANAGEMENT CONTINUED ##  DESCRIPTION AND IMPACT CAUSES MITIGATION | | 9 | SUPPLY CHAIN | | | | | --- | --- | --- | --- | --- | --- | | Supply chain partners fail to meet | | | Lack of capacity, competency or | The Group aims to develop long-term | Owner | | the Group’s operational | | | stability within the Group’s supply chain | relationships with key subcontractors, working | Group management | | expectations and requirements in | | | may arise through: | closely with them to understand their operations | | Risk movement relation to capacity, competency, and dependencies. This includes relationship ‡ lack of capacity or failing to retain quality, financial stability, safety, mapping with strategic suppliers, lessons learnt subcontractors in a buoyant market, environmental, social and ethical. from previous projects together with briefing on over-reliance on a limited number of order book requirements. ## What impact it might have suppliers or a failure of key supplier – Failure to effectively manage or relationships; The risk management framework and the Gated monitor the delivery of subcontractors Business Lifecycle review process allow for early ‡ failure to embed the Group’s or suppliers would result in the Group (Gates 1–4) and ongoing (Gate 6) assessment of No movement expectations within the procurement becoming involved in disputes, being the appropriateness of resource allocation and 2022 has seen volatility in the market process; forced to find an alternative provider or dependencies and development of procurement driven by inflation and rising energy ‡ inadequate assessment of supply undertaking/ redoing the work itself. strategies. prices, however robust controls chain partner capabilities, capacity | This could result in delays, business | | | implemented during and post the | | --- | --- | --- | --- | | | and process (including liquidity, | Pre-qualification accreditation in place for core | | | disruption, additional costs or a | | | COVID-19 pandemic have worked to | | | quality, safety, ethics, materials | suppliers (validated in Gates 1–3), with oversight | | | reduction in quality/increased defects | | | build and maintain strong relationships | | | stewardship, child labour, forced | of supplier metrics and overall ‘health’. | | | owing to lack of expertise or | | | with key supply chain partners. Close | labour and modern slavery); competency. Contingency plans address potential monitoring of supplier health, key risk ‡ lack of supplier resilience (arising subcontractor failure, including replacement indicators and tracking of core Mistreatment of suppliers, from rising global energy prices, supplier list. commodities, has resulted in no material subcontractors and their staff, or poor after effects from the UK’s exit from increase in thisrisk. ethical standards in the supply chain, A central database tracks individual subcontractor the EU, prolonged effects seen as a could lead to legal proceedings, scoring in relation to capacity, compliance, result of COVID-19 and/or recovery investigations or disputes resulting in performance and financial health. Market trends following any natural disaster or business disruption, losses, fines and and insights closely monitored and distributed to political event); penalties, reputational damage and relevant businesses. ‡ failure to accurately assess project debarment. resource requirements and key The Group obtains project retentions, bonds and/ deliverables; or letters of credit from subcontractors, where appropriate to mitigate the impact of any ‡ including increased tariffs and border insolvency. delays for the UK's exit from the EU; | ‡ logistical impacts causing delays | Suppliers and subcontractors reviewed for | | --- | --- | | resulting from HGV shortages and | third-party suitability compliance via PAS 91 | | warehousing issues; | Assessment (Industry Standard). | | ‡ inflation and/or the rising cost of | Group-wide Code of Ethics launched in 2022, | | energy driving up prices; | with targeted training programmes and related | policies and procedures in place. ‡ lack of adequate oversight, supervision or management during Detailed assessment process across supply delivery; and/or chain following any major natural disaster/ ‡ unethical treatment of the supply chain. political incident to identify any disruption or discontinuation of supply. Balfour Beatty plc Annual Report and Accounts 202294 DESCRIPTION AND IMPACT CAUSES MITIGATION Strategic report | | 10 | CODE OF ETHICS COMPLIANCE | | | | | --- | --- | --- | --- | --- | --- | | Failure to comply with the Code of | | | Failure to comply with the Code of | New Code of Ethics and associated training | Owner | | Ethics across the Group including | | | Ethics and Balfour Beatty values could | programme deployed Group-wide in 2022. | The Board | | employees, JV partners, and within | | | arise from: | Related policies, procedures and training are | | Risk movement the supply chain. refreshed as appropriate. ‡ failure to adopt a compliance risk What impact it might have approach; Ethics and Compliance updates are provided Failure to comply with the Code of Ethics to the Audit and Risk Committee biannually. ‡ failure to establish appropriate and Balfour Beatty values could leave the Each business unit, supported by the Ethics ## corporate culture; – Group exposed to: and Compliance function, is responsible for ‡ failure to embed the Company’s embedding the Code of Ethics and the ‡ instances of bribery and corruption; values and behaviours throughout Company’s values and behaviours within its No movement ‡ fraud, deception, false claims or false the organisation and across joint operations. The risk continues to be managed by accounting; ventures; well-established controls and The Group has a range of operational ‡ unfair competition practices; ‡ lack of effective training programme mitigations throughout the Group to controls (commercial, including procurement, and compliance monitoring; represent a stable control environment, ‡ human rights abuses, such as child due diligence and risk assessment) that are ‡ failure to have a robust testing and enhanced by the launch of the new and other labour standards generally, designed to identify and manage risks monitoring programme in place; Code of Ethics and associated training illegal workers, human trafficking and internally and with third parties. programme in 2022 across all modern slavery; ‡ lack of appropriate whistleblowing An independent third-party whistleblowing geographies. ‡ unethical treatment of and by the processes including ensuring helpline and dedicated email contact are in supply chain; and/or awareness of such outlets across the place and actively promoted. All in-scope organisation; and/or ‡ ethics and values being compromised complaints are independently investigated as a result of commercial pressures. ‡ deliberate or reckless by the Internal Audit and Compliance teams non-compliance. and appropriate action is taken, where Failures could result in legal investigations or disputes, resulting in business necessary. disruption, losses, fines and penalties, Balfour Beatty works with a limited number reputational damage and debarment. of agents, all of whom are, in addition to the Group’s due diligence and approval process, subject to specific contractual clauses, For more information please policies and agreements. see‘Ethics and compliance’ Use of a central database to track supplier onpages 52 to 53. and subcontractor performance history providing insight into their internal operating processes, governance and values. | | 11 | LEGAL AND REGULATORY | | | | | --- | --- | --- | --- | --- | --- | | The Group does not respond to any | | | A failure to recognise or adapt to | The Group monitors and responds to tax, | Owner | | change in relevant legal, tax and | | | potential impacts arising from changes | legal and regulatory developments and | The Board | | regulatory requirements in a timely | | | in applicable laws affecting the Group’s | requirements in the territories in which | | Risk movement manner. businesses may result from: itoperates. What impact it might have ‡ lack of awareness of any changes in Changes in the law and the requirements The Group could face legal proceedings, law or regulations made; arising from them are clearly cascaded to all ## investigations or disputes resulting in affected businesses. – ‡ ineffective communication of the business disruption, losses, fines and requirements across relevant Local legal and regulatory frameworks are penalties, reputational damage and business units; and/or considered as part of any decision to exclusion from bidding. No movement ‡ entering into new markets and/ or conduct business in a new territory. Unforeseen exposure to legal and Such action could also impact upon the sections with limited expertise and Appropriate and responsive policies, regulatory change is considered valuation of assets within the affected due diligence. procedures, training and risk management extremely unlikely. The controls territory as well as have an impact on processes are in place throughout the embedded across the Group are shareholder confidence. business. considered effective in managing thisrisk. Balfour Beatty plc Annual Report and Accounts 2022 95 ### RISK MANAGEMENT CONTINUED ##  DESCRIPTION AND IMPACT CAUSES MITIGATION | | 12 | LEGACY PENSION LIABILITIES | | | | | --- | --- | --- | --- | --- | --- | | The Group is exposed to and must | | | The Group is unable to ensure that the | The Group continues to constructively and | Owner | | therefore effectively manage | | | trustees of the pension funds react | regularly engage with the trustees of the | The Board | | significant defined benefit pension | | | effectively to or manage: | pension funds to ensure that they are taking | | Risk movement risks. appropriate advice and the funds’ assets ‡ changes in interest rates or outlook and liabilities are being managed What impact it might have for inflation; appropriately. This includes quarterly Failure to manage these risks adequately ‡ an increase in life expectancies; performance reporting and investment ## could lead to the Group being exposed to – ‡ regulatory intervention or legislative committee meetings in which the Company significant additional liabilities due to change; is represented. increased pension deficits. ‡ prudent funding assumptions; and/or The funding and investment arrangements of No movement This has the potential to affect the ‡ investment performance of the the pension funds are subject to an in-depth Regular review of the trade-off ongoing sustainability of the Group as funds’ assets. triennial valuation and funding review with between risk and cost continues. well as incur reputational harm. regular monitoring in years between. Nochange in risk. The Group’s main UK fund has hedged in excess of 80% of its exposure to interest rate and inflation movements and around 40% of its exposure to an increase in life expectancies. Following the triennial funding review at 31March 2022 agreement has been reached with the trustees to substantially de-risk the investment portfolio over the next twelvemonths. | | 13 | ECONOMIC UNCERTAINTY | | | | | --- | --- | --- | --- | --- | --- | | The effects of national or market | | | Potentially negative impacts related to | The Group primarily operates across three | Owner | | trends including political, societal or | | | the effects of: | geographies (UK, US and Hong Kong) and | The Board | | regulatory change, may cause | | | | three sectors (Construction Services, | | | | | | ‡ customers postponing, reducing or | | Risk movement | | customers to re-evaluate existing or | | | | Support Services and Infrastructure | | changing expenditure plans including future infrastructure expenditure and Investments). This balanced portfolio of any delays associated with funding the procurement of services. It may projects provides resilience and stability as or planning constraints or to meet also lead to changes in the price and the Group is less exposed to a downturn in ## ‘greener’ solutions; – availability of labour, products and a single geography or sector. services. ‡ impact of inflation arising from a The Group continues to actively monitor multitude of factors including rising What impact it might have market trends and potential impacts and is No movement global costs of energy, strained | | | involved in Government Affairs activity to | The increase in global inflation in 2022 | | --- | --- | --- | --- | | Any significant delay or reduction in the | supply chains, rising demand and | | | | | | anticipate future direction of Government | continues to present economic | | level of customer spending or investment | residual impacts from the UK’s exit | | | | | | spend. | uncertainty across all markets. | | plans could adversely impact the Group’s | from the EU; | | | Government commitments in 2021 to strategy and order book, reduce revenue ‡ pressure on public finances caused by The financial solvency and strength of further infrastructure spend in the UK or profitability in the near or medium inflationary pressures and strained counterparties is always considered before and US and recent major project term, and negatively impact the public finances more generally; contracts are signed and assessments are awards support the Group's strong longer-term viability of the Group. updated and reviewed whenever possible ‡ increased competition (e.g. in the UK order book in current market. during the project lifecycle. The business Restrictions on the availability of skilled from foreign investors acquiring However, headwinds remain in all also seeks to ensure that it is not labour and competitively priced materials competitors); territories, so reflects that this risk is over-reliant on any one counterparty. could lead to increased costs and hence ‡ political change or uncertainty; being maintained at its current potentially a devaluation of the business. The annual review of market forecasts position. ‡ recessionary pressures; and/or continues to remain a core part of the Financial failure of a customer, including ‡ increased supply chain risks (e.g. Group’s Budget and Plan processes, and a any government or public sector body, solvency, people and materials). focus on medium-term market outlook is could result in increased financial considered and presented by each strategic exposure to counterparty risk. business unit. business continues to develop its expertise and capability. The Building ##  New Futures sustainability strategy sets out a path on how Balfour Beatty plans to deliver carbon-reduction measures across its operations. ### Climate change and sustainability Failure to manage and mitigate climate change is identified as a risk Work undertaken by the Group to date to understand the impact of on the Group register. The business continues to acknowledge that climate change, as well as potential risks and opportunities considered understanding the impact of climate change on the organisation and by the business, are further outlined in the TCFD section found on deploying the right strategies to mitigate any exposure is key. This pages 98 to 105. includes allocation of adequately skilled expertise and resources to manage this consistently across all geographies and understanding ### Common industry-wide risks the longer-term impact that this risk may have on the business model, In parallel with those principal and emerging risks identified and including on underlying project cost-base and broader Group strategy. managed by the Group, Balfour Beatty faces significant risks and Delivering sustainability requirements is also identified as a Group risk uncertainties that are prevalent to many companies – including financial which recognises the varying pace of change anticipated across and treasury, communications and marketing, regulatory reporting, geographies, the need to meet increasing and onerous reporting information management, anticipated change in legislation or policy, requirements and positioning the Group to meet future customer business continuity and disaster recovery, and general hazard risks. demands. There is also significant opportunity presented by this as the Balfour Beatty plc Annual Report and Accounts 202296 ### VIABILITY STATEMENT | In accordance with the requirements of the | of assessing the Group’s future viability, the | @ an operating event that damages the | | | --- | --- | --- | --- | | Code, the Directors have assessed the Group’s | Directors have considered these principal | Group’s reputation and results in | | | long-term prospects and its viability over a | risks and the mitigations available to the | significant penalty; and | | | three-year period to 31 December 2025. | Group. These principal risks and the | | Strategic report | @ failure to maintain progress made in consequent impact these might have on the relation to Build to Last. Group as well as mitigations that are in place ### Assessing the Group’s are detailed on pages 89 to 96. The above scenarios result in: a reduction in ### long-termprospects revenue; a reduction in margin; an increase in The Group operates primarily in the UK, US In their assessment of the Group’s viability, operating costs; a slowdown in the Group’s and Hong Kong, specialising in multiple facets the Directors have also considered the need investments asset disposal programme; and/ of the construction and services industry. to be successful in focusing on the Group’s or negative changes to working capital. | TheGroup also maintains an Investments | values of Lean, Expert, Trusted, Safe and | | | --- | --- | --- | | portfolio which provides a strong underpin | Sustainable detailed on pages 24 and 25. The | The Directors also assessed a ‘perfect storm’ | | tothe Group’s balance sheet. | Group’s progress in relation to Build to Last | scenario by combining multiple scenarios and | | | for continuous improvement remains critical | modelling the resulting downside to stress- | The Group has many elements necessary to future success, although success is also test the Group’s viability if these cash flows forfuture business success – expertise in dependent on the Group’s ability to were to immediately and simultaneously technology and innovation, strong customer selectively win new contracts which will be come under severe threat. This scenario is relationships and a talented workforce. partly impacted by political changes. aimed totest the viability of the Group if it TheGroup seeks to build on these strong was to experience a catastrophic failure and to foundations with continued investment in The Directors have assessed the Group’s allow the Directors to assess the mitigations technological advances, not only to ensure viability in conjunction with its current available to avoid this. that projects are delivered on time and as financial position as well as projections of its efficiently as possible whilst maintaining the debt facilities and associated covenants. In assessing the Group’s viability under utmost focus on safety, but also to remain These financial projections are based on the thesesevere but plausible scenarios market leaders in the way construction is Group’s Three-Year Plan, which has been (including in the instance of a ‘perfect conducted and to push the boundaries of built on a bottom-up basis with a Group plausible but severe storm’), the Directors innovation in line with achieving industry- overlay to provide a more top-down view and have also considered the Group’s projected leading margins. alignment to the Group’s strategic objectives. cash position (which excludes cash that is not immediately available to the Group), bank In doing so, the Group is also mindful of the The Group raised US$158m in June 2022 facilities and their maturity profile and effects it has on the environment. The Group through the issue of new US private covenants, the borrowing powers allowed strives to adapt to the emerging demand to placement (USPP) notes which will mature in under the Company’s Articles of Association deliver innovative and sustainable solutions tranches in 2027, 2029 and 2032. In and thefact that the Group’s PPP which ensure the impact of any adverse December 2022, the Group secured a new investments comprise reasonably realisable environmental impact is appropriately £30m bilateral committed bank facility which securities which could be sold to meet mitigated against. The Directors have remained undrawn at 31 December 2022 and funding requirements if necessary. | assessed the impact of climate change on | expires in December 2024 with an extension | | | --- | --- | --- | | the Group’s viability and have concluded that | option for a further three years subject to | It is unlikely, but not impossible, that the | | whilst no significant impact is expected in | certain specific conditions. The funds raised | crystallisation of a single risk would test the | | the medium term, the Directors will continue | through the new PPP notes and the new | future viability of the Group. However, it is | | to monitor and assess any impact of climate | bilateral bank facility were utilised towards | possible to construct scenarios where either | | change that may threaten the Group’s | repayment of the US$209m USPP notes that | multiple occurrences of the same risk, or | | viability in the longer term. | were due in March 2023. The Group's only | single occurrences of different principal risks, | | | other debt repayment obligations in the | could put pressure on the Group’s ability to | | | viability assessment period are US$50m of | meet its financial covenants. The Directors | ### Assessing the Group’s viability USPP notes due in March 2025. have considered the strength of the The Directors have assessed the Group’s mitigations available and whether these viability over a three-year period and consider The Group has access to its £375m aresufficient to avoid a catastrophic outcome this to be appropriate because this is the committed bank facility, which was undrawn to the Group’s viability and believe that there period aligned to the current order book throughout the year to 31 December 2022 are sufficient mitigations immediately andfor which there is a good visibility of and remains fully available to the Group until available to minimise this risk. thepipeline of potential new projects. This October 2024. period also allows greater certainty over the Based on the assessment undertaken to The Group's projections indicate that the forecasting assumptions used in labour and stress-test the Group’s viability against projected headroom provided by the Group’s material pricing, skills and availability. In the severe but plausible scenarios, and taking strong liquidity position, including its net cash longer term, there is also significant political into account the strength of mitigations that position and under the debt facilities uncertainty. There is inherently limited are immediately available to the Group, the currently in place, is adequate to support the visibility of contract bidding opportunities Directors have concluded that there is a Group over the next three years. | beyond the three-year period, and the | | reasonable expectation that the Group will | | --- | --- | --- | | accuracy of any forecasting exercise is also | The Group’s projections have been stress- | beable to continue in operation and meet its | | impeded by uncertainties around the costs | tested against key sensitivities which could | liabilities as they fall due over the three-year | | involved in delivering contracts. | materialise as a result of crystallisation of one | period to 31December 2025. | | Consequently, the Group performs its | or a combination of the Group’s principal | | Our 2022 Strategic report, from pages 1 to medium-term planning over three years. riskswith the aim of stress-testing the 105, was approved by the Board on15 Group’s future viability against severe but The Directors and the Executive Risk March2023. plausible scenarios. These scenarios include: Steering Group continue to monitor the principal risks facing the Group, including @ failure to manage effectively any adverse Philip Harrison those that would threaten the execution of economic impact including any continuing Chief Financial Officer its strategy, its business model, future effects caused by the UK’s exit fromthe performance, solvency and liquidity. As part 15 March 2023 European Union; Balfour Beatty plc Annual Report and Accounts 2022 97 ### CLIMATE CHANGE AND TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) ##  ##  ### It is widely accepted that action to limit future global greenhouse gas emissions ### will help restrict future changes to our climate system. Impacts from climate ### change are already being felt today and will continue to increase in the future. | In response to the climate emergency, | Physical risks such as increased severity of | drivers of potential risks and opportunities | | --- | --- | --- | | Balfour Beatty has an ambition to go beyond | extreme weather events, are likely to disrupt | were identified to support sensitivity analysis | | ‘net zero’ greenhouse gas (GHG) emissions | supply chains, halt operations and damage | and to start to provide an indication of the | | by 2040. By signing the Business Ambition | valuable assets. Transition risks such as creating | inherent risks and opportunities. | | for 1.5°C, a global coalition of UN agencies, | capacity in power networks to keep up with | | The disclosures are consistent with the TCFD businesses, and industry leaders, in the demand for electric charging infrastructure core elements areas of Governance, Strategy, partnership with the UN Race to Zero or the introduction of carbon pricing policies Risk Management and Metrics and Targets campaign, the business has committed to will put pressure on operating costs. and cover the 11 specific recommended halve its greenhouse gas emissions by 2030 The transition to a low-carbon economy also disclosures. They reflect where the business on an absolute basis. presents significant opportunities. Diversification currently is on its TCFD journey. The business acknowledges the scale of the into new markets shaped by the global While the Group has addressed all of the transformative action and all-encompassing transition to a low-carbon economy such as TCFD recommendations and financial nature of the changes required to achieve net the construction and management of analysis has been undertaken, this disclosure zero and the role the construction and infrastructure for green-hydrogen power, does not set out financial impact figures. infrastructure sector plays to support the renewable and other low-carbon energy Further details are provided on page 102. wider economy in becoming more resilient to generation, storage, transmission and threats posed by climate change. distribution or energy efficient and net zero Furthermore, this disclosure takes account buildings will generate new revenue streams ofupdates to TCFD guidance changes, For Balfour Beatty this means identifying and and result in the creation of new jobs and skills. suchas those set out in the October 2021 managing climate change risks now and in Implementing the Recommendations of the the future. It requires meaningful The Group’s TCFD disclosure continues to Task Force on Climate-related Financial collaboration with infrastructure value chain evolve. Building on last year’s disclosures, Disclosures publication². | members, trialling and adopting new | further work has been undertaken during | | | --- | --- | --- | | technologies, materials and processes, | 2022 to analyse different climate scenario | Some elements of these disclosures are | | raising the bar on educating the Group’s | impacts on the business, identifying indicators | addressed elsewhere in the report and the | | workforce on climate-related issues, and | of change to assess any vulnerability or | table below outlines where this information | | working together with industry peers to | advantage for the business, and to gather data | can be found. Further signposting is indicated | | overcome the barriers we collectively face. | to enable modelling of the impact of physical | in the sections that follow. | risk on Group's work or asset sites. Financial Pillar TCFD recommendation Section name Page Governance a) Board oversight Division of responsibilities p122 b) Management role Audit risk and internal control p136 Sustainability p55 Strategy a) Risks and opportunities Division of responsibilities p122 b) Impact on organisation Board composition, succession, and evaluation p126 c) Resilience of strategy Sustainability p55 Risk management a) Risk identification and assessment process Risk management p84 b) Risk management process c) Integration into overall risk management Metrics and targets a) Climate-related metrics Sustainability p55 b) Scope 1, 2, 3 GHG emissions c) Climate related targets 2 https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Implementing_Guidance.pdf Balfour Beatty plc Annual Report and Accounts 202298 Strategic report | Governance | risk profile and compliance with regulatory | A TCFD working group oversees the | | --- | --- | --- | | Balfour Beatty’s governance structure and | requirements. Further information related to | implementation of climate-related risk | | organisation hierarchy underpin all Group | all Board meetings held and attended can be | management processes and reporting. The | | activities and ensure that the business is | found in the Division of responsibilities | ExCom is updated by the Director of Audit and | | managed and operated effectively. The | section on page 122. Where climate-related | Risk and the Director of Sustainability as part | | structure allows the Board, its sub-committees | matters were discussed, this is evidenced | of the ongoing assessment of risk management | | and senior management to embed climate- | accordingly in meeting minutes. | and internal control. The Director of | | related risks and opportunities into strategic | | Sustainability and Director of Audit and Risk | | and local decision making and operational | | are new to the business, joining in May and | ### Management role activities. See page 55 for illustration. October 2022 respectively. The Executive Committee’s (ExCom) | | responsibility includes setting ambitions and | Climate-related issues are discussed with the | | --- | --- | --- | | Board oversight | targets in relation to climate-related matters | ExCom as part of the sustainability updates | | The Board is responsible for setting the | under the Building New Futures sustainability | provided by the Director of Sustainability. | | cultural framework of the business including | strategy and supporting businesses to | Throughout 2022, carbon reduction action | | its purpose, strategy, values, and behaviours. | develop action plans. The ExCom is also | plan requirements were discussed with the | | Together with its sub-committees, the Board | responsible for monitoring climate-related | ExCom and subsequently developed or are | | provides leadership and oversight ensuring | business risks and opportunities. To support | inprogress with the support of SBU | | climate-related risks and opportunities are | them in this role during 2022, members of the | managingdirectors. | | effectively assessed and managed. | Executive Committee attended a Carbon | | The TCFD working group, led by the Director Literacy training session which covered The Safety and Sustainability Committee of Risk and Audit, includes senior management climate science and climate policy (SSC) reviews the Group’s sustainability representation from Finance, Risk, and fundamentals as well as carbon reporting and strategy, Building New Futures¹, and Sustainability, and draws on functional support management requirements. Strategic monitors progress on climate-related issues. from the wider business. It engages with business unit (SBU) managing directors have The Group Chief Executive and two non- business management across all geographies responsibility for the identification and executive Directors are members of the SSC. ensuring climate-related risks and opportunities management of climate-related risks relevant The Group Chief Executive has overall are adequately identified and incorporated into to their business and arrange ownership of responsibility for climate-related risks and the Group’s Enterprise Risk Management targeted controls and actions. SBU issues as well as setting Balfour Beatty’s (ERM) system. sustainability leads enable oversight and sustainability policy and overseeing how ESG management of sustainability matters, which The key objectives of the TCFD working group matters are managed. The SSC agenda is include climate-related risks and opportunities are: to communicate TCFD reporting requirements separated into two specific areas of focus: (i) at the operational level. An illustration of this to key stakeholders within the business; to Health and Safety; and (ii) Sustainability, governance can be found in the Sustainability build awareness of climate-related risks and allowing for more time and emphasis on section on page 55. Carbon performance opportunities that could impact the Group; to climate-related matters. | | information is also presented to senior leaders | identify, analyse and disclose high priority or | | --- | --- | --- | | The Audit and Risk Committee (ARC) | throughout the year allowing them to make | potentially material climate-related risks and | | supports the Board in its oversight of all | decisions about carbon reduction initiatives | opportunities; and to deliver ongoing review of | | Group risks, which include climate-related | required to achieve targets. During 2022, each | climate-related risks and support integration | | risks and opportunities. The ARC assesses | SBU produced a carbon action plan allowing | into operational risk management processes. | | the effectiveness of the Group’s risk | management to track progress. Additionally, | | | management framework, risk strategy and | climate-related risks are highlighted by each | | | risk appetite and considers this alongside the | SBU as part of the half year and full year | | internal control reporting process. 1 https://www.balfourbeatty.com/media/318683/balfour-beatty-building-new-futures-sustainability-strategy.pdf. Balfour Beatty plc Annual Report and Accounts 2022 99 ### CLIMATE CHANGE AND TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED ### Vulnerability/advantage assessment The Vulnerability/ Advantage (VA) assessment is utilised to determine the level of disruption or benefit the business could be exposed to and the resources required to mitigate or promote it. Theassessment considers criteria across Sensitivity, Exposure andAdaptiveCapacity. @ Sensitivity Exposure Considers the impact of a physical or transition risk event in terms of disruption to operations or core functions and the severity of this impact. For opportunities, it considers the potential financial gain to the business. @ Exposure ## VA Considers the portion of the business that is physically located or directly impacted by a risk event or that could be related to theopportunity. Sensitivity Adaptive @ Adaptive Capacity Capacity Considers the Group's ability to adjust to the projected impact, considering potential cost and intervention or investment. This also considers any cost or business model changes needed to exploit or pursue an opportunity. | Strategy | The nature of the Group’s business model at | @ Long term (10 – 30 years): Focuses on | | --- | --- | --- | | The Build to Last strategy is fundamental to | present provides partial protection from | factors that could impact Balfour Beatty’s | | how the organisation shapes a market-leading | negative financial risk where contractual | business plans and longer-term strategy | | Balfour Beatty for the next 100 years. Build | mechanisms are in place. This will continue | and business resilience. | | to Last is a platform for sustainable growth | to change in the medium term as customers | | On completion of the review a vulnerability/ and productivity and is well placed to enable develop and embed more stringent procurement advantage assessment (VA) was developed Balfour Beatty to build resilience against the evaluation criteria and commercial contractual as a means to prioritise climate-related risks impacts associated with climate change over clauses in line with the developing climate and opportunities. | the short, medium, and long term. The Building | agenda. To monitor this, the Group engages | | | --- | --- | --- | | New Futures sustainability strategy sets out | with customers and participates in relevant | Vulnerability was used to assess the climate | | the business’ 2040 ambition to go Beyond | industry body working groups and technical | risks and is defined as the degree to which | | Net Zero carbon emissions. It also details a | advisory panels. | the business is susceptible to, and able to | | 2030 target to reduce emissions by 50%. | | deal with, the impacts of climate change. | Many of the risks identified are an indirect Vulnerability answers the question: what A comprehensive risk review is conducted consequence of how Balfour Beatty’s portion of the business would be disrupted annually in relation to climate-related risks complex supply chain operates. The more by the risk and what resources would be and opportunities that could impact Balfour successful the supply chain is at addressing needed to mitigate it? Beatty’s strategy and financial planning direct climate risks, the greater the reduction across the Group’s operations under different in impact for Balfour Beatty. Collaborating Advantage was used to assess climate climate scenarios and to identify any new with supply chain partners on this issue, as opportunities and is defined as the degree to events. The scope of this review includes all well as clients and industry peers, remains which the business can capture the potential key geographies in which the Group operates apriority. value from the low-carbon transition (the UK, the US and Hong Kong) as well as opportunity. Advantage answers the The risks and opportunities are considered key market segments in Construction Services, question: what portion of the business would over the short, medium and long term. These Support Services and Infrastructure Investments. benefit from the opportunity and what time horizons refer to when the risk is likely The review identified 35 (16 transition and 19 resources would be needed to exploit it? to have an impact. physical) potential risks and opportunities. The VA used both quantitative and qualitative @ Short term (0 – 3 years): Aligns to Balfour In assessing the potential risks and information to assess the questions above Beatty’s immediate pipeline of projects, opportunities, it is recognised that impacts and took a top-down approach to identify the contracts and current asset investments and benefits to the Group will be proportional key transition and physical events that could and their associated climate-related risks over time. Balfour Beatty’s diverse operating most significantly impact the Group’s operations. and opportunities. | portfolio and geographical spread mean that | | Scores for each component, exposure, | | --- | --- | --- | | the likelihood of a number of climate-related | @ Medium term (3 – 10 years): Aligns to | sensitivity and adaptive capacity, were | | risks occurring at the same time is low and | longer-term projects and investments | assigned on a scale of 1 (low) to 5 (high). | | they are unlikely to impact the Group’s | decisions with risks driven by | Definitions for each of these components | | short-term financial viability or ability to | governmentpolicy, infrastructure needs | areprovided in the illustration above. | | operate in a business-as-usual state. | and market conditions. | | Balfour Beatty plc Annual Report and Accounts 202210 0 ### SCENARIO BUILDING Physical Transition Strategic report Scenario Warming by 2100 Future emissions Energy sources Policy narrative Rationale for scenario Business as ~ 2.7C Medium Mix of fossil fuels and Achievement of Nationally Represents possible future risks if Usual (BAU) renewable energy Determined Contributions there is minimal additional action (NDC) under Paris Most significant impacts from Agreement and other physical risks policy commitments | Low Carbon < 2C Low Mostly renewables | | Ambitious policy agenda | Aligns with best-case scenario and | | --- | --- | --- | --- | | | and low-carbon fuels | leading to transformation | current recommendation from the | | | | of the energy system | IPCC | | | | Many advanced | Most significant impacts from | | | | economies reach net zero | transition risks | emissions by 2050, with the rest of the world reaching net zero by 2070 | Based on the work carried out to date the | Under the BAU scenario, it is anticipated that | Financial impact/value analysis | | --- | --- | --- | | remaining risks and opportunities identified in | the global mean temperature will increase by | On completion of the VA, the key financial | | the VA are less likely to materially impact | approximately 2.7°C, a mix of fossil fuels and | drivers that could be influenced by the shortlisted | | business resilience. | renewables will be adopted as energy | risks and opportunities were identified to | | | sources, carbon pricing will remain low, and | estimate the high-level financial implications | Eight of the top ten risks and opportunities legislation will be unchanged compared to for the Group. These included revenue, losses, identified in 2022 are related to the two risk today, resulting in a medium emissions future. operating expenses, capital expenses, events and one opportunity identified in last penalties/fines and asset impairment. | year’s report. These are outlined on the table | Under the Low Carbon scenario, it is | | | --- | --- | --- | | on the following page. | anticipated that global mean temperature will | During 2022, the Group commenced the | | | increase by less than 2°C, mostly renewables | process of developing quantitative analysis | The top ten risks and opportunities (including and low-carbon fuels will be adopted as asfar as practically possible. In line with the six risks and four opportunities) with the energy sources, carbon pricing will increase findings of the 2021 TCFD status report, highest ratings were then taken forward. The and ambitious carbon policies will be adopted theGroup is disclosing financial impacts on financial drivers for each were identified and globally, resulting in a low emissions future. aqualitative basis. the impact scope was defined in the short, | medium and long-term for each of the key | For Physical Scenarios, the IPCC AR6 SSP | Until further consistent and definitive | | --- | --- | --- | | geographies. Specific monetisation | 2-4.5 Middle of the Road (Business as | guidance around quantification | | approaches were agreed with relevant | Usual), and SSP1-2.6 Sustainable (Low | methodologies for climate-related financial | | stakeholders together with the inputs | Carbon) projections were adopted. For | impacts is available, the Group is only able | | required. The approaches were refined | Transition Scenarios, the IEA Stated Policies | todisclose the likelihood of financial impact | | dependent on data availability and | Scenario (Business as Usual), and | categories for each of the risks and | | validationreview. Based on the work | Sustainable Development Scenario (Low | opportunities, which indicates directional | | performed to date, the ten risks and | Carbon) were adopted. | outcomes under the applied climate | | opportunities identified are considered | | scenarios, BAU and Low Carbon. The | These scenarios were modelled out to 2025, applicable to varying degrees over time anticipated financial impact category to the 2030 and 2050 assuming the Group’s business across the different Balfour Beatty market business is also included. These can be activities remain unchanged from today. segments and operating geographies. viewed in the table above. Each risk and opportunity scenario was Scenario analysis: resilience of strategy assessed pre-mitigation activities. The level To assess the resilience of the business of potential risk or opportunity will therefore strategy and model, two climate scenarios change once management takes action to were applied to model the financial impacts mitigate or realise related outcomes. on the business – Business as Usual (BAU) and Low Carbon (LC). Balfour Beatty plc Annual Report and Accounts 2022 101 ### CLIMATE CHANGE AND TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED ### Top rated climate-related risks and opportunities BAU SCENARIO LOW CARBON SCENARIO 2021 Risk and Opportunity Disclosure Shortlisted Risk/Opportunity Potential Impacts to the Business Potential Adaptation and Mitigation/Realisation Financial Impact Category Likelihood Likelihood Expanding existing Increase in demand for renewable and @ Increased revenue and positive impact on ESG scores @ Enhanced collaboration and dialogue with value chain members low-carbon energy generation, storage, @ Opportunity to expand business capability and skillsets @ Promotion of research and development in green infrastructure technologies ### revenue streams from transmission and distribution deployments Increased Revenue Almost Certain Almost Certain @ Development of new low-carbon construction design @ Creation of partnerships to promote new green infrastructure ### green infrastructure increases number/size of awarded methods to support the wider sector and built environment ### projects into new projectcontracts @ Collaboration with new and sustainable customers ### greeninfrastructure Increase in demand for green, energy efficient, and net zero buildings increases number/size of Increased Revenue Almost Certain Almost Certain ### assetsandbuilt awarded projectcontracts ### environment markets Increase in demand for climate disaster adaptation/ climate resilient infrastructure increases number/size of awarded Increased Revenue Almost Certain Almost Certain projectcontracts Increase in efficiency reduces energy @ Reduced impact on natural resources @ Implementation of Group approved energy-demand reduction solutions ### New opportunity Reduced OPEX Almost Certain Almost Certain consumption and material use @ Reduced operating costs through reduced energy use @ Implemention of project-level material management plans to eliminate waste Carbon pricing increases prices of energy @ Increased cost to the business and supply chain @ Monitoring of current carbon pricing to determine impact to business and supply New risk andrawmaterials @ Potential pipeline reduction if major infrastructure projects chain across geographies Increased OPEX Likely Almost Certain become too costly to fund Transitioning materials, Transitioning Balfour Beatty owned plant and @ Increased capital expenditure to replace existing plant and @ Assess the viability of construction projects that utilise low-carbon emission Increased CAPEX Almost Certain Almost Certain equipment to lower-carbon options results in fleet materials and technology ### products and services, higher prices for fossil fuel-based equipment @ Increased research, innovation and implementation costs may @ Enable capability by providing training for low-carbon design optioneering and use ### and technology, to lower replacements present risks associated with bringing new technologies to of new technologies ### carbon alternatives market resulting in new skills development and training @ Material price sensitivity assessments and contingency plans forprocurement required to deploy low-emission technology alternatives @ Develop capacity to satisfy customer preferences and improve collaboration with @ Lifecycle of existing assets may be reduced resulting in early value chain members impairment and retirement or write-off of plant, equipment @ Diversify product, material and technology portfolios; source materials more and fleet assets. Investment in newer replacement assets widely, engage with suppliers, and explore circular economy options earlier thanplanned @ Technology does not innovate as fast as required in order to meet planned carbon reduction targets Increased severity Insurance premiums increase/ become @ Pipeline reduction of major infrastructure projects become @ Review of insurance arrangements and monitor insurance marketshifts unavailable due to higher expenditure on too costly to fund or cannot be insured ### of weather events Increased OPEX Unlikely Possible adaptation measures and more stringent @ Diminished returns across infrastructure investment assets insurance policies High-speed wind leads to damage to physical @ Delays to project delivery to stand-down sites and / or to @ Close monitoring of weather forecasts to ensure employee safety and adequate Expected Asset Impact Possible Possible assets and disruption at own sites rectify damage caused by flooding or high-speed winds preparation Increased precipitation (only rainfall) leads to @ Lower production capacity and revenue due to unexpected @ Evaluation of physical climate risk exposure specifically to asset and project damage to physical assets, disruption at own disruption and/or delays in the transportation and delivery of locations near waterways or coasts. Expected Asset Impact Possible Possible sites, and chance of excess silt run off at project goods @ Utilising third-party expertise for support with climate modelling to understand sites @ Challenging or unsafe working conditions for employees physical risk impacts @ Potential increased exposure to environmental incidents and @ Increase resilience of sites to extreme weather events by improving defences and Droughts lead to increase in operation costs at fines implementing contingency plans own sites due to higher water prices and @ Impact on valuation to assets in known flood zones @ Consideration of where manufacturing may require move Increased OPEX Possible Possible restrictions on water consumption @ Pipeline reduction as major infrastructure projects become too costly to fund due to drought-driven cost increases Balfour Beatty plc Annual Report and Accounts 2022102 ### Top rated climate-related risks and opportunities BAU SCENARIO LOW CARBON SCENARIO 2021 Risk and Opportunity Disclosure Shortlisted Risk/Opportunity Potential Impacts to the Business Potential Adaptation and Mitigation/Realisation Financial Impact Category Likelihood Likelihood Strategic report Expanding existing Increase in demand for renewable and @ Increased revenue and positive impact on ESG scores @ Enhanced collaboration and dialogue with value chain members low-carbon energy generation, storage, @ Opportunity to expand business capability and skillsets @ Promotion of research and development in green infrastructure technologies ### revenue streams from transmission and distribution deployments Increased Revenue Almost Certain Almost Certain @ Development of new low-carbon construction design @ Creation of partnerships to promote new green infrastructure ### green infrastructure increases number/size of awarded methods to support the wider sector and built environment ### projects into new projectcontracts @ Collaboration with new and sustainable customers ### greeninfrastructure Increase in demand for green, energy efficient, and net zero buildings increases number/size of Increased Revenue Almost Certain Almost Certain ### assetsandbuilt awarded projectcontracts ### environment markets Increase in demand for climate disaster adaptation/ climate resilient infrastructure increases number/size of awarded Increased Revenue Almost Certain Almost Certain projectcontracts Increase in efficiency reduces energy @ Reduced impact on natural resources @ Implementation of Group approved energy-demand reduction solutions ### New opportunity Reduced OPEX Almost Certain Almost Certain consumption and material use @ Reduced operating costs through reduced energy use @ Implemention of project-level material management plans to eliminate waste Carbon pricing increases prices of energy @ Increased cost to the business and supply chain @ Monitoring of current carbon pricing to determine impact to business and supply New risk andrawmaterials @ Potential pipeline reduction if major infrastructure projects chain across geographies Increased OPEX Likely Almost Certain become too costly to fund Transitioning materials, Transitioning Balfour Beatty owned plant and @ Increased capital expenditure to replace existing plant and @ Assess the viability of construction projects that utilise low-carbon emission Increased CAPEX Almost Certain Almost Certain equipment to lower-carbon options results in fleet materials and technology ### products and services, higher prices for fossil fuel-based equipment @ Increased research, innovation and implementation costs may @ Enable capability by providing training for low-carbon design optioneering and use ### and technology, to lower replacements present risks associated with bringing new technologies to of new technologies ### carbon alternatives market resulting in new skills development and training @ Material price sensitivity assessments and contingency plans forprocurement required to deploy low-emission technology alternatives @ Develop capacity to satisfy customer preferences and improve collaboration with @ Lifecycle of existing assets may be reduced resulting in early value chain members impairment and retirement or write-off of plant, equipment @ Diversify product, material and technology portfolios; source materials more and fleet assets. Investment in newer replacement assets widely, engage with suppliers, and explore circular economy options earlier thanplanned @ Technology does not innovate as fast as required in order to meet planned carbon reduction targets Increased severity Insurance premiums increase/ become @ Pipeline reduction of major infrastructure projects become @ Review of insurance arrangements and monitor insurance marketshifts unavailable due to higher expenditure on too costly to fund or cannot be insured ### of weather events Increased OPEX Unlikely Possible adaptation measures and more stringent @ Diminished returns across infrastructure investment assets insurance policies High-speed wind leads to damage to physical @ Delays to project delivery to stand-down sites and / or to @ Close monitoring of weather forecasts to ensure employee safety and adequate Expected Asset Impact Possible Possible assets and disruption at own sites rectify damage caused by flooding or high-speed winds preparation Increased precipitation (only rainfall) leads to @ Lower production capacity and revenue due to unexpected @ Evaluation of physical climate risk exposure specifically to asset and project damage to physical assets, disruption at own disruption and/or delays in the transportation and delivery of locations near waterways or coasts. Expected Asset Impact Possible Possible sites, and chance of excess silt run off at project goods @ Utilising third-party expertise for support with climate modelling to understand sites @ Challenging or unsafe working conditions for employees physical risk impacts @ Potential increased exposure to environmental incidents and @ Increase resilience of sites to extreme weather events by improving defences and Droughts lead to increase in operation costs at fines implementing contingency plans own sites due to higher water prices and @ Impact on valuation to assets in known flood zones @ Consideration of where manufacturing may require move Increased OPEX Possible Possible restrictions on water consumption @ Pipeline reduction as major infrastructure projects become too costly to fund due to drought-driven cost increases Balfour Beatty plc Annual Report and Accounts 2022 103 ### CLIMATE CHANGE AND TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED ### Top prioritised climate-related @ the financial impact results represented the estimated annualised change figures ### risks and opportunities continued (i.e., increase or decrease) of a specific To provide further context as to why the cost or revenue stream in different timeframes Group is disclosing a qualitative financial (2025, 2030, 2050). They are not the total impact assessment at this time, several value in that year, nor are they cumulative important caveats concerning the underlying from the base year used (2021); and financial impact/value approaches established to date and corresponding results need to be @ each of the risks and opportunities are viewed considered. These include: individually (i.e. they are not cumulative). @ the financial quantification is indicative To evolve reporting practices and based on climate scenarios of how the understanding under different climate future may look at different points in time. scenarios and climate-related financial They are not yet projections or forecasts impacts, the Group is now working on that can or should be used in isolation or improving internal processes to collect for decision-making purposes; consistent and reliable data and information across all SBUs and geographies to support @ the financial impact results are subject to financial analysis. This will allow the Group to significant uncertainty at the current stage strengthen the financial impact/value of development of the methodology. assessment approaches described on Educated assumptions were utilised to page103. compensate for lack of publicly available or robust, consistent and comparable Furthermore, to support future assessments internaldata; of materiality in the context of climate-related impacts, the Group is engaging with @ the financial quantification is unmitigated. stakeholders and regulatory forums to evolve Once management takes action to mitigate definitions of materiality over the medium or realise the related outcomes, the level and longer term. of potential risk or opportunity will change. It is likely that some climate-related risk mitigation is partially built into management plans to address other business risks. For opportunities, given the market segments in which the business currently operates, it is likely that climate-related opportunities are being pursued as part of ongoing work winning plans. These activities are not yet considered in the financial impact/value assessment calculations; Balfour Beatty plc Annual Report and Accounts 2022104 ### CLIMATE-RELATED RISK INTEGRATION INTO ERM FRAMEWORK Group @ Climate-related and sustainability risks identified inGroup risk register. Strategic report @ Mapping of climate-related risk as a potential driver to existing Group risks. @ Incorporation of climate-related risk into half year and full year risk and internal Risk Process and Tools | Internal Control Effectiveness | Risk Management Operating Standard control reporting. ### Business GROUP RISK @ Capture of climate-related risk on EXEC RISK STEERING GROUP | ERM TEAM Strategic Risk BUandSBU strategic risk registers. Continuous Improvement | Risk Culture @ Stand-alone enabling function sustainability Escalate Cascade risk register (inc. climate-related risks). Risk Process @ Grouping of climate-related categorised BUSINESS RISK Strategic business units/Business units/ risks in ERM system issued Risk Process Enabling functions toSustainability function. ### Escalate Cascade Project AUDIT AND RISK COMMITTEE | EXECUTIVE COMMITTEE @ Grouping of project short-term climate- related categorised risks in ERM system issued to Sustainability function and used OPERATIONAL RISK to inform BU and SBU risk profiles. Governance and Oversight | Risk Policy Setting | Risk Appetite and Tolerance Setting | Risk Culture Project / Contract / Asset Risk @ The IRIS Risk Library prompts capture ofcore and common short-term climate-related risks at both project Risk Process andbusiness level. ### Risk management The process ensures a consistent approach Balfour Beatty’s IRIS ERM system captures Mitigation of and adaptation to climate to the identification and management of risk data at each level outlined in the ERM change is identified as a risk on the Group climate-related risks and opportunities in line framework and includes climate change as a risk register. This includes assessment of with all other risks identified across the specific category, providing insight to trends current and future climate-related regulatory business. SBUs assess climate-related risks on operational and business level risk data. changes. This risk is monitored by the relevant to their plans and strategy as part of Metrics and targets ExCom as part of the half year and full year regular strategic risk register reviews. reviews of the Group’s risk profile (see page Full details of climate-related metrics and The process for managing climate-related 86 for further information). A mapping targets, including Scope 1, 2 and 3 emissions, risks is aligned to the existing risk process exercise is conducted and reviewed to can be found in the Sustainability section on which considers how to respond to risk identify where climate change may be a pages 57 to 61. events. Current management plans are cause to or further compound impacts on largely focused on exploring and understanding Transition Plan other Group risks. the full impacts of risks to develop appropriate Balfour Beatty is aware of the Transition Plan The methodology applied to identify and mitigation and control strategies which are Taskforce (TPT) disclosure framework and its assess the impact of climate change on incorporated as part of sustainability action proposed development of sector specific Balfour Beatty’s business model aligns with plans. The figure above outlines how consideration guidance documents during 2023. The Group the existing Enterprise Risk Management of climate-related risk is incorporated into will work towards integrating the TPT (ERM) framework and Risk Management Balfour Beatty’s ERM framework. disclosure framework guidance as it develops process as outlined on pages 84 to 86. its own Transition Plan. Balfour Beatty plc Annual Report and Accounts 2022 105 ### GOVERNANCE ## Promoting the long-term, ## sustainable success of ##  ### IN THIS SECTION ### – Group Chair’s introduction ##  ### – Leading with experience ##  p107 ### – Board activities ### – Promoting a positive culture ### – Stakeholder engagement ### – A robust governance framework ## Division of ##  p122 ### – Board composition ##  ### – Board succession ## succession and p126 ### – Board evaluation ## evaluation ### – Report of the Nomination Committee Chair ## Nomination ### – Board composition and succession ##  p130 ### – Diversity and Inclusion ### – Report of the Safety and Sustainability Committee Chair ##  ### – Safety Performance and Zero Harm ##  p134 ### – Environment and sustainability ##  ### – Report of the Audit and Risk Committee Chair ## Audit and Risk ### – Financial reporting ##  p136 ### – External auditor ### – Risk management and internal control ### – Report of the Remuneration Committee Chair ## Remuneration ### – 2023 Remuneration Policy and key changes ##  p142 ### – Remuneration at a glance ### – Summary of policy implementation in 2022 ### – Annual Report on remuneration ##  ## p168 Balfour Beatty plc Annual Report and Accounts 2022106 BOARD LEADERSHIP AND COMPANY PURPOSE # Group Chair's introduction Dear Shareholder On behalf of the Board, I am delighted to present my second Balfour Beatty Corporate Governance report. Following my appointment as Group Chair in July 2021, and with the support of the Company Secretary and the Directors, I have had the opportunity to complete a comprehensive 12-month induction programme and lead a full annual cycle of Board meetings throughout 2022. As part of my induction, I have had the opportunity to undertake several site visits across the UK and the US. It has given me great pleasure to experience first-hand the realities of Balfour Beatty life on the ground and witness its employees living and breathing the Group's culture and values. Workforce engagement has been a crucial component of my induction. Having the opportunity to listen and engage with our workforce on what matters to them, to understand what we do well, and where we need to do more, has been instrumental in building my understanding of the Group's operations and the employee experience. This, together with the insights derived from workforce engagement initiatives carried out by the wider Board, led to the Board making the important decision to enhance its approach to workforce engagement in 2022. This is discussed in more detail on page 116. I have also had the pleasure of witnessing the Board's effectiveness first-hand, demonstrated through constructive debate, a spirit of openness and mutual respect, and a measured approach to decision making. As noted on pages 128 and 129, our internal Board effectiveness review concluded that the Board and its Committees continued to operate effectively throughout 2022. The Board's focus throughout 2022 has been the continued pursuance and delivery of the Group's strategic objectives, whilst remaining agile and KEY ACTIONS FROM 2022: - Enhanced the Board's approach to workforce engagement. - Devised and implemented a new Code of Ethics across the Group. - Set targets to improve diversity and inclusion across the Balfour Beatty Group. - Reviewed and updated the Directors' Remuneration Policy. - Conducted succession planning for the Executive Committee to build a diverse pipeline of candidates. - Supported the delivery of a thorough induction programme for Louise Hardy (appointed 1 April 2022). PRIORITIES FOR 2023: - Implement and embed the Board's workforce engagement strategy. - Monitor progress against the 2030 Value Everyone UK Action Plan diversity targets. - Enhance the approach to Executive Committee succession planning, and oversee the continued professional development of a diverse pipeline of candidates. - Review Board balance and composition, and conduct Board succession planning with a view to enhance Board diversity. - Complete the actions arising from the 2022 Board effectiveness review. ![img-9.jpeg](img-9.jpeg) Renewable 107 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ### BOARD OVERVIEW ### Board members Balance of ## It has given me ### by gender theBoard ## greatpleasure to ## experience first-hand ## the realities of Balfour ## Beatty life on the ## ground and witness its ## employees living and | | | |  | |  | | | --- | --- | --- | --- | --- | --- | --- | | breathing | the Group’s | | | | | | | | | | | l Male 6 | | l Non-executive 7 | | culture and values. | | ” | | l Female 3 | | l Executive 2 | | responsive to significant macro-economic | ethnic minority representation within the | Executive remuneration | | --- | --- | --- | | headwinds and opportunities, including the | business. As the Board, we need to lead by | After the triennial review of the Directors’ | | impact of the Russian invasion of Ukraine, | example to ensure we are representative of | Remuneration Policy carried out by the | | inflationary pressures, rising interest rates, | the workforce and the communities in which | Remuneration Committee, an updated | | disruption of global supply chains, and | we operate. It is my intention therefore as | version of the policy will be presented for | | ongoing impacts of the COVID-19 pandemic | Group Chair, and Chair of the Nomination | approval by shareholders at the 2023 AGM. | | and Brexit. | Committee, to continue to change and evolve | | More details on the approach taken to review our Board composition, enabling the Board to The Board remains focused on utilising the and update the Directors’ Remuneration continue to effectively support the execution Company’s corporate governance framework Policy can be found on page 143, and the of our strategy and enhance value for our to promote the long-term sustainable success policy itself can be found on page 147. shareholders. of the Group, embedding stakeholder needs and consideration of broader environmental ### Succession planning ### and social matters as integral components Workforce engagement The Board undertook succession planning for within the decision-making process. The The Board recognises the importance of both the Board and the Executive Committee. Company’s corporate governance framework workforce engagement in driving informed remains critical to the Group successfully and robust decision making that promotes In support of the refreshed Value Everyone capitalising on the opportunities of net zero the long-term sustainable success of Balfour UK Action Plan, the Board remains focused and energy security in its key markets and Beatty. It is also a vital mechanism to ensure on developing a more diverse pipeline amongst the delivery of our sustainability strategy. we are an employer of choice, to ensure we those in management and senior positions. recruit and retain talented individuals, and to On 1 April 2022, the Board welcomed Louise In succession planning and reviews of Board provide the Board with the means to Hardy as a new independent non-executive and executive-level composition, the Board meaningfully measure our culture. Director. Louise is an industry heavyweight considers a range of different aspects of with a wealth of construction and infrastructure During the year the Board undertook an diversity, including age, disability, gender, experience, and her strategic mindset and effectiveness review of its existing approach ethnicity, education and social background. fresh perspective have already contributed to workforce engagement, and agreed that a positively to the Board. Louise’s appointment new targeted, thematic and outcomes-based Charles Allen, Lord Allen of Kensington, CBE also takes the Board a step further in diversifying approach was required. In accordance with Non-executive Group Chair its composition, achieving compliance with the best practice recommendations of the UK Corporate Governance Code, the Board took 15 March 2023 the Hampton Alexander Review target of | 33% female representation on the Board. | the decision to appoint a designated | | --- | --- | | However, we need to do more. The Board | non-executive Director, Louise Hardy, as | | and I are committed to compliance with the | Workforce Engagement Lead. | targets set by the Parker Review and the Further information on workforce engagement FTSE Women Leaders Review and intend to can be found on pages 116 to 120. address those targets as part of our Board succession planning in 2023 as two long- standing members of the Board are set to ### reach the end of their nine-year tenure in 2024. Compliance with the UK Corporate Governance Code The Company is subject to the Financial Reporting Council’s 2018 UK Corporate At Balfour Beatty, diversity and inclusion is Governance Code, which can be found at: www.frc.org.uk. This report, together with the not simply a compliance tick-box exercise, it reports from the Audit and Risk, Nomination, Remuneration and Safety and Sustainability is part of who we are and the foundation of Committees, provide details of how the Company has applied the spirit of the principles of our Value Everyone culture. In 2022 we the Code (pages 130 to 145). launched the refreshed Value Everyone UK Action Plan to set out the steps we are taking In 2022, the Company complied with the UK Corporate Governance Code with the to boost the diversity of our business. This exception of provision 38, which the Company complied with in part. For further starts with the launch of 2030 diversity and information on Code compliance please refer to page 168 to within the Director’s Report. inclusion targets to increase female and Balfour Beatty plc Annual Report and Accounts 2022108 ### Diversity of Non-executive Age diversity ### nationalities Directors’ tenure (asat31December2022) |  | |  | |  | | Governance | | --- | --- | --- | --- | --- | --- | --- | | | l UK 8 | | l 0-3 years 2 | | l 51-60 1 | | | | l US 1 | | l 4-6 years 3 | | l 61-70 7 | | | | | | l 7-9 years 2 | | l 71-80 1 | | ### BOARD AND COMMITTEE MEETING ATTENDANCE KEY Attended Board ### AT SCHEDULED MEETINGS DURING THE YEAR Attended Committee DIRECTOR BOARD AUDIT B A N R S NOMINATION REMUNERATION SAFETY AND AND RISK SUSTAINABILITY Charles Allen Leo Quinn Philip Harrison Stephen Billingham † † Anne Drinkwater Stuart Doughty Barbara Moorhouse Michael Lucki Louise Hardy* * Louise Hardy was appointed 1 April 2022, she attended all Board and Committee meetings following her appointment. † Unable to attend due to prior business commitments. Leo Quinn stood down as a member of the Nomination Committee as of 9 February 2022. ### BOARD AND COMMITTEE SCHEDULED ### MEETINGS DURING THE YEAR ### B B B B B B B B A A A A A N N N R R R R S S S JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Balfour Beatty plc Annual Report and Accounts 2022 109 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ## Leading with ##  ### The Directors hold the necessary skills and ### experience relevant to the sectors in which the ### Group operates, enabling the Board to effectively set ### the strategic direction and purpose of the Group and ### promote its long-term sustainable success. 1 2 3 4 5 9876 Balfour Beatty plc Annual Report and Accounts 2022110 1. CHARLES ALLEN 3. PHILIP HARRISON across multiple jurisdictions including the Key external appointments N | Non-executive Group Chair | | Chief Financial Officer | | US, Norway, Indonesia, the Middle East | Barbara is the independent chair of Agility | | --- | --- | --- | --- | --- | --- | | | | | | and Africa culminating in the role of | Trains East and Agility TrainsWest. Barbara | | Appointed | Nationality | Appointed | Nationality | | | | | | | | president and CEO of the Canadian | is also senior independent non-executive | | 13 May 2021 | British | 1 June 2015 | British | | | | | | | | business. Anne was previously a | director and chair of the remuneration | | | | | | non-executive director at Aker Solutions | committee of Aptitude Software Group plc, | | Experience | | Experience | | | | | | | | | A.S.A. and at UK listed Tullow Oil plc, | and senior independent non-executive | | Lord Allen has extensive corporate | | Philip has considerable financial expertise | | | | | | | | | where she served on a number of board | director and chair of the audit committee of | | experience across a range of sectors, most | | and extensive experience of working in | | | | | | | | | committees. She was previously oil and gas | Medica Group plc. Barbara was also | | notably in support services and media. His | | large multi-national manufacturing and | | | | | | | | | adviser to the Falkland Islands Government. | appointed as non-executive director and | | previous positions include chair of ISS A/S, | | services businesses. Philip was appointed | | | | chair-designate of the quality and safety Key external appointments executive chair of EMI Music, chief executive as Chief Financial Officer in June 2015, committee of the board of Glas Cymru. Anne is a non-executive deputy chair of of ITV plc, chief executive of Compass Group, having previously served as group finance Equinor ASA where she is chair of the audit | chief executive of Granada Group and chief | director at Hogg Robinson Group plc, and as | | | | | | --- | --- | --- | --- | --- | --- | | | | committee and a member of the safety, | 8. MICHAEL LUCKI | | I A R | | adviser to the British Home Office. | group finance director at VT Group plc. Prior | | | | | | | | sustainability and ethics committee. | Non-executive Director | | | | Charles was awarded a CBE in 2002, was | to that, he was VP finance at Hewlett-Packard | | | | | | | (Europe, Middle East and Africa regions) | | Appointed | Nationality: | | knighted in 2012 and was ennobled in 2013. and was a member of the EMEA board. 6. STUART SI A N 1 July 2017 American Key external appointments DOUGHTY CMG Philip’s earlier career included senior Lord Allen sits in the House of Lords and Non-executive Director Governance international finance roles at Compaq, Rank Experience: currently holds positions as chair of THG | | Xerox and Texas Instruments. Philip is a | | | Michael has over 40 years of business and | | --- | --- | --- | --- | --- | | PLC, chair of Global Media and | | Appointed | Nationality | | | | fellow of the Chartered Institute of | | | leadership experience in the US and | | Entertainment Ltd and chair ofthe Invictus | | 8 April 2015 | British | | | | Management Accountants. | | | internationally in the engineering and | Games Foundation. construction sector. He has held a number Key external appointments Experience of leadership and finance roles, including | 2. LEO QUINN | | Philip does not hold any | Stuart has over 50 years experience in the | | | --- | --- | --- | --- | --- | | | S | | | that of chief financial officer, executive vice | | Group Chief Executive | | externalappointments. | civil engineering, construction and | | president and board member at CH2M infrastructure sectors. Stuart was chief | Appointed | Nationality | | | | HILL. He was formerly an audit partner at | | --- | --- | --- | --- | --- | --- | | | | 4. DR STEPHEN | | executive of Costain Group plc between | | | | | | I A N | | Ernst & Young LLP and as its global industry | | 1 January 2015 | British | | | 2001 and 2005. This followed executive | | | | | BILLINGHAM CBE | | | leader for infrastructure, construction and | positions in Welsh multi-utility Hyder plc, Senior Independent engineering practices. He has recently Experience Alfred McAlpine plc and Tarmac Construction, Non-executive Director acted as a strategic adviser to companies Leo has strong leadership expertise and where he represented the company on the and private equity firms in the engineering significant experience of successfully Appointed Nationality Channel Tunnel board, following 21 years and construction industry. | delivering transformation strategies for large | 1 June 2015 | British | with John Laing Construction. He has also | | | | | --- | --- | --- | --- | --- | --- | --- | | multi-national companies. Leo is a civil | | | served as a senior non-executive director of | Key external appointments: | | | | engineer and began his career at Balfour | Experience | | Scott Wilson Group plc, chairman of Alstec | Michael is board member and chair of | | | | Beatty. He was educated at Portsmouth | Stephen has significant recent and relevant | | Ltd, Somero plc and Beck, Pollitzer Limited, | theaudit and risk committee of Pankow | | | | University and Imperial College, London, | financial experience and has worked in the | | and as non-executive director representing | Management Inc. Michael is also board | | | | where he completed his MSc in Management | construction, infrastructure and support | | AustralianSuper (the largest pension fund in | member and chair of the compensation | | | | Science. Before being appointed as Group | services industries for over 30 years. | | Australia) on the board of King's Cross | committees of Psomas Corporation and | | | | Chief Executive at Balfour Beatty, Leo | Stephen was the chief financial officer of | | Development Partnership LLP. He is a | HMC Architects. Michael is a member of | | | | spent five years as group chief executive of | British Energy Group plc and the chief | | chartered engineer and a fellow of both the | the Board of Governors of The California | | | | QinetiQ Group plc and, prior to that, five | financial officer of WS Atkins plc. He was | | Institution of Civil Engineers and the | State University Foundation, and a board | | | | years as chief executive officer of De La | also executive chairman at Punch Taverns | | Institute of Highway Engineers. Stuart was | member ofWalker Consultants and | | | | Rue plc. Before this, he spent almost four | plc. He played instrumental roles in the | | honoured with a CMG in 2004 and received | Bernards Construction. | | | | years as chief operating officer of Invensys | financial and operational transformation of | | an honorary doctorate from Aston | | | | | plc’s production management business, | all companies. He was also non-executive | | University in 2018. | 9. LOUISE HARDY | | | | | | | | | I | S | | headquartered in the US and 16 years with | chairman of Anglian Water Group. He was | | | Non-executive Director | | | Key external appointments | Honeywell Inc. in senior management roles | chairman of the Royal Berkshire NHS | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | Stuart does not hold any external | | | Appointed | Nationality: | | across the UK, Europe, the Middle East and | Foundation Trust. Stephen spent 11 years | | | | | | | | | appointments. | | | 1 April 2022 | British | | Africa, including global president of H&BC | with Balfour Beatty, when it was BICC plc, | | | | | | | Enterprise Solutions. Leo was previously a | in corporate finance and other roles. He is a | | | | | | | | | 7. BARBARA | | AI N R | Experience | | | non-executive director of Betfair Group plc | fellow of the Association of Corporate | | | | | | | | | MOORHOUSE | | | Louise has over thirty years of business and | | | and Tomkins plc. Leo was also a member of | Treasurers. He was awarded a CBE in 2019 | | | | | | | | | Non-executive Director | | | leadership experience in the construction | | | the Build Back Better Business Council in | for services to Government owned, public | | | | | | | 2021, which brought together Government | | | | | and built engineering industry. A civil | | | | and regulated businesses and awarded an | Appointed | Nationality | | | | | and business leaders to drive economic | | | | | engineer, she has held a range of senior | | | | honorary doctorate from Aston University | 1 June 2017 | British | | | | | recovery and growth across the UK. | | | | | roles at London Underground, Bechtel and | | in2016. Laing O’Rourke and as infrastructure Key external appointments Key external appointments Experience director responsible for the portfolio of Leo is the founder of The 5% Club, a Stephen is currently non-executive chairman Barbara has extensive leadership projects for the London 2012 Olympic dynamic movement of employers of Urenco Ltd, where he also chaired the experience across the private, public and Games. Her most recent executive committed to ‘earn and learn’ as part of Urenco Ltd audit committee from 2009 to regulated sectors. She was group finance appointment was European Project building and developing the workforce 2015. director at Morgan Sindall plc, regulatory excellence director for AECOM, where she needed for a socially mobile, prosperous director at South West Water and chief was responsible for monitoring project | and cohesive nation. In 2021, Leo’s | 5. ANNE DRINKWATER | | finance officer for two international listed IT | | | --- | --- | --- | --- | --- | | | | I R S | | performance across a portfolio of 10,000 | | contribution to business was recognised | Non-executive Director | | companies – Kewill Systems plc and Scala | | projects across 15 countries and eight through his appointment as a visiting Business Solutions NV. Latterly, she was businesses within Europe. Since then, professor at the College of Business and Appointed Nationality director general at the Ministry of Justice Louise has held a number of non-executive Social Science atAston University. 1 December 2018 British and the Department for Transport. Her roles in the public sector and FTSE 250. most recent executive appointment was as Louise is a Fellow of the Institution of Civil Experience chief operating officer at Westminster City Engineers, the Chartered Management Anne has significant experience in heavy Council. She is a fellow of the Chartered Institute and the Women’s Engineering industry including multiple large capital Institute of Management Accountants and Society. Louise won the European Women expenditure projects with infrastructure an associate member of the Association of in Construction and Engineering, Lifetime considerations and knowledge of doing Corporate Treasurers. Achievement in Construction Award, 2019. business in the UK and US. She was at BP plc for over 30 years, holding a number of Key external appointments senior strategic and operational roles Louise is currently a non-executive director of Crest Nicholson Holdings plc, Travis Perkins plc and Severfield plc. Louise is ### KEY also independent chair of Oriel, the joint initiative between Moorfields Eye Hospital, I Independent N Nomination Committee UCL and Moorfields Eye Charity. She is also Committee Chair R Remuneration Committee a keen volunteer within the industry as a STEM Ambassador and Diversity Champion. A Audit and Risk Committee S Safety and Sustainability Committee Balfour Beatty plc Annual Report and Accounts 2022 111 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ## Board activities ### HOW THE BOARD SPENT ITS Throughout the year the Board met ### TIME DURING 2022 sufficiently frequently to fully discharge its ## duties. The Board held eight scheduled Balfour Beatty’s new Code of meetings in the year, as well as ad hoc and ## Ethics provides a clear 11% Board sub-committee meetings to manage matters arising outside the formal schedule 5% ## direction on the standards, of meetings. Individual attendance at the ## scheduled meetings can be found on values and expectations that ### INDICATION OF page109. ## should guide our behaviour, ### TIME SPENT IN The Group Chair sets the Board agendas, ## empowering our employees BOARDMEETINGS with support from the Company Secretary, ## and ensures the Board receives timely and to do the right thing.” accurate papers in advance of meetings. 85% Leo Quinn, Group Chief Executive TheGroup Chair ensures there is sufficient time allocated to each agenda item to ##  promote constructive debate and support considered decision making. l Strategy, performance and operations l Committee matters The Company Secretary supports the Group l Governance and other matters | Chair in annual agenda planning, ensuring | Speak Up | | | --- | --- | --- | | that matters are scheduled for the | An integral component of the Code of Ethics | | | appropriate meetings based on the business | is the Group’s confidential and anonymous | | | cycle and an even distribution of matters | Speak Up helpline, which enables colleagues | 9% | | throughout the year. | and stakeholders to report any concerns | | related to unethical conduct in any area of the A schedule of Board activities can be found business. The Audit and Risk Committee 17% ### opposite and further detail on key actions INDICATION OF receives regular reports from the Ethics and ### isset out below. RELATIVE TIME Compliance function which include: ### SPENT ON BOARD 4% ### Strategy @ updates on the operational effectiveness AND COMMITTEE ### The Board held a UK-focused strategy of the Speak Up helpline; MEETINGS 9% session in July and a US-focused strategy @ details of any significant reports received; 62% session in September 2022. Throughout these sessions, senior leaders across the @ details of any investigations that have been ## Group presented on the following matters: conducted; and  @ progress against any required follow-up l Board @ market overview and future pipeline actions. l Remuneration Committee ofopportunities; l Nomination Committee @ operational and financial performance; Further detail on the Speak Up helpline can l Audit and Risk Committee be found on page 52. l Safety and Sustainability Committee @ key strategic issues and actions, includingrisk and opportunities; ### Capital allocation @ health and safety; The Board remains committed to delivering strong total cash returns to shareholders, @ safety and sustainability; and whilst maintaining an appropriate balance of @ workforce engagement. investment in the business. In March 2021, the Board announced a new capital allocation ### Code of Ethics framework, which comprises: The Board approved a new Code of Ethics in @ commitment to paying a sustainable @ continued investment in organic growth May 2022, replacing our previous Code of ordinary dividend, targeted at a pay-out opportunities in Infrastructure Investments Conduct. The Code of Ethics underpins our ratio of 40% of underlying profit after tax which meet the Group’s return hurdles; values and behaviours, aligning the Group’s (excluding gain on disposal of Investments cultural framework and wider strategy. The @ active realisation of Investments assets assets), with the Board expecting Code of Ethics sets a number of principles to with disposals timed to optimise value dividends to grow over time with guide the working behaviours and decision forshareholders; underlying profit; and making of our workforce to ensure that we all @ a strong but efficient balance sheet which @ additional cash returns via share buybacks do the right thing. | | provides the financial platform to make | (or other mechanisms depending on market | | --- | --- | --- | | More information on the Code of Ethics can | long-term business decisions, in response | conditions) broadly based on surplus cash | | be found on pages 52 and 53. | to both opportunities and periods of | delivered from Investments disposals as | | | marketdislocation; | well as surplus operating cash flows. | Balfour Beatty plc Annual Report and Accounts 2022112 | BOARD ACTIVITIES IN 2022 | LINK TO | LINK TO | | --- | --- | --- | | | VALUES | PRINCIPAL RISKS | | | See pages 24 | See pages 89 | | | to25 for more | to96 for more | | | information | information | PERFORMANCE ‡ Reviewed routine reports from the executive Directors on performance LEAN 1 2 3 ‡ Reviewed Group strategy and approved the Group’s budget EXPERT ‡ Approved the Company’s Annual Report and Accounts, financial results, trading updates and ancillary 4 7 8 documents relating to the Annual General Meeting, including the Notice of Meeting 9 13 ‡ Reviewed the capital allocation framework and its application ‡ Approved matters where required in accordance with the matters reserved for the Board ‡ Received ‘deep-dive’ presentations and reports on significant matters, key contracts and projects ‡ Received updates on control improvements at the US military housing business ‡ Reviewed reports from the Group’s brokers Governance HEALTH, SAFETY, ENVIRONMENT AND SUSTAINABILITY ‡ Received verbal updates from the Safety and Sustainability Committee following each Committee meeting LEAN 1 2 3 ‡ Received routine Group health, safety, environment and sustainability reports where a Safety and SAFE Sustainability Committee meeting was not scheduled in the same cycle of meetings 4 11 ‡ Reviewed the Group’s strategies, policies and procedures in relation to safety SUSTAINABLE ‡ Reviewed the environmental impact and sustainability of the Group’s operations, and the strategies and policies of the Group AUDIT AND RISK ‡ Received verbal updates from the Audit and Risk Committee following each Committee meeting LEAN 2 3 8 ‡ Received reports on financial and accounting issues and contract and commercial issues TRUSTED ‡ Approved the going concern statement and assessment of viability, the Directors’ valuation of the 11 Investments portfolio and principal and emerging risks ‡ Approved recommendations from the Audit and Risk Committee relating to the fee and appointment of the external auditor ‡ Received reports from the external auditor in respect of full and half year results ‡ Reviewed and monitored the Group’s risk profile, undertaking a robust review of principal and emerging risks ‡ Reviewed the effectiveness of the systems of risk management and internal control CULTURE ‡ Monitored the Company’s purpose, values and behaviours TRUSTED 5 61 ‡ Approved the Code of Ethics SAFE ‡ Monitored engagement with key stakeholder groups and reviewed the effectiveness of stakeholder 7 10 11 engagement mechanisms ‡ Received reports from the Directors on workforce engagement activity, as well as management information on workforce matters, including analyses of Employee Survey results and insights derived from the Stakeholder Voice initiative ‡ Received biannual updates on business integrity including reports on Speak Up, the Group’s whistleblowing service ‡ Received updates from Affinity Networks across the Group and individuals who have participated in the Reverse Mentoring programme ‡ Approved the Group’s 2022 Modern Slavery Statement PEOPLE ‡ Reviewed effectiveness of the Board's approach to workforce engagement and appointed Louise Hardy as EXPERT 6 10 12 Workforce Engagement Lead TRUSTED ‡ Received verbal updates from the Remuneration Committee following each Committee meeting ‡ Reviewed the Remuneration Policy to be submitted for approval by shareholders at the 2023 AGM SUSTAINABLE ‡ Received updates and supported workforce diversity and inclusion initiatives ‡ Received an annual update on pensions GOVERNANCE ‡ Conducted an internal evaluation of the performance and effectiveness of the Board, its main Committees TRUSTED 6 11 and individual Directors ‡ Conducted succession planning for the Executive Committee to support the development of a diverse pipeline of candidates ‡ Reviewed conflicts of interest of the Directors ‡ Reviewed the formal matters reserved for the Board and terms of reference for each of the Board Committees ‡ Convened sub-committees of the Board where necessary to deal with specific matters Balfour Beatty plc Annual Report and Accounts 2022 11 3 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ### OUR CULTURAL FRAMEWORK ### Our purpose ## Building New Futures ## p2 ### Our strategy ## Build to Last ## p24 ## Our values LEAN EXPERT TRUSTED SAFE SUSTAINABLE p24 TALK COLLABORATE ENCOURAGE MAKE A VALUE ### Our behaviours POSITIVELY RELENTLESSLY CONSTANTLY DIFFERENCE EVERYONE SCAN FOR MORE INFORMATION ON OUR CULTURAL FRAMEWORK ##  ##  ##  In 2022, the Group Chair visited the Connect Plus Services’ Scratchwood Depot to meet with site employees and learn about how the site team are utilising industry-leading technologies to manage motorway road closures, minimise disruption for road users, and reduce safety risk for our employees working on highways. During the site visit, Charles had the opportunity to engage with Balfour Beatty colleagues directly on a number discussion topics, including health and safety, site culture, and technology and innovation. “It was brilliant to witness the site team’s passion for technology, and to see how we are using innovative technologies like automated cone laying to create safer working environments for our employees and support and embed a culture of Zero Harm.” Balfour Beatty plc Annual Report and Accounts 2022114 ### DIRECT ENGAGEMENT WHISTLEBLOWING ### DIRECTOR REPORTS ### Action taken Action taken The Board undertook The Audit and Risk anumber of site visits, Committee and the wider ### Action taken participated in employee Board review whistleblowing Directors are required to events, and met with statistics, aswell as details provide feedback to the full employee networks ofany serious cases raised Board following site visits through the Speak Uphelpline anddirect employee and the progress of ### engagement events Link to culture relatedinvestigations @ This provides the Board with direct insights into ### Link to culture ### working environments, Link to culture @ The Group Chair, supported workforce attitudes, @ Speak Up reports provide Governance by theCompany Secretary, behaviours and practices, the Board with a view of ### ensures culture reports SAFETY MANAGEMENT and the practical application the nature of employee regularly feature on the ### INFORMATION of policies and standards concerns and trends Board agenda and ensures onthe ground inbehaviours sufficient time is allocated ### oftheworkforce Action taken to discussions on monitoring Group culture The Board receives management information @ Sharing experiences of site from a wide array of sources visits and discussing these to monitor safety culture as a Board assisted in across the Group. creating a broader exposure Thisincludes insights for each Director than derivedfrom: would otherwise be possible due to the range @ statistics and trends of lost and scale of the Group’s time injury rates; operations across different @ metrics on safety ## How the Board sectors and geographies observations reported ## monitored byemployees; and ## culture in 2022 @ analysis of Employee ### EMPLOYEE Survey data. ### MANAGEMENT ### INFORMATION ### Link to culture @ Enables the Directors to ### Action taken assess the effectiveness The Board annually ofsafety practices reviewsthe results of the andbehaviours EmployeeSurvey @ Facilitates further insight ### INTERNAL AUDIT MODERN SLAVERY into safety behaviours by ### Link to culture evidencing the extent of @ Analysis of Employee individual responsibility ### Survey data enables the Action taken Action taken taken by employees with Board to understand the Reviewed details of the Reviewed and approved regard to proactively employee experience. This outcomes of internal audits theGroup’s Modern reporting safety concerns provides the Board with judged to be less than SlaveryStatement insights into working satisfactory (undertaken by environments, employee the Audit and Risk Committee ### Link to culture behaviours and attitudes, with details available to all @ This provides the Board as well as the workforce’s Board members) with a broad understanding understanding of the of practices and behaviours ### Group’s culture Link to culture across the Group, and how @ Provides the Board with these align with the purpose, @ Enables the Board to adirect view of areas of values, vision andstrategy assess how working practice, policy and of the Group practices and behaviours behaviours that were not align with the purpose, @ Provides oversight of atthe desired standard values and strategy of the stepstaken to prevent andprovides details of Group modern slavery and human thecorrective action trafficking within the Group beingtaken and its supply chain Balfour Beatty plc Annual Report and Accounts 2022 115 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ## Stakeholder engagement ### The Board ensures that a balanced view of stakeholder needs and ### interests are taken into consideration and embedded within Board ### discussions and decision making. | The Board designs the framework within | In 2022, the Board undertook an | | --- | --- | | which stakeholder engagement takes place, | effectiveness review of existing Board-led | | and shapes how relationships with key | workforce engagement mechanisms. | | stakeholders are developed and maintained. | Previously, the Board had operated an | ## Workforce The Board is fully cognisant of the importance alternative approach to workforce of maintaining an ongoing interactive dialogue engagement. The effectiveness review ## engagement is a with key stakeholders, understanding that concluded that: ## this is crucial to support well-informed and pivotal aspect of our @ a more formal and structured approach high-quality decision making that creates ## was required; duties as Directors, value for all stakeholders and promotes the ## long-term sustainable success of the Group. @ the frequency and approach to engagement and is vital to ensure activities needed to be consistent across ## The Board undertakes a programme of we attract, and more the Group’s key jurisdictions; and stakeholder engagement initiatives ## importantly retain, throughout the year in order to understand @ topics of engagement should be more the interests of the Group’s key stakeholders, thematic and targeted, focused on insights ## skilled and talented specifically its customers, workforce, supply derived from the annual employee survey ## chain and strategic partners, communities, and employee feedback. employees.” governments and investors. The Board takes Following the effectiveness review, the a balanced view of these complementary and Louise Hardy, Board considered a number of options to divergent interests in discussions and decision Non-executive Director enhance workforce engagement, including making. The Board on its own however the best practice methods set out by the UK cannot engage meaningfully with every Corporate Governance Code. The Board single stakeholder. To address this, the concluded to appoint a designated non- Board-led engagement strategy is executive Director as Workforce Engagement supplemented by a network of mature Lead, tasked with shaping the workforce executive and business-led stakeholder engagement strategy for the Group and for relationships across the Group. Feedback on reporting to the Board on the outcomes and wider stakeholder engagement is reported to insights of engagement activities. the Board to support effective decision making and a timely recognition of emerging Each of the non-executive Directors were invited stakeholder issues. to apply for the role of Workforce Engagement Lead, with the role finally being awarded to Louise Hardy, given her previous experience ### Workforce in workforce engagement and her commitment The Board understands that the Group’s to enhancing the employee experience, workforce is the business's most valuable particularly for underrepresented groups. resource and is pivotal to building its long-term sustainable success and delivering for clients. In order to ensure we are an employer of choice, we are operating effectively, and creating a working environment where all employees feel safe and valued, and are given the tools to succeed and develop throughout their Balfour Beatty careers, the Board must listen and engage meaningfully with our employees. Balfour Beatty plc Annual Report and Accounts 2022116 ##  In July 2022, Louise Hardy, visited HS2’s Old Oak Common station in North West London, a project which will deliver six underground platforms as well as up to eight platforms on the adjacent Great Western Main Line. On completion, Old Oak Common station will become the UK’s best-connected station, providing direct services to three major airports, eight of Britain’s ten largest cities and forming part of one of Britain’s largest regeneration projects. Louise met with a number of colleagues whilst on site and had the opportunity to witness Governance Balfour Beatty’s health and safety policies and procedures working in practice, and a strong safety culture across the site dedicated to ZeroHarm. | Shaping the 2023 workforce | @ Board reporting: The Board will be | | --- | --- | | engagementstrategy | updated at least biannually on workforce | | Following Louise’s appointment as Workforce | engagement, specifically to set out the | | Engagement Lead, Louise undertook a | topics of engagement for the year, the | ## It was a pleasure tovisit number of engagement activities with proposed programme of engagement different employee populations in 2022 to activities, as well as a thematic analysis of ## Old Oak Commonand help her develop a new Board-approved the findings. Furthermore each Director ## workforce engagement strategy for 2023. will be required to report on the outcomes witnessour employees of their workforce engagement activities at ## The Board approved Louise’s embodying our values each Board meeting. recommendations to shape the 2023 ## and their unparalleled workforce engagement strategy, specifically: @ Communications with the workforce: ## The Workforce Engagement Lead will commitment to health @ The scope: Initially the engagement release biannual Group-wide strategy will focus on the US and UK, ## and safety.” communications providing an update on withthe strategy to be rolled out to the the Board’s engagement activities, and Gammon workforce in Hong Kong once Louise Hardy, more importantly, to provide an the UK and US programmes have Non-executive Director opportunity for two-way feedback from beenembedded. the workforce. @ Topics of engagement: Topics of @ Effectiveness review: The Board will engagement will be identified each year evaluate the effectiveness of workforce forBoard approval and will be informed by engagement on an annual basis, engagement surveys and various predominantly by: engagement activities, supported by particular areas of management focus. @ assessing the outcomes of engagement activities undertaken; @ Targeted engagement: The Workforce Engagement Lead will conduct ongoing @ data analysis of the employee survey analysis of the employee base to identify results and other KPIs on workforce which groups of employees should experience; and beengaged to facilitate a good @ reviewing feedback from the workforce cross-representation of the Group. on the Board’s approach to engagement. @ Wider Board engagement: With the support and direction of the Workforce Engagement Lead, the wider Board willcontinue to conduct workforce engagement initiatives, for example through training workshops, talent activities, site visits, town halls, contract award meetings and more. Non-executive Directors will continue to ensure they devote sufficient time to engage meaningfully with employees, especially those from underrepresented groups. Balfour Beatty plc Annual Report and Accounts 2022 117 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ### Workforce continued Post-lockdown, the Group has continued to offer flexibility to office-based colleagues by Key workforce engagement actions taken operating a hybrid working model, balanced in 2022 between collaborative working within the ## Following the lifting of COVID-19 restrictions, To be an employer of office and working from home. The Board members of the Board were able to resume a received updates on engagement activities ## choice, we as a Board full calendar of site visits and in-person undertaken with employees working under ## engagement activities with an array of need to listen to the the hybrid model and will continue to develop employees across the Group. Directors workforce engagement mechanisms to ## visited a number of sites across the UK views of our support engagement of those employees. including Old Oak Common station, ## workforce, and invest Lewisham Gateway and the Thames Barrier. Board members are required to report on ## their findings and insights derived from site our time to better During the Board’s visit to the US in visits and engagement activities. Whilst September 2022, Director’s had the ## understand the undertaking engagement activities, they are opportunity to meet a large number of encouraged to discuss and gather feedback ## employees, including: employee experience on topics such as: @ a Board site visit to a Caltrain substation, ## across the Group, and where the Group Chief Executive and @ health and safety; ## Senior Independent Director held a identify where we @ environment and sustainability; townhall with the Caltrain team, received ## need to do more.'' a presentation from the Caltrain team on @ diversity and inclusion, covering all of the progress of the contract, and hosted the protected characteristics set out by Charles Allen, a lunch with the Caltrain workforce; the 2010 Equalities Act; Non-executive Group Chair @ a site visit to Los Angeles International @ leadership and engagement; Airport where the Board visited one @ culture and morale; ofthe stations that is being built and alsogot the opportunity to see one of @ resources and personal development; the new Automated People Mover @ understanding of Group strategy, values (APM) trains; and and behaviours; and @ visited Del Sol High School where the @ Directors’ remuneration, and its Group Chief Executive delivered a alignment with workforce remuneration. SafetyStand Up to all site personnel. The Board continued to conduct engagement activities across the breadth of the employee population through both the Employee Survey and the Stakeholder Voice initiative. ## The changes ## implemented in 2022 ## to enhance workforce ## engagement, and the ## implementation of a ## new workforce ## engagement strategy ## in 2023, have and will ## continue to ensure ## that the employee ## voice is present in ## theBoardroom.” Leo Quinn, Group Chief Executive Balfour Beatty plc Annual Report and Accounts 2022118 As a woman that has worked in drive to deliver for our clients. Amidst a skills theconstruction and infrastructure and labour shortage, it is crucial that we do ## Q sector, how crucial is it to everything we can to retain our talented encourage more women to enter people and attract the best candidates. the industry? Thisis why employee engagement is so important. As a Board, we need to have our Ultimately, we want to create an inclusive ear to the ground and engage directly with business. We want to be an employer of our people to give them the opportunity to choice, to attract the best candidates, and share their thoughts and perspectives and retain talented people regardless of their identify where we need to do more. gender or any other defining characteristic such as sexuality, race, ethnicity, socio- In our drive to being an employer of choice, economic background or religion. We know and in creating an inclusive environment ## An introduction from all the research and all the data, that where everyone is given the tools to succeed diverse and gender-balanced businesses are and develop throughout their Balfour Beatty ##  more successful than businesses that aren’t. So careers, we need to listen. Only then, can we Governance not only is it the right thing to do, it’s also the make the changes needed to support our You were appointed to the Board right thing for the long-term sustainable people and enhance the employee experience. on 1 April 2022. What were some ## Q ofyour key takeaways from the success of the Group. What have been some of Balfour induction process? In my view, few careers are as rewarding as Beatty's achievements since your ## Q those in the construction and infrastructure appointment as the Board’s I’ve had a really interesting and varied industry. The satisfaction of knowing you Workforce Engagement Lead? induction onto the Board. I’ve had the have personally made a meaningful and opportunity to meet a number of individuals lasting contribution to the landscape and to I was proud to see a rise in employee survey working across different layers of the society is not something you experience in participation and a rise in the engagement organisation. I’ve met with some of our any career. Furthermore, in facing a number index score across the Group for the fifth affinity networks to learn and understand of macroeconomic challenges in 2023 (and consecutive year. A trajectory I hope will their experiences as employees, their goals beyond), such as labour and skills shortages continue in 2023. and their thoughts for the future of their and achieving net zero and energy security working life at Balfour Beatty. We’ve also had some great success and across our key markets, I believe women have recognition for workforce engagement with I’ve had the opportunity to visit a number a crucial part to play in facing those industry our win at the Engage Awards 2022 for the ofsites across both the UK and US, and challenges head on, and in defining the future Best Use of Technology in Employee witness first hand our employees driving success of the Group. Engagement. The award recognised how the thedelivery of powerful new solutions use of our agile and transparent platform andbuilding complex and critical Diversity and inclusion remain enabled us to really engage and listen to our infrastructure that supports communities areas of focus for boards across ## Q workforce and identify and target areas across our core geographies. the UK. How does Balfour Beatty forimprovement. aim toenhance, foster and retain One of the key takeaways from my induction adiverseworkforce? I was also delighted that our ‘whole person’ was the appetite for technology and innovation approach to engagement led to our Menopause across the Group. Across any function, any The Board is committed to enhancing diversity Friendly Employer Accreditation – an project, any site, there is a real tangible drive and inclusion across the Group. In 2022, in industryfirst. and ambition to utilise technology and the UK, we launched the refreshed UK Action innovation in problem solving, waste Plan with Value Everyone diversity and What are your priorities as reduction, energy usage, drive efficiency, inclusion targets. To achieve these targets, Workforce Engagement Lead ## Q andto enhance the client experience. and to meaningfully create an inclusive in2023? culture whereby everyone can feel free to be Having joined the Company as a In 2023, it is my intention to support the themselves and reach their full potential at | | non-executive Director in April | | wider Board to really listen to our employee | | --- | --- | --- | --- | | Q | | work, the Group has launched a Value | | | | 2022, what has been your | | voice, to better understand how we can | Everyone Action Plan. The plan includes a experience of Balfour Beatty’s expand our successes,and address the areas number of initiatives and enhanced utilisation culture thus far? where we need to do more. of our inclusive affinity networks to embed One thing that has stood out for me in respect diversity and inclusivity across the Group, I intend to gather the insights and of culture at Balfour Beatty is the general create new opportunities, and create and experiences of our workforce through a approach to ways of working, specifically the instil a culture of inclusivity, acceptance and thematic programme of engagement initiatives constant collaboration between colleagues mutual respect. including site visits, meetings with our affinity across different layers of the organisation, a networks, townhalls, as well as the insights You were appointed as the culture of openness, and a willingness to derived from our employee survey. designated Workforce Engagement ## listen, change and evolve. This is epitomised Q Lead for the Board in 2022. Why is I also intend to monitor our progress by the MyContribution platform, whereby all workforce engagement so important towardsachieving our 2030 diversity colleagues are actively encouraged to propose for a group like Balfour Beatty? andinclusion targets. and implement their own ideas for business change. The ideas that have been proposed At Balfour Beatty, our people are our most In short, my key priority is for Balfour Beatty and delivered through the MyContribution valuable resource; they understand the nuts to be an employer of choice that attracts and platform illustrate that employees are not and bolts of our business; they understand retains the very best talent through excellent only listened to but are empowered and the risks, the challenges, and the opportunities workforce engagement. trusted to deliver real change. we face as a group; they live and breathe our Company values and behaviours; and they show up to work each day fuelled with a Balfour Beatty plc Annual Report and Accounts 2022 119 ### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED ### Investors The Board receives biannual reports from the ## Stakeholder engagement Investors play a valuable role in the corporate Head of Investor Relations summarising ## continued analyst research briefings and changes to governance of the Company. The Board is committed to maintaining an open dialogue institutional shareholdings, as well as ad hoc ### Workforce continued reports on share price movements. with its investors, which is achieved through Key workforce engagement actions a programme of structured engagement. Engaging directly with shareholders is takenin 2022 continued Aselection of investor events that took place integral to effective Board decision making Both engagement tools continue to provide in the year can be found within the investor that promotes shareholder and wider insightful data on workforce views and calendar on the facing page. A similar stakeholder value. It provides an opportunity experiences. Reporting on key performance programme is anticipated to be followed for candour, insight, and the means to build indicators such as voluntary attrition rates, in2023. relationships with key shareholders. The safety observations, morale, and participation Board concluded that the key benefits Institutional investors rates for My Contribution (Balfour Beatty’s arisingfrom direct shareholder engagement The Group Chair, Group Chief Executive, and employee-led change programme), all help to initiatives held throughout the year included: Chief Financial Officer held meetings with build a strong picture of life as a Balfour individual institutional investors throughout @ presented an opportunity to build Beatty employee and support robust and 2022. The executive Directors conducted transparency and trust; considered Board decision making that analyst presentations following the creates value for our workforce. @ provided greater clarity over Board announcement of the Group’s financial results. The Board’s Workforce Engagement Lead, decisions and the decision-making process; Either where requested by investors or on Louise Hardy, met with our Affinity Networks @ provided an opportunity to showcase the specific occasions, Committee Chairs will to understand their experiences on working Board’s skills, experience, and diversity, engage on matters specific to the remit of life at Balfour Beatty, what could be done to and enabled shareholders to assess the their respective committees. The Senior enhance their experience, and what approach composition and effectiveness of the Independent Director is also available to to engagement was needed to enhance Board as a decision-making unit; and shareholders as a separate channel to report communications and develop an efficient any other views or concerns. In addition, @ created an opportunity for reflection for two-way feedback loop between the management engages with proxy advisory Directors, and an opportunity to enhance workforce and the Board. firms to support them in their reporting to the Board’s self-awareness and their members. The outcomes of engagement understanding of shareholder expectations. activities are reported back to the full Board. ### OUR APPROACH TO STAKEHOLDER ENGAGEMENT ## It was great to speak ## with employees at the ## Define Thames Barrier site Identify key engagement stakeholders approach ## and observe how our ## sustainability strategy ## has been embedded ## into their working Communicate Engage decisions made ## Stakeholder practices and the engagement ## culture on the site.” Stephen Billingham, Senior Independent Director Embed stakeholder Report insights views into decision and outcomes making (S172) Assess stakeholder views Balfour Beatty plc Annual Report and Accounts 2022120 ##  ### CALENDAR OF ## visit to the SHAREHOLDER EVENTS ##  ### March 2022 In October 2022, Stephen Billingham, @ Full year results presentation Senior Independent non-executive Director, visited the Thames Barrier, an @ London roadshow iconic steel structure located in London protecting 40,000 homes and businesses ### within the Capital at risk of tidal flooding. April 2022 During the site visit, Stephen had the opportunity to engage with Balfour @ Annual Report and Accounts Beatty colleagues directly on a number published Governance of discussion topics, including the @ US virtual roadshow environment and sustainability; culture and morale; diversity and inclusion; and ### health and safety. May 2022 Stephen gained valuable insights into @ Annual General Meeting the life and culture of working as a @ Trading update Balfour Beatty employee, and observed positive and collaborative working @ UBS Pan European Small and relationships across the site, and a real Mid-Cap Conference appetite to reduce waste and work as sustainably as possible. ### August 2022 @ Half year results presentation @ UK roadshow ### September 2022 ### Approach to shareholder Corporate website The Company’s website: www.balfourbeatty.com ### engagement @ UK roadshow has a section dedicated to investors where a range Retail investors of valuable information can be found, including: @ US virtual roadshow The Company’s website provides access to full year and half year results information in @ published Annual Reports and results @ Numis fireside chat addition to a plethora of information on the announcements; Company including in relation to the @ a financial calendar of events; | operations of the Group, governance, health | | October 2022 | | --- | --- | --- | | and safety, and sustainability so that retail | @ detail on the Company’s corporate | | | investors can keep equally as informed as | governance arrangements; | @ Liberum fireside chat | institutional investors. Retail investors are @ Board and Executive Committee profiles; also encouraged to raise any questions or ### @ the Group’s sustainability strategy, Building New November 2022 queries they may have with the Company Secretary, who will arrange for an appropriate Futures; and @ Investec best ideas conference response to be provided. @ regulatory announcements. @ UK private client virtual Annual General Meeting (AGM) Investors are consulted on an ongoing basis to roadshow The AGM provides an opportunity for ensure that the Group has a full and clear investors to engage directly with the Board in understanding of their views. person. Following a closed meeting in 2021 ### December 2022 due to COVID-19 restrictions, the Board was delighted to welcome back investors to a @ Bank of America European physical in-person AGM in 2022, providing Materials conference shareholders with the opportunity to ask @ Berenberg European conference questions and engage with the Board directly. @ Trading update Balfour Beatty plc Annual Report and Accounts 2022 121 ### DIVISION OF RESPONSIBILITIES ## A robust governance ## framework In accordance with Principle A of the UK Corporate Governance Code, manages the operational running of the business through the the primary role of the Board is to effectively lead the Group by promoting Executive Committee. The members of the Executive Committee the long-term sustainable success of the Company, generating value for each have responsibility for particular functions, with authority being shareholders and contributing to wider society. further delegated to appropriate individuals throughout the Group based on their role and seniority. The Board is the principal decision-making body of the Company, with authority for specific matters being delegated to Committees of the The framework set out below provides a high-level summary of the Board. Responsibility for the day-to-day operation of the Group is Group’s governance framework, illustrating the flow of authority as it formally delegated by the Board to the Group Chief Executive who is delegated throughout the Group. B BALFOUR BEATTY PLC BOARD OF DIRECTORS ‡ Establishes the Company’s strategic direction, purpose and values ‡ Ensures maintenance of a framework of prudent and effective controls ‡ Assesses and monitors Company culture and promotes the long-term ‡ Ensures effective engagement with stakeholders including employees success of the Company ‡ Approves matters relating to the composition of the Board ‡ Approves the Company’s financial statements, dividends and budget andCommittees NOMINATION COMMITTEE N R A REMUNERATION COMMITTEE AUDIT AND RISK COMMITTEE SAFETY AND SUSTAINABILITY S COMMITTEE ‡ Oversees the structure and ‡ Reviews the Remuneration ‡ Reviews the form, content and composition of the Board Policy for Directors and process for preparing the ‡ Reviews strategies, policies ‡ Conducts succession planning Executive Committee members financial statements and performance in relation ‡ Oversees the appointment ‡ Approves the remuneration of ‡ Reviews principal risks and tohealth, safety and sustainability andinduction processes of the Group Chair, the executive internal controls, and the ‡ Reviews the environmental new Directors Directors and Executive effectiveness of the risk impact and sustainability of Committee members management framework theGroup’s operations ‡ Makes recommendations regarding Directors’ ‡ Oversees the implementation ‡ Monitors the independence ‡ Reviews in detail incidents independence against of the Remuneration Policy and effectiveness of the where significant harm theCode's criteria Internal Audit function and hasoccurred external auditor EXECUTIVE COMMITTEE ‡ The Group Chief Executive manages the operational running of the Group through the Executive Committee, members of which are responsible for various business units and enabling functions. The Executive Committee oversees the implementation of Group strategy, and matters relating to health and safety, sustainability, employee matters (including succession and remuneration), legal and governance, technology and innovation, and communications and investor relations ‡ Responsibility for the day-to-day running of each of the strategic business units and enabling functions is delegated to individual members of the ExecutiveCommittee GROUP TENDER AND INVESTMENT COMMITTEE FINANCE AND GENERAL PURPOSES COMMITTEE FT ‡ Responsible for the content, maintenance and operation of the Gated ‡ Approves borrowings, banking arrangements, management of interest Business Lifecycle which forms the core process for evaluating and rate and foreign exchange rate exposures, contract financing, bonding monitoring the governance of operational projects and leasing matters and guarantees CONSTRUCTION SERVICES SUPPORT SERVICES INFRASTRUCTURE INVESTMENTS ENABLING FUNCTIONS ‡ Operates across infrastructure ‡ Operates principally in the UK, ‡ Develops and finances both ‡ Bring together shared and buildings markets in the designing, upgrading, public and private infrastructure services(Legal, Finance, IT and UK, the US and in joint venture managing and maintaining projects in the UK and the US Procurement, Communications, in Hong Kong critical national infrastructure HR and HSE and Sustainability) tosupport the delivery of business objectives Balfour Beatty plc Annual Report and Accounts 2022122 ### This section sets out the defined roles and responsibilities of the Group Chair, Group Chief Executive and ### non-executive Directors, and outlines the support the Directors receive to assist them in discharging their ### duties in accordance with S171-177 of the Companies Act 2006, and their responsibilities under the 2018 ### UK Corporate Governance Code. ##  ### GROUP CHAIR GROUP CHIEF EXECUTIVE ‡ Leads the Board and demonstrates objective judgement ‡ Responsible for the day-to-day management of the Group and the ‡ Encourages high standards of corporate governance Group’s performance ‡ Sets the Board agenda and drives Board effectiveness ‡ Leads the Group ‡ Promotes a culture of constructive debate, mutual respect andopenness ‡ Enables planning and execution of the Company’s strategy, objectives and values set by the Board ‡ Ensures that Directors receive accurate, timely and clear information ‡ Drives the cultural tone of the Group ‡ Leads shareholder and wider stakeholder engagement ‡ Ensures the Board is kept abreast of the views of the workforce, andany divergent views amongst members of the Executive Committee Governance ## Oversight ### NON-EXECUTIVE DIRECTORS SENIOR INDEPENDENT DIRECTOR ‡ Oversee the Company’s strategy and provide strategic guidance ‡ Acts as sounding board for the Group Chair andexpert advice to management ‡ Assumes the role of intermediary for the Group Chief Executive, ‡ Monitor Group performance against objectives, and hold management non-executive Directors and shareholders as required toaccount ‡ Leads the review of the Group Chair’s performance ‡ Review management proposals ‡ Chairs the Nomination Committee when the Group Chair’s succession ‡ Provide effective and constructive challenge to management isconsidered ‡ Serve on Board Committees which are responsible for specified ‡ Available to meet with shareholders governance roles ### NON-EXECUTIVE DIRECTOR MEETINGS The non-executive Directors, led by the Group Chair, hold regular scheduled The non-executive Directors meet annually, led by the Senior Independent meetings without the executive Directors present prior to or following Director and without the Group Chair present, as part of the Board Boardmeetings. effectiveness review to discuss the Group Chair’s performance. ## Governance ### COMPANY SECRETARY The Board is supported by the Company Secretary who, in accordance with In addition to providing logistical support for Board and Committee meetings, Principle I of the 2018 UK Corporate Governance Code, ensures that the Board the Company Secretary is responsible for advising the Board on all governance is able to function effectively and efficiently, and is available to all Directors, matters, supporting the annual Board effectiveness review, managing policies maintaining dialogue witheach of them on an individual basis. and processes related tothe Board, supporting induction and ongoing training and development of the Directors, and ensuring that the Directors receive information in a timely manner. ### Role of the Board their biographies on page 111. Neither of the executive Directors hold The role of the Board is to be effective and entrepreneurial and to any non-executive board positions at a FTSE 100 company. promote the long-term sustainable success of the Company, whilst The Board approved the following external board appointments: having regard to the interests of stakeholders and ensuring high standards of business conduct. Each Director has a defined role with @ Lord Charles Allen’s external appointment to the board of THG plc individual duties; this supports a clear division of responsibilities, as non-executive chair; particularly between the Group Chair (leadership of the Board) and @ Louise Hardy’s appointment as a non-executive director of Travis the Group Chief Executive (leadership of the Company’s business). Perkins plc; and The balance of responsibilities at Board level set out above supports abalanced approach to decision making, ensuring that no one @ Barbara Moorhouse’s appointment to Dŵr Cymru Welsh Water as individual has unfettered powers. a non-executive director. @ Philip Harrison’s appointment to Dowlais Group plc as a non- ### Time commitment of Directors executive director. The Board recognises the importance of individual members having When considering the above appointments, the Board reviewed the sufficient time to discharge their duties effectively. On an annual time commitments of each appointment, considered whether any basis, each Director declares their external appointments and potential conflicts of interest would arise as a result, and assessed commitments to the Board as part of the conflicts of interest the continued ability of each Director to discharge their duties and declaration. Any additional external appointments are subject to responsibilities to the Balfour Beatty plc Board. Following these Boardapproval in order to mitigate the risk of over-boarding and reviews, the Board concluded that each of the Directors would ensure they do not impact the capacity of Directors to discharge continue to have the capacity to devote to their role on the Board, theirduties. The Directors’ significant commitments are set out in andapproved each of the above external appointments. Balfour Beatty plc Annual Report and Accounts 2022 123 DIVISION OF RESPONSIBILITIES CONTINUED ## Corporate governance framework The Company's governance framework operates to support the delivery of its strategy by ensuring that business is conducted within a framework of robust principles and procedures and in an orderly fashion. The Company has a premium listing on the London Stock Exchange and is therefore subject to The UK Corporate Governance Code. A copy of the Code can be found on the FRC's website at: www.frc.org.uk. The Company's compliance with the Code is set out on page 108. ### The Board The role of the Board is summarised on page 123. Principally, the Board establishes the strategic direction of the Group and assesses the basis upon which the Company sustainably generates and preserves value over the long term. The Board also sets and monitors culture and leads by example to set the right cultural tone from the top as to how the Company will achieve its strategic goals and purpose. The Group's governance framework is designed to facilitate effective, resilient and prudent management of the business, which helps to ensure that the Board's decision making is considered, long-term in its nature, and takes into account the desirability for maintaining high standards of business conduct and the need to act fairly between members. One of the primary responsibilities of the Board is to ensure that the Company preserves value over the long term in a sustainable manner, taking into consideration both value derived for the Company's stakeholders and the Company's contribution to wider society. In setting, monitoring and delivering the Group's Build to Last strategy, specifically the drive towards the targets and ambitions, as outlined in its Building New Futures sustainability strategy, the Board ensures that risks and opportunities facing the Group are identified and, where appropriate, mitigated appropriately. The primary responsibilities of the Board are set out in the Matters Reserved for the Board, available on the Company's website. Key responsibilities include: - setting Group strategy and ensuring resources are in place to meet objectives; - setting Group performance objectives and monitoring performance; - significant Corporate activities; - approval of the annual Group budget; - risk management and internal control; - Board, Executive Committee and Company Secretary appointments and succession; - approval of the annual accounts and financial reports to shareholders; - setting the capital allocation framework and share capital structure; - approval of significant bids and contracts; - review of the pipeline of significant projects; - engagement with shareholders, employees and wider stakeholders; and - reviewing and monitoring the Group's culture and its alignment with Group purpose, values and strategy. ### Board and Committee meetings In order to discharge its responsibilities, the Board held eight scheduled meetings throughout 2022. Details of attendance by Board members at scheduled meetings can be found on page 109. The Group Chair sets a structured agenda for each Board meeting in consultation with the Group Chief Executive and Company Secretary. Capacity is maintained on the agenda for each meeting to allow for the timely consideration of matters as they arise during the year. The Group Chair seeks a consensus at Board meetings, but, if necessary, decisions are taken by majority. If any Director has concerns on any issues that cannot be resolved, such concerns are noted in the Board minutes. No such concerns arose in 2022. The key activities of the Board in 2022 are detailed on page 113. These activities are discussed under the value pillars of Lean, Expert, Trusted, Safe and Sustainable and these underpin the Board's decision-making process. As referenced above, the Board has a formal schedule of matters reserved for its decision making and has delegated certain responsibilities to Board Committees, each with separate Terms of Reference. There are four main Board Committees: Audit and Risk, Nomination, Remuneration and the Safety and Sustainability Committee. The principal activities of each committee during the year are set out in the Committee reports on pages 130, 134, 136, and 142. The Group Chair encourages all Directors to attend all Committee meetings, with the exception of instances where there is a conflict of interest, for example, where an individual's performance or remuneration is being considered. Additional attendees are invited to attend Board and Committee meetings at the discretion of the relevant chair. As depicted on page 123, the Executive Committee is managed by the Group Chief Executive, and includes the Chief Financial Officer and nine further senior Group executives. The primary responsibilities of the Executive Committee include: - developing Group strategy to recommend to the Board for approval; - ensuring Group, regional and functional strategies and resources are effective and aligned; - monitoring Group operating performance; - managing the enabling functions; - overseeing the management and development of Group talent; - monitoring communication to Group employees and external stakeholders; and - matters relating to health and safety, sustainability and employees. ### Risk and internal control #### Risk management The Board is responsible for undertaking a robust assessment of the principal risks facing the Group, as described on pages 89 to 96 of the Strategic report and ensuring that appropriate mitigating actions are in place to manage them. This includes those risks that would threaten the Group's business model, future performance, solvency and liquidity. The Group's approach to risk management, described in more detail on pages 84 to 96, ensures that the most significant risks to the Group's objectives are identified, assessed and managed on an ongoing basis. The Business Management System (BMS), which forms the basis of the Group's internal control framework, contains all policies, procedures and controls. BMS is regularly updated to reflect the output and effectiveness of risk and assurance activity to ensure that there is continuous improvement to the control environment. #### Internal control The Board has overall responsibility for the Group's systems of risk management and internal control and regularly reviews their effectiveness. In accordance with the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, the Audit and Risk Committee has undertaken this review throughout the financial year. Further details can be found on page 141 of the Audit and Risk Committee report. 124 Reflivar Realty plc Annual Report and Accounts 2022 | The Group uses the Enterprise Risk | The Group has an independent Internal Audit | The results of all internal audit activity are | | --- | --- | --- | | Management (ERM) framework across the | function which undertakes an annual | also shared with the Group Chief Executive, | | business to ensure consistency in application | programme of risk-based audits across all of | Chief Financial Officer, the external auditor | | of systems and controls and that exposure to | the Group’s operations. All audit reports are | and scrutinised by the Audit and Risk | | significant risks is managed effectively. The | shared with the relevant business owners | Committee on a regular basis, further details | | Board is cognisant of the fact that such a | who are accountable for implementing | of which can be found on pages 136 to 141 | | system can only manage rather than | appropriate measures to address any risks or | of the Audit and Risk Committee report. | | eliminate the risk of failure to achieve | control weaknesses. | | business objectives and can only provide reasonable, but not absolute, assurance against material misstatement or loss. Governance ### RISK MANAGEMENT: RESPONSIBILITIES AND ACTIONS RESPONSIBILITIES ACTIONS UNDERTAKEN BOARD ‡ Establishment of a framework of prudent and effective controls to ‡ Reviewed the Group’s risk landscape, profile, principal and emerging risks, enable risk to be assessed, monitored and mitigated and required responses ‡ Determine Group appetite for and attitude to risk in pursuit of its ‡ Reviewed the effectiveness of the Group’s whistleblowing (Speak Up) strategic objectives processes and procedures, and other channels for raising concerns about Code of Ethics breaches AUDIT AND RISK COMMITTEE ‡ Review significant accounting judgements ‡ Received regular reports on internal and external audit and other ‡ Review the effectiveness of Group internal controls, including assuranceactivities systems to identify assess, manage and monitor risks ‡ Reviewed the effectiveness of Group risk management and internal ‡ Review and assess the effectiveness of the Internal Audit function, controlsystems and the Internal Audit workplan SAFETY AND SUSTAINABILITY COMMITTEE ‡ Review main risks in relation to safety, the environment, ‡ Received regular reports on risks in relation to safety andtheGroup’s overall sustainability ‡ Received regular risk reports on matters impacting the environment GROUP TENDER AND INVESTMENT COMMITTEE ‡ Review and approve tenders and investments, triggered by certain ‡ Critically appraised significant tender and investment/divestment proposals, financial thresholds or other risk factors with a specific focus on risk GROUP MANAGEMENT ‡ Strategic leadership ‡ Strategic plan and annual budget process ‡ Review and implementation of the Group risk management policy ‡ Produced and monitored Group Risk Register ‡ Ensure appropriate actions are taken to manage strategic risks and ‡ Reviewed risk management and assurance activities and processes other key risks ‡ Monthly/quarterly finance and performance reviews STRATEGIC BUSINESS UNIT MANAGEMENT ‡ Maintain an effective system of risk management and internal control ‡ Reviewed key risks and mitigation plans within its businesses ‡ Reviewed and challenged business units’ internal control environment ‡ Ensure that business units’ responsibilities are discharged ‡ Reviewed results of internal control testing ‡ Escalated key risks to Group management and the Board ENABLING FUNCTION MANAGEMENT ‡ Maintain an effective system of risk management and internal control ‡ Maintained and regularly reviewed enabling function risk registers within its enabling functions ‡ Reviewed mitigation plans ‡ Planned, executed and reported on internal control testing ‡ Escalated key risks to Group management and the Board BUSINESS UNIT MANAGEMENT ‡ Maintain a robust and effective system of risk management and ‡ Maintained and regularly reviewed project, functional and strategic risk internal control within its business units and projects registers ‡ Reviewed mitigation plans ‡ Planned, executed and reported on internal control testing ‡ Escalated key risks to strategic business unit management Balfour Beatty plc Annual Report and Accounts 2022 125 ### COMPOSITION, SUCCESSION AND EVALUATION ## Maintaining an ##  ### The Board monitored its composition throughout 2022 to ensure that ### it remained appropriately balanced, diverse and fully equipped to lead ### the Group successfully into the future. | The Board has diversity of thought within the | two executive Directors, theSenior Independent | @ Directors are requested to declare any | | --- | --- | --- | | Boardroom, which drives thought-provoking | Director and five further independent | conflicts at the start of all Board and | | constructive debate, which in turn leads to | non-executive Directors. Biographies of each | Committee meetings; | | considered, prudent, risk-adjusted decision | Board member are set out on page 111. | | @ the Nomination Committee conducts an making that promotes long-term shareholder annual review of the Conflicts of Interest ### and stakeholder value. Conflicts of interest Register and seeks confirmation from ### andindependence The Board’s range of technical and soft skills, eachDirector of any changes to their sector-relevant experience, and strong The Board has a number of processes and external appointments; and balance of objectivity and independence procedures in place to assess conflicts of @ there is also a formal process in place for facilitates creative thinking, innovative interest and the independence of non- the approval of all new external problem solving, and better facilitates the executive Directors against the criteria set appointments of Directors. In considering Board’s ability to convert risks into out in the Code: such appointments, the Board will consider opportunities. The range of skills and @ each Director has a duty to disclose any any conflicts of interest that may arise, as experience within the Board is demonstrated actual of potential conflict of interest for well as the Directors’ capacity to continue below within the skills matrix. consideration and approval, if appropriate, discharging their duties effectively in order The Board currently consists of nine members, by the Board; to mitigate the risk of overboarding. comprising the non-executive Group Chair, ### KEY SKILLS AND EXPERIENCE OFDIRECTORS CHARLES PHILIP STEPHEN ANNE STUART BARBARA MICHAEL LOUISE SKILLS AND EXPERIENCE ALLEN LEO QUINN HARRISON BILLINGHAM DRINKWATER DOUGHTY MOORHOUSE LUCKI HARDY CEO Government relationships Finance and audit Health & Safety ESG Remuneration and people Hong Kong experience US experience UK experience Construction sector experience CAPEX heavy Major contracting Risk Experienced Some experience No experience Balfour Beatty plc Annual Report and Accounts 2022126 | As a result of these assessments, the Board | and ethnic diversity. The Board remains | | --- | --- | | noted that Stephen Billingham is a member of | committed to meeting the ethnic diversity | | the Company’s pension scheme resulting from | targets set by the Parker Review and the | | his employment with the Group over 20 years | targets for female representation set by the | ## The Board’s range of ago. Stephen Billingham recuses himself from FTSE Women Leaders Review; and is aiming any discussions relating to the Company’s to achieve these as soon as practicably ## technical and soft pension scheme. possible through its succession planning. ## skills, sector-relevant The Nomination Committee and the Board Amongst other things, Board succession ## have, after completing all of the processes planning takes into account non-executive experience, and detailed above, confirmed the continuing Director tenure and, consistent with best ## strong balance of independence and objective judgement of practice, Balfour Beatty would not expect a each non-executive Director, and the overall non-executive Director to serve beyond nine ## objectivity and independence of the Board in line with the years unless exceptional circumstances were ## recommendations of the Code. deemed to exist. Non-executive Directors, independence DrStephen Billingham CBE, Senior Governance ## facilitates creative Independent Director, and Stuart Doughty ### Board succession ## CMG, are set to reach nine-years’ service in thinking and problem Board and Executive Committee succession mid-2024, which (in the absence of plans are based on merit and assessed against ## solving and exceptional circumstances) is expected to objective criteria, whilst also being managed lead to the appointment of replacement ## through the lens of promoting diversity of enhances the Directors and provide an opportunity to meet gender, social and ethnic backgrounds, ## the targets set by the Parker Review and the Board’s ability to cognitive and personal strengths. Succession FTSE Women Leaders Review. ## plans are reviewed annually by the convert risks into Nomination Committee. The Board is also committed to supporting ## opportunities." and developing a diverse pipeline of During the year, succession planning and the candidates for managerial, executive and review of Board composition saw the Charles Allen, subsidiary director roles within the Group. appointment of Louise Hardy as an Non-executive Group Chair For further information on active diversity independent non-executive Director. Further initiatives within the Group please refer to information on Louise’s appointment is set pages 68 and 69. out in the Nomination Committee report on pages 130 to 133. In addition to the range of technical skills and experience detailed within the skills matrix, both the Nomination Committee and the Board recognise the importance of gender ### TENURE AS AT 31 DECEMBER 2022 FOR NON-EXECUTIVE DIRECTORS DIRECTOR 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS Charles Allen Stephen Billingham Anne Drinkwater Stuart Doughty Barbara Moorhouse Michael Lucki Louise Hardy Balfour Beatty plc Annual Report and Accounts 2022 127 ### COMPOSITION, SUCCESSION AND EVALUATION CONTINUED | Director reappointment | Any Director can request further information | Board evaluation | | --- | --- | --- | | All non-executive Directors undertake a fixed | to support the fulfilment of their individual | In line with best practice, the performance | | term of three years subject to annual | duties or collective Board role and, throughout | and effectiveness of the Board, its Committees | | re-election by shareholders. The fixed term | the year, the Group Chair maintains dialogue | and individual Directors is assessed annually | | can be extended, and consistent with best | with individual Directors to identify any | through formal performance evaluation | | practice, would not go beyond nine years | specific training needs. Where appropriate, | processes. Following an externally facilitated | | unless exceptional circumstances were | such training is delivered by the topic being | evaluation conducted by Egon Zehnder in | | deemed to exist. | included at a Board meeting so that all Directors | 2021, an internal evaluation was undertaken | | | can benefit. Alternatively, training is delivered | in 2022. | The current length of tenurefor the Group by way of formal presentations, individual Chair and each of the non-executive Directors meetings and site visits in order to learn Process - Board and Committee evaluations as at 31December2022 is set out on more about a particular initiative or project. @ The Group Chair and Committee Chairs, page109. supported by the Company Secretary, considered the context, strategy, purpose, ### Information and support ### Training and development and approach of the internal Board and During the year, the Company Secretary The Board receives a full programme of Committee evaluations respectively which advised the Board on matters related to briefings and updates annually across all were carried out by way of an anonymous governance, ensuring Board procedures areas of the Company’s business from the questionnaire following the same format were followed and relevant statutory and executive Directors, members of the as those used in 2020 for ease of regulatory requirements were complied with. Executive Committee, senior executives and comparison. The questionnaires covered: The Company Secretary has responsibility for advisers. In addition, training and facilitating the timely distribution of @ leadership; development sessions are arranged on information between the Board and its specific areas during the year as required. @ effectiveness; Committees and the executive and Examples of training and development in non-executive Directors. @ Board dynamics; 2022 included, amongst others, Code of Ethics, corporate governance, digital and The Directors have direct access for advice @ behaviours; and cyber security, the Building Safety Act and to the Company Secretary who is able to @ risk and controls. accounting developments. arrange, at the Company’s expense, for the Directors to receive independent professional advice where appropriate. ### BOARD EVALUATION PROCESS | Year 1 (2022) | Year 2 (2023) | Year 3 (2024) | | --- | --- | --- | | Internal assessment | Internal assessment | External assessment | | @ Evaluation co-ordinated | @ Outcomes from previous | @ Independent external | | internally by Group Chair, | evaluation and progress | evaluation firm appointed | | Committee Chairs and | against each action reviewed | | @ Evaluator works with Group Company Secretary @ Internal evaluation Chair to refine scope of @ Separate questionnaires questionnaires prepared by evaluation in light of previous prepared on a range of Group Chair and Company internal evaluations issues related to the Board Secretary, taking account @ Evaluation conducted by use and Board Committees ofareas of concern in of interviews with Directors previous year @ One-to-one meetings held and key regular attendees at between Group Chair and @ One-to-one meetings Board/Committee meetings each Director to review heldbetween Group Chair and review of agendas/papers responses and for individual and each Director to @ Report on evaluation appraisal. Senior Independent reviewresponses and for discussed with Group Chair Director leads the review of individualappraisal. Senior and tabled for discussion at the Group Chair Independent Director leads full Board meeting the review of the Group Chair @ Group discussion at a Board @ Outcomes and actions agreed meeting and actions agreed @ Group discussion at a Board meeting and actions agreed Balfour Beatty plc Annual Report and Accounts 2022128 The Company Secretariat function collated Areas identified for development included: the completed questionnaires and the Group @ to improve balance of management Chair and Committee Chairs obtained information provided across the Group's additional qualitative insights through private key jurisdictions; meetings held with Directors individually. The @ to ensure the Board is kept sufficiently final findings were presented by the Group upto date with industry developments Chair or Committee Chair and were discussed andthe Group’s relative competitive in a Board or Committee meeting. positioning; and Process - Group Chair evaluation @ to enhance the ethnic and gender diversity The evaluation of the Group Chair was also of composition through succession planning. carried out by way of an anonymous questionnaire that was designed by the ### Individual Directors Senior Independent Director in consultation The evaluation concluded that each Director with the Company Secretary. The questionnaire continues to have sufficient time, knowledge Governance followed the same format as that used in and commitment to effectively contribute 2020 for ease of comparison, and was completed tothe long-term sustainable success of by all Directors other than the Group Chair. thebusiness. The non-executive Directors, led by the Senior Independent Director, also held a ### meeting at which the evaluation of the Group Board effectiveness action plan Chair was discussed, following which the Led by the Group Chair, with support from Senior Independent Director provided the Company Secretary, the Board approved feedback to the Group Chair. and implemented an action plan to address the findings of the Board evaluation and The evaluation of the Directors was carried enhance Board effectiveness. out by the Group Chair in one-to-one meetings. The key actions identified are: ### Findings @ receive regular reports on talent The findings of the Board and Committee development in the Group; evaluations concluded that the Board and @ receive and provide updates on competitors Committees continued to function effectively, in all markets in which the Group operates; and identified the following key findings: @ ensure all presentations are suitably Strengths: balanced between activities in all markets @ the Board works well together as a team; in which the Company operates; @ Board members comprehend and respect @ ensure the Board is kept sufficiently up to the difference between the Board’s role date with industry developments and the and the executive’s responsibility for Group’s relative competitive positioning; and running of the Company’s business; and @ close out any ongoing actions from the @ the Board sets the Company’s values and 2021 external Board evaluation. standards and understands the Company’s beliefs, values, philosophy and mission. Balfour Beatty plc Annual Report and Accounts 2022 129 ### COMMITTEE REPORTS ##  ##  I am pleased to present my second report of end-to-end Director appointment process, the Nomination Committee, setting out the please refer to page133. key activities undertaken throughout 2022. Louise has over 30 years of construction and | In 2022, as part of its refreshed Value | infrastructure business and leadership | | --- | --- | | Everyone Action Plan, the UK business | experience, and in her short tenure has | | launched 2030 diversity and inclusion targets | already made a meaningful impact on the | | to enhance female and ethnic diversity | Board and has taken real steps to further our | | representation. As the Board, it is vital that we | workforce engagement strategy in her | | set the example, lead that change agenda, and | capacity as Workforce Engagement Lead. | diversify ourselves. Louise’s appointment however is only the Following a review of our Board skills matrix, beginning of further change and evolution our Board succession plans, and the insights tothe Board’s composition. The Board derived from the externally facilitated Board remains committed to continually strengthening evaluation conducted by Egon Zehnder in its diversity. 2021, the Board agreed to recruit an additional female independent non-executive Charles Allen Director to better balance the Board and Chair of the Nomination Committee increase diversity and female representation. 15 March 2023 The Committee led the appointment process, commencing with a detailed candidate specification, which set out key responsibilities, experience and qualities required, including a ### ROLES AND RESPONSIBILITIES good understanding of the sector, previous plc ### OFTHE COMMITTEE experience and a passion for ESG. Egon Zehnder then identified a candidate longlist which was @ Make recommendations to the Board mapped against the role profile and the Board on the appointment, reappointment, skills matrix. The candidates with the strongest retirement or continuation of any Director. fit were reviewed by a sub-committee established to lead the search and determine @ Propose and oversee induction plans for which candidates progressed to the newly appointed Board members. nextstage. @ Make recommendations regarding Egon Zehnder held discussions with the Directors’ independence. candidates to confirm time capacity, interest @ Monitor the balance, composition, in the role and any potential conflicts, diversity, structure, and size of the following which Egon Zehnder created a Board and Committees. shortlist of candidates to meet Committee members and the executive Directors. @ Conduct and monitor Board and Executive Committee succession Following the interviews, the Committee planning. confirmed that Louise Hardy possessed the desired construction and infrastructure experience, strong plc experience, and a strong commitment to furthering the Board’s social and environmental agendas. The Board approved the Committee's recommendation that Louise Hardy be appointed as an independent non-executive Director from 1April 2022. Louise was formally elected as a SCAN TO READ THE TERMS non-executive Director byshareholders at the AGM on 12 May 2022. For details on the 130 Balfour Beatty plc Annual Report and Accounts 2022 ### Board composition Evaluation of the Committee ### MEMBERSHIP ### andsuccession In 2022 the Committee undertook an internal Board composition is shaped and informed by: effectiveness review as part of the wider @ Charles Allen (Chair) Board evaluation process. Further details can @ Stephen Billingham @ succession planning activities undertaken be found on pages 128 and 129. by the Committee; @ Stuart Doughty ### @ ongoing assessments of the skills, Re-election of Directors @ Barbara Moorhouse | | experience and diversity required on the | All non-executive Directors undertake a fixed | | --- | --- | --- | | @ Leo Quinn (until 9 February 2022) | Board to deliver against the Group’s | term of three years, subject to annual | | | strategy, vision and mission; | re-election by shareholders at the AGM. | Thefixed term can be extended, but would @ insights derived from the Board ### KEY ACTIONS FROM 2022 not exceed nine years, unless the Board evaluationprocess; and @ Completed search for a new non- deemed there to be exceptional circumstances. @ shareholder feedback. As part of the internal Board evaluation executive Director, Louise Hardy, and oversaw her induction. process, the Board undertook a review of the Governance The perspectives, skills and experience on effectiveness and performance of each of the Board are mapped to the needs of the @ Reviewed Board balance, composition the Directors, with a specific focus on: business and aligned to the Group’s strategy, and diversity. vision and mission. Biographies of the Directors, @ their continued ability to contribute to the @ Undertook succession planning for the including details of their backgrounds and long-term sustainable success of the Executive Committee. experience can be found on pages 111. Company; and @ Completed an internal evaluation of the The Committee considers the length of @ their capacity to discharge their responsibilities Nomination Committee (as part of the service of the members of the Board as a effectively, given their external time wider Board evaluation process). whole, as well as the need for the Board to commitments and responsibilities. remain agile and responsive to the evolving Following this review, the Committee needs of the Group and an ever-changing ### PRIORITIES FOR 2023 unanimously recommends the re-election external environment. @ Review the Board’s succession plans, ofeach of the Directors at the 2023 AGM. with a focus on the short-term | succession plans for Stephen | Time commitment | | --- | --- | | Billingham and Stuart Doughty, both of | The anticipated time commitments of the | | whom are set to reach the end of their | Group Chair and non-executive Directors are | | tenure in 2024. | agreed and set out in their respective Letters | of Appointment. To ensure each Director has @ Review the Executive Committee’s sufficient time to conduct their duties succession plans and the progress of effectively, and mitigate the risk of Director professional development programmes overboarding, the Committee takes the underway to support a diverse pipeline following preventative steps: of candidates. ### ALLOCATION @ prior to appointment, the Committee 48%52% ### @ Review Board balance, composition and OF TIME considers and assesses any existing diversity against the short, medium and external commitments on an individual’s long-term needs of the Group. time. This is necessary to confirm their @ In the event of vacancies arising on the capacity to take on the role and discharge Board, the selection of new Directors. their duties effectively; and ## @ any additional external appointments are  subject to Board approval to ensure ### Committee composition Directors can continue to devote the l Performance, balance and The Committee comprises two independent necessary time to their duties. composition reviews non-executive Directors, the Senior l Recruitment Independent Director, and the Group Chair. InFebruary 2022, the Group Chief Executive stepped down as a member of the Committee. Balfour Beatty plc Annual Report and Accounts 2022 131 ### COMMITTEE REPORTS CONTINUED ### Diversity and inclusion As mentioned, the Board, and the Executive As Balfour Beatty continues to navigate Committee, must lead and be the catalyst for through significant macroeconomic change in respect of expanding gender headwinds, an ever-changing risk diversity within the Group. The Board is ## As a business, we environment, and the global challenge to therefore committed to achieving compliance achieve net zero and operational with the FTSE Women Leaders Review ## must make every sustainability, the Board needs to ensure it targets by 2025, and intends to achieve ## compliance through short-term succession eort to attract and has the right balance of skills, experience and perspectives in the Boardroom to face those planning and professional development of its ## retain diverse talent challenges head on. Diversity therefore must existing female independent non-executive ## be embraced and embedded into the Directors to ready them to take on more and break down the business, and that starts with the Board. senior Board positions. ## barriers that stifle In 2022, the Committee took a proactive step Details of the gender breakdown across the ## recruitment and to expand Board diversity with the recruitment Group can be found in the People section on of Louise Hardy, a new female independent page 69. ## progression of non-executive Director. However, more ## Ethnic diversity ethnic minorities needs to be done. With two of the Board’s The Committee further acknowledges the more experienced independent non-executive ## Parker Review, directing that boards of FTSE within our industry.” Directors set to reach the end of their 250 companies should have at least one nine-year tenures in 2024, the Committee is director from an ethnic minority background presented with an opportunity to take stock by 2024. The Board is not yet compliant with of the skills and experience of the Board, the Parker Review and will seek to achieve against the skills and experience needed to compliance through short-term succession face the challenges ahead, and ensure the planning as two independent non-executive Group continues to deliver against its Directors are set to reach the end of their strategy and realise its vision and mission. tenure in 2024. Looking forward to 2023, and in accordance The Committee acknowledges the with the new Disclosure and Transparency importance of ethnic diversity on the Board, rules (DTR 7.2.8A) the Board has expanded and acknowledges that for the Group to its definition of diversity to cover more than develop a truly diverse and inclusive culture, gender, ethnicity, and age (as well as other the Board needs to: protected characteristics set out within the Equalities Act, 2010) and take a more @ set the right top-down example; in-depth view and analysis of diversity in @ be a more proportionate representation of respect of cognitive skills, personal skills and our workforce, the communities in which attributes, and socio-economic backgrounds. we operate, and society at large; and This will be embedded into processes such as the annual Board evaluation, ongoing @ foster a culture that embraces and Board balance and composition reviews, celebrates diversity and inclusion. andrecruitment and succession planning. As a business, Balfour Beatty must make The Committee will also expand its view of every effort to attract and retain diverse diversity to cover cognitive and personal talent and break down the barriers that stifle skills, as well as personal information (age, recruitment and progression of ethnic minorities gender, ethnicity, sexual orientation, disability, within the industry. With the support of the educational backgrounds and professional HR function, the Group drives a number of and socio-economic backgrounds). initiatives to support career development of | Gender diversity | ethnic minorities within the workforce. | | --- | --- | | As mentioned above, following Louise Hardy’s | Details of such initiatives can be found in the | | appointment, the Board is now compliant | People section on pages 68 and 69. | with the Hampton-Alexander Review’s target Cognitive diversity of 33% female representation on FTSE 350 boards. Expanding gender diversity on the As noted above, the Committee will consider Board is vital to increasing gender diversity ‘soft’ skills (e.g. personal and cognitive throughout the Group and in breaking down attributes) to support future succession barriers to inspire women to enter, and excel planning and enhance cognitive diversity within, the construction and infrastructure onthe Board. industry. For further information on how Balfour Beatty is actively working to promote gender diversity and enhance the career trajectories of women in construction, please refer to pages 68 and 69. Balfour Beatty plc Annual Report and Accounts 2022132 ### DIRECTOR APPOINTMENT PROCESS When making a new appointment, the Committee takes the following steps: | 1 | 3 | 5 | | --- | --- | --- | | Define recruitment criteria | Shortlist and interview | Recommend | | Identify and articulate | Shortlist candidates and | Agree a recommendation for | | objectives and criteria based | conduct interviews. | appointment to the Board, | | on its Board composition | | taking account of matters such | | reviews and succession | | as gender, social and ethnic | | planning. | | backgrounds and cognitive and | personal strengths. Governance | 2 | 4 | | --- | --- | | Instruct external consultant | Assess | | Engage an executive search | Assess each candidate’s | | consultant to provide a diverse | existing appointments and | | array of candidates for | associated time commitments, | | consideration. | as well as any potential or | conflicts of interest. See page 130 for details relating to the appointment of Louise Hardy as an independent non-executive Director. ### Director induction Following appointment, all Directors receive a comprehensive and tailored induction programme. All newly appointed Directors are required to devote the time required to complete the induction programme. The time commitments are set out in their respective Letters of Appointment. Induction programmes are designed by the Company Secretary in conjunction with the Group Chair, Senior Independent Director and Group Chief Executive. Induction programmes are varied and include a selection of: Meetings with the Board One-to-one meetings with the executive Directors, non-executive Directors, and the Group General Counsel and Company Secretary. Meetings with the Executive One-to-one meetings with members of the Executive Committee, as well as meeting with key members of Committee and senior senior management from a variety of departments and business units, with the content of meetings varying management depending on the Director being inducted and their background and individual experience. Meetings with the auditors Meetings with the Head of Internal Audit and the external audit partner (particularly for newly appointed Directors who are members of the Audit and Risk Committee). Self-study Documents provided via the electronic Board portal covering key information relating to the Group including financial performance, Board policies and procedures and governance matters. These documents are also available to all other Board members as a continuing point of reference. Site visits and workforce Visits to key operational sites, offering a chance to meet the workforce. Directors continue to make regular engagements site visits throughout their tenure, in line with the Company’s Employee Voice initiative, gaining valuable insight into operations and feedback from the workforce. Meetings with key Supported by the Group Chair and the Company Secretary, the induction programme will include a schedule shareholders and of meetings with major shareholders and key stakeholders in order to support newly appointed Directors' stakeholders understanding of shareholder and stakeholder views, and support them in discharging their Directors’ duties under Section 172 of the Companies Act 2006. Education and training If any skills gaps or experience are identified within the interview process, internal and external training will be provided and tailored to the needs of the Director. Directors engage in an ongoing programme of education and training throughout their tenure to continually enhance their knowledge and skills. Balfour Beatty plc Annual Report and Accounts 2022 133 ### COMMITTEE REPORTS CONTINUED ##  ##  The Committee met three times in 2022 and ##  its meetings were regularly attended by other |  | members of the Board as well as the Health, | | --- | --- | | I am delighted to present the Safety and | Safety and Environment Director, Lee Hewitt, | | Sustainability Committee report for 2022. | and the Group Director of Sustainability, Jo | Gilroy; both of whom were appointed in As part of the evaluation of its 2022, and both of whom provide expertise effectiveness,the Committee considered and support to the Committee on their whether separate committees should be relevant subject matters. More details on established to deal with Safety and these appointees can be found on pages 46 Sustainability respectively. The Board and 56. At the discretion of the Committee, concluded that the Committee other key individuals attended the Committee, shouldcontinue to operate as a including members of the HSES Executive, singlecommittee. the Executive Committee, business unit The Committee Chair, with the support managing directors who are also leaders of ofthe Company Secretary, ensures the our Fatal Risk Working Groups and HSES agenda for each meeting is split out into leads from the US business and Gammon. two distinct sections, one covering health In respect of the sustainability remit of and safety matters, and the theCommittee, the Committee continued to othercovering environmental and focus on: sustainability matters. The Chair takes steps to ensure adequate time is @ the environmental impact of the devoted to each section, and rotates Group’soperations; which section features first on the @ monitoring performance against the agenda to ensure each section sustainability strategy, Building New Futures; receives adequate focus andattention. @ monitoring performance against Net Zero and Zero waste targets; and @ continued strengthening of our capability to meet increasing demands. In respect of the safety remit of the Committee, the Committee continued tofocus on: @ the Zero Harm strategy; @ reviewing any notable incidents and lessons learnt; and @ monitoring safety culture. Stuart Doughty CMG Chair of the Safety and Sustainability Committee 15 March 2023 134 Balfour Beatty plc Annual Report and Accounts 2022 # ROLES AND RESPONSIBILITIES OF THE COMMITTEE - Reviewing strategies, policies and procedures of the Group in relation to health, safety, environment and sustainability (HSES) matters. - Monitoring and updating the Group's control processes where appropriate. - Approving health and safety targets and key performance indicators, monitoring the Group's performance against them and taking corrective action where necessary. - Monitoring the Group's performance against the main health, safety, environmental and sustainability risk groups, and implementing strategies to mitigate such risks. - Reviewing the environmental and sustainability performance of the Group, including but not limited to energy and carbon emissions, materials and waste management and social and community matters. - Approving environmental and sustainability targets and key performance indicators, monitoring the Group's performance against them and taking corrective action where necessary. # MEMBERSHIP - Stuart Doughty (Chair of the Committee) - Anne Drinkwater - Leo Quinn - Louise Hardy (from 1 April 2022) # KEY ACTIONS FROM 2022 - Received reports on the implementation of Group initiatives. - Reviewed findings from incidents and near misses and ensured learning was embedded across the Group. - Received updates on regulatory developments across health and safety and sustainability matters. # PRIORITIES FOR 2023 - Monitor progress towards sustainability targets. - Monitor progress towards carbon and waste reduction targets. - Focus on embedding a culture of Zero Harm and Group-wide sustainability. - Continued focus on targeted risk elimination. # Main activities of the Committee during the year # Safety performance and Zero Harm The Health, Safety and Environment Director issued regular reports to the Committee throughout 2022 on the Group's performance against various health and safety metrics including data covering fatalities, injuries, serious and minor events, near misses, rates of lost time following an incident, and health and safety observation reporting. Following a strong performance in 2021, the Group continued to receive a high volume of workforce safety observations, indicating strong employee engagement in respect of health and safety matters. Positive employee engagement results also confirmed the continued strong Zero Harm culture within the business. Further detail on Zero Harm can be found on pages 10. Reports were received regarding progress on Group initiatives, including: - Supervisor Development Programme; - locally sponsored health and safety initiatives; - progress against the Health and Wellbeing Maturity Matrix; and - workforce engagement on health and safety matters. # Notable incidents and fatalities Through the Group's continued focus and ongoing commitment to Zero Harm, in 2022 no fatal incidents were recorded within the business. The Committee continued to receive regular reports on serious incidents and near misses that were deemed to have had a high potential of serious injury, including detail on learnings and actions arising. Some examples include the roll out of new controls for employees working at height to mitigate the risk of falling objects, and implementing additional safety precautions for employees working near motor vehicles, including the roll out of automated cone laying and blow up barriers to protect the workforce. # Environment and sustainability The Committee received regular updates throughout the year on the Company's performance with regards to sustainability and environmental targets, including waste management and carbon performance, as well as monitoring the Group's social impacts and creation of social value for local communities. The Committee monitored the embedding of a culture of sustainability across the business, specifically the building of a collective mindset and the implementation of a shared understanding of the Group's sustainability strategy through a targeted programme of education and training on sustainability and carbon literacy. The Group's cultural drive towards sustainability was visible in 2022 through the My Contribution platform, an engagement initiative whereby employees are encouraged to launch and implement their own ideas to better the business. A number of environmentally conscious ideas were launched and implemented, resulting in waste elimination, carbon reduction, use of greener technologies, lower energy utilisation, and the re-use and recycling of existing materials. For further information on workforce innovations that arose under the My Contribution platform, please refer to pages 70 to 71. During the year, the Committee monitored performance against the Building New Futures sustainability strategy targets and ambitions and monitored progress against the Group's targeted reduction of carbon emissions. The strategy demonstrates alignment with the Sustainable Development Goals set by the United Nations and allows for consistency across the business. Following the appointment of the new Group Director of Sustainability, Jo Gilroy, the Committee monitored the resourcing of the Sustainability function, and reviewed the appropriateness and effectiveness of the governance framework for environmental and sustainability matters. # Governance During the year, the Committee reviewed its Terms of Reference, which can be found on the Company's website at: www.baffourbeatty.com. # Evaluation of the Committee The Committee undertook an internal effectiveness review as part of the wider internal Board evaluation. Further details can be found on pages 128 and 129. ![img-10.jpeg](img-10.jpeg) Health and Safety updates Environment and sustainability updates Balfour Beatty plc Annual Report and Accounts 2022 135 References ### COMMITTEE REPORTS CONTINUED ##  ##  ##  ### MEMBERSHIP ##  @ Stephen Billingham I am pleased to present the report of the (Chair of the Committee) Audit and Risk Committee for the year ended 31 December 2022. This report is intended to @ Stuart Doughty provide shareholders with an insight into key @ Michael Lucki areas considered, together with how the @ Barbara Moorhouse Audit and Risk Committee has discharged its responsibilities and provided assurance on the integrity of the Annual Report and ### Accounts 2022. KEY ACTIONS FROM 2022 @ Continued to monitor developments in The Audit and Risk Committee assists the the US military housing business. Board in fulfilling its responsibilities related to Reviewed progress on controls which Group financial statements, risk management were put in place following the resolution and financial controls and overseeing the reached with the DoJ in December 2021 internal and external audit functions. and received updates following the US | The Committee held five meetings in 2022. | Senate's Permanent Subcommittee on | | --- | --- | | Further detail on attendance can be found on | Investigations (PSI) hearing in April | | page 109. All non-executive Directors are | 2022 and the subsequent US Army | | encouraged to attend Committee meetings | investigation into the operations at | | and meetings were also regularly attended by | FortGordon. | the Group Chair, Group Chief Executive, @ Held a US-focused Audit and Risk Chief Financial Officer, Group Risk and Audit Committee meeting, reviewing US Director, UK Head of Internal Audit, Group Buildings, Civils and Investments Financial Controller, Group General Counsel compliance and controls. and Company Secretary and representatives of the external auditor, including the lead @ Monitored the roll out of the renewed audit partner. There were further ad hoc Code of Ethics, including a programme attendees who joined Committee meetings of activity covering staff training and for specific agenda items. development, investment risk assessments, ethics and compliance During 2022, the Committee remained risk assessments, and the development focused on monitoring the integrity of the of a privacy project toolkit. Group’s financial and risk reporting and continued to discharge its duties in ### accordance with its Terms of Reference. PRIORITIES FOR 2023 Further detail on the Committee’s activities @ Continue to review and challenge throughout the year is set out on the management’s judgements on following pages. significant accounting issues including key contract judgements. During the year, the Committee reviewed itsTerms of Reference, which can be @ Review progress of the independent foundon the Company’s website at: compliance monitor and assess any www.balfourbeatty.com. related findings in association with the control environment in the US military housing business. Stephen Billingham Chair of the Audit and Risk Committee @ Robust review of the detailed drivers 15 March 2023 and mitigation activities of the Group’s principal risks. @ Support the onboarding of KPMG's new lead audit partner. 136 Balfour Beatty plc Annual Report and Accounts 2022 ### ROLES AND RESPONSIBILITIES OF THE COMMITTEE @ Monitoring the integrity of the Group’s @ Monitoring the effectiveness of the 8% financial statements, including providing Internal Audit function. advice (where requested by the Board) @ Overseeing the relationship with the on whether the Annual Report, taken as a external auditor, including annual approval | whole, is fair, balanced and understandable, | | | | 33% | | --- | --- | --- | --- | --- | | | of the external audit plan, review of audit | 29% | | | | and provides the information necessary | | | ALLOCATION | | opinions, setting of external auditor ### for shareholders to assess the OF TIME remuneration, and reporting the results Company’s position and performance, of external audits to the Board. business model and strategy. @ Monitoring the effectiveness, objectivity @ Reviewing the significant financial issues and independence of the external auditor, and judgements related to the Group’s 29% including factors related to the provision ## financial statements, including  of non-audit services. Investments portfolio valuations. @ Reviewing the Company’s environmental, @ Ensuring management has relevant and l Financial reporting social and corporate governance l Internal audit, risk management andinternal control effective systems of risk management reporting in line with the increasing focus l External auditor Governance and internal control in place. in this area. l Governance and other matters ### COMMITTEE ACTIVITIES DURING 2022 The Committee has a substantial remit and cycle of deliverables to complete throughout the year. The Committee Chair, with the support of the Company Secretary, ensures the Committee fully discharges its responsibilities in accordance with its Terms of Reference, whilst maintaining sufficient time for discussion of ad hoc items that arise throughout the year. MAR MAY AUG SEP NOV Group financial statements Received reports on financial and accounting, contract and commercial issues and litigation Approved financial results press releases and the Annual Report and Accounts to be put to the Board Approved the Group’s viability and going concern statements Reviewed Directors’ valuation of the Investments portfolio Approved Greenhouse Gas Emissions representation letter to PwC External auditor Reviewed the external auditor’s report on the Company’s full year and halfyear financial statements Reviewed the external auditor’s assessment of its objectivity and independence including a review of non-audit services (and associated fees) provided by the external auditor Reviewed management representation letters related to the Company’s fullyear and half year financial statements Reviewed the external auditor’s half year review plan and audit strategy Audit partner rotation Approved the external auditor’s fees Risk management and Conducted assessments of the Group's systems of risk management financial controls (including andinternal control, including a robustassessment of principal and the Internal Audit function) emerging risks Received updates on US military housing controls and compliance Received an update on US Buildings, Civils and Investments controls and compliance Internal Audit update on US military housing Other matters Received updates on Group tax andinsurance Received updates on Group ethics andcompliance, including whistleblowing reports Held private meetings between the non-executive Directors, GroupRiskand Audit Director and KPMG Reviewed TCFD disclosures in relation to the impact of climate change Reviewed live projects >£50m within UK Construction Regional Updates on control enhancements from lessons learnt on Londonprojects Balfour Beatty plc Annual Report and Accounts 2022 137 ### COMMITTEE REPORTS CONTINUED ### Significant issues and other accounting judgements In accordance with Code provision 26, the following sets out all significant issues reviewed by the Committee throughout the year, being those requiring management to exercise the highest level of judgement or estimation. The Committee assesses these judgements to determine if they are reasonable and appropriate. REVENUE AND MARGIN RECOGNITION PROVISIONS Given the nature of the Group’s operations, these elements are central to The Committee reviewed the significant judgements relating to provisions, how it values its work. Having reviewed detailed reports and met with including litigation and other risks. The Committee received detailed management, the Committee considered contract and commercial issues reports, including relevant legal advice. with exposure to both revenue and margin recognition risks. As a key area of audit focus, the Committee also received a detailed written report from RETIREMENT BENEFIT OBLIGATIONS the external auditor setting out the results of its work in relation to key contract judgements. The key judgement relates to the assumptions underlying the valuation of retirement benefit obligations. The Committee received reports from GOING CONCERN AND VIABILITY STATEMENT management outlining the assumptions used, including input from the Group’s actuaries, in particular in relation to discount rates, inflation and In order to satisfy itself that the Group has adequate resources to continue mortality which were evaluated against external benchmarks and, in in operation for the foreseeable future and that there are no material relation to which, the external auditor also provided reports. uncertainties that could lead to significant doubt as to the Group’s ability to continue as a going concern, the Committee considered the Group’s viability DEFERRED TAX ASSETS statement, cash position (both existing and projected), bank facilities and covenants (including bonding lines) and the borrowing powers allowed The Committee reviewed the Group’s considerations on future profitability under the Company’s Articles of Association. The Committee subsequently to evaluate the judgement that it is probable the deferred tax assets recommended to the Board the adoption of the going concern statement arerecoverable. and the viability statement for inclusion in the Annual Report and Accounts. More details on going concern and the viability statement are contained on pages 187 and 97 respectively. DIRECTORS’ VALUATION OF THE INVESTMENTS PORTFOLIO The Committee assessed the methodology used to value the assets in NON-UNDERLYING ITEMS terms of the discount rates applied. It also critically appraised the output ofthe Directors’ valuation exercise. For the 2022 valuation, the Committee The key judgement is whether items relate to underlying trading or not and also reviewed the independent valuation undertaken by a third-party whether they have been presented in accordance with the Group’s valuation expert to assess whether the Directors’ valuation is consistent accounting policy. The Committee conducted a review of each of the with the third-party expert’s conclusions. non-underlying items, receiving written reports from management and the external auditor as to their quantum and nature. | Committee composition | Evaluation of the Committee | The Committee assessed whether the annual | | --- | --- | --- | | The Committee is chaired by Stephen | During the year, as part of the wider internal | financial statements provide a ‘fair, balanced | | Billingham. In accordance with the UK | Board evaluation, the Committee undertook | and understandable’ view of the Company’s | | Corporate Governance Code, the Board has | an internal effectiveness review. Further | position, performance, business model and | | determined that Stephen has recent and | details can be found on pages 128 and 129. | strategy, as well as: | relevant financial experience, and the @ assessing whether the accounting policies Committee as a whole has the required skills ### Financial reporting applied, and judgements (including key and expertise to discharge their duties. | | A key responsibility of the Committee is to | contract judgements), estimates and | | --- | --- | --- | | The Committee Chair is supported by the | monitor and oversee the integrity of the | assumptions made, by management are | | other Committee members in delivering the | Group’s published financial statements. This | reasonable and appropriate based on | | Committee’s governance responsibilities. | responsibility is discharged in part through | information available (further details are | | Committee members possess a range of | the review and evaluation of the Company’s | onpages 187 to 193); and | | experience relevant to the sector within which | full year and half year financial statements. | | @ assessing whether the Company has the Company operates, and also in relation to The Committee has full access to complied with relevant financial reporting financial management, audit and risk. The management, in order to ask questions and standards and other regulatory requirements, Committee members’ full biographical details gain further insights where necessary, and including the Code and European can be found on pages 111. receives reports from members of the Securities and Markets Authority Guidelines Finance and Internal Audit teams and the on Alternative Performance Measures. external auditor. Balfour Beatty plc Annual Report and Accounts 2022138 ### Going concern and US military housing ### The Audit and Risk ### viabilitystatement Following Balfour Beatty Communities’ ### Committee’s role in ensuring The Committee was presented with (Communities) resolution with the US ### Department of Justice (DoJ) in December the financial statements taken management’s assessments of the ### Company’s viability over a three-year period 2021, an independent compliance monitor as a whole are fair, balanced to 31 December 2025, and its going concern has been appointed by the DoJ and has ### and understandable basis for the period of at least 12 months commenced work. As part of the Committee’s assessment from the date of approval of the financial as to whether the annual financial Following the Permanent Subcommittee on statements as part of the Board's wider statements provide a ‘fair, balanced and Investigations (PSI) hearing in April 2022, the responsibility for assessing the Group’s understandable’ view, the Committee has subsequent US Army investigation into principal and other risks (see pages 89 to 96). oversight of and reviews the effectiveness Communities’ operations at Fort Gordon, Georgia, has now concluded. No presence of of the following processes implemented The Committee assessed these analyses and fraud, gross negligence or data manipulation by management: assumptions, taking into account cash flows, current levels of debt and the availability of was found. Communities continues to work @ comprehensive guidance issued to all with the US Army, Navy and Airforce to Governance future finance if required. The viability and contributors; going concern assessments, including the further enhance its maintenance provision to military services members and their families. @ verification of the factual content of the severe but plausible downside scenarios financial statements; modelled, were discussed and the Committee | concluded that the assessments were appropriate. | Financial Reporting Council | @ review of the disclosures made by the | | --- | --- | --- | | The Committee also continued to consider the | The Company’s Annual Report and Accounts | contributors to each section; and | | impact of climate change on the Group’s | 2021 was subject to a limited scope thematic | | @ comprehensive reviews by senior viability in relation to the FSB’s Task Force on review of the Group’s TCFD and climate management to ensure consistency and Climate-related Financial Disclosures (TCFD). disclosures. The FRC did not raise any overall balance. | The Committee subsequently approved the | queries, however noted some areas where | | | --- | --- | --- | | viability statement and the going concern | improvements can be made to existing | In addition to the above, the Committee | | disclosures for inclusion in the Annual Report | disclosures. The Group has included | also undertakes a review to determine if | | and Accounts 2022. | improvements to its disclosures in its Annual | the entire financial statements are | | | Report and Accounts 2022. | representative of the Group’s performance | The viability statement and the going concern in the year and challenges management disclosure can be found on pages 97 and 187 The Company remains committed to keeping on the overall balance of the report prior respectively. abreast of good practice and changing to recommending approval of the financial reporting requirements and will continue statements to the Board. | Review of compliance and | todevelop its reporting and disclosures. | | --- | --- | | controls of the US businesses | The FRC’s review provides no assurance | | In September 2022, the Committee held a | thatthe report and accounts are correct in all | | meeting which focused on the controls and | material respects. The FRC’s role is not to | | compliance environment within the Group's | verify information provided, but to consider | | three US businesses – Buildings, Civils | compliance with reporting requirements. | | andInvestments. | TheFRC’s letters are written on the basis | that it (and its officers, employees and For the construction businesses, the agents) accepts no liability for reliance on Committee reviewed reports setting out the them by the Company or any third party, risk profiles of both businesses together with including but not limited to investors the highest rated risks in each business. andshareholders. Alongside these risks, management described the controls in place, both for work winning and operational phases of contracts, which were centred around the Group's Gated Business Lifecycle process. Management also identified areas of internal audit findings and lessons learnt from previous failures. Thereports also identified improvement areas and actions to address any shortcomings. For the Investments business, the report presented to the Committee focused on controls in place at the US military housing business. The report sets out key control improvements which have been put in place and improvements that will be implemented in the future. Balfour Beatty plc Annual Report and Accounts 2022 139 ### COMMITTEE REPORTS CONTINUED ### EXTERNAL AUDITOR ROTATION AND REAPPOINTMENT 2001 – 2014 2015 – 2016 2023 2026 | ‡ Deloitte incumbent | ‡ Audit tender process | ‡ Current KPMG lead audit | | ‡ Next scheduled audit tender | | --- | --- | --- | --- | --- | | externalauditor | conducted; KPMG | partner, Paul Sawdon, will be | | process, per Company policy | | | appointedas external | replaced by Mike Baradell | for | | | | auditorat 2016 AGM | the 31 December 2023 audit | | | ### External auditor The key aspects of the Revised Ethical Non-audit work Standard 2019 include the following: The Company maintains a Non-Audit Rotation and reappointment Services Policy governing the provision of The Company’s external auditor is KPMG @ audit firms should have a maximum tenure non-audit services. The policy sets out: | LLP. KPMG’s appointment was first approved | of 10 years, although the UK Government | | | --- | --- | --- | | by shareholders at the 2016 AGM, following | proposes to allow an extension of: | @ specific services that the external auditor | | an audit tender process in 2015. KPMG | | is prohibited from providing to the Group; | @ up to an additional 10 years where a replaced Deloitte, the incumbent for the public tender is carried out after 10 @ details of any characteristics that could preceding 14years. years; or potentially make a service prohibited; and Pursuant to the provisions of the Revised @ by up to an additional 14 years where @ a requirement for the Chief Financial Ethical Standard 2019 (as summarised more than one audit firm is appointed to Officer to approve non-prohibited services below), the Company has adopted a policy carry out the audit; where the fee is below £50,000, and for that no external auditor, appointed following the Chair of the Audit and Risk Committee the implementation of the Revised Ethical @ audit firms are prohibited from providing to approve non-prohibited services where Standard 2019, can remain in post for longer certain non-audit services; the fee exceeds £50,000. than 20 years. The Company has adopted a @ where permitted non-audit services are policy that the Committee will lead an audit KPMG also operates its own internal policy provided by a group’s auditor, they will be tender process every 10 years and that this that prohibits it from providing non-audit subject to a fees cap; and | will apply to the current incumbent, KPMG. | | services, other than one closely related to | | --- | --- | --- | | Consequently, the next external audit tender | @ restrictions within any contract limiting a | anaudit, to any FTSE 350 company. | | is anticipated to take place following the | group’s choice of auditor are prohibited | | These provisions help to safeguard the completion of KPMG’s audit for the year The disclosures provided within this report external auditor’s objectivity and independence, ended 31 December 2025. constitute the Company’s statement of and mitigates the risk that the external The Committee considers that the external compliance with the requirements of the auditor will: auditor relationship is appropriate and Statutory Audit Services for Large Companies @ audit its own work; | productive and the Committee is satisfied | Market Investigation (Mandatory Use of | | | --- | --- | --- | | with KPMG’s effectiveness. The Committee | Competitive Tender Processes and Audit | @ make management decisions on behalf | | considers annually the need to conduct an | Committee Responsibilities) Order 2014. | ofthe Group; | earlier formal tender process, where this may @ act as advocate for the Group; and be required for audit quality or independence Independence reasons. Provided the results of the annual A formal review of the external auditor’s @ a mutuality of interest with the Group external audit review are satisfactory, KPMG independence is conducted by the Committee being created. is recommended for reappointment at the annually. The most recent review took place In accordance with the policy for the AGM. There are no contractual obligations in in March 2023, when the Committee provision of non-audit services, and in line place that restrict the Group’s choice of considered a letter submitted by KPMG with the Financial Reporting Council’s ethical statutory auditor. which sets out: standards, the aggregated spend on The external auditor is required to rotate the @ any relationships that bear on their non-audit services with the external auditor lead partner every five years – such changes objectivity and independence and the must not exceed 60% of the Group audit fee, are planned carefully to ensure business safeguards implemented to address any unless exceptional circumstances exist, with continuity, whilst avoiding the introduction of consequent threats to independence; and a three-year rolling average not exceeding undue risk or inefficiencies. Paul Sawdon 70% of the Group audit fee. @ considerations related to the provision of completed his fifth and final year as lead non-audit services, including a comparison During 2022, there were fees of £0.7 million partner on the audit for the year ended for the prior year (further detail below). (2021: £0.5 million) paid to KPMG for 31December 2022. He will be replaced by non-audit services. 2022 non-audit services Mike Baradell as lead partner on the audit for Following review of this letter, the provided by KPMG primarily related to the the year ended 31December 2023. Committee satisfied itself that KPMG review of the Group’s half-year results. remained sufficiently independent in accordance with the relevant professional Audit fees for 2022 were £4.1 million ethical standards. (2021:£3.5 million). Further details are included in Note 6.2 on page 199. 64% of non-audit related work provided by international accounting firms in 2022 was carried out by firms other than KPMG. Balfour Beatty plc Annual Report and Accounts 2022140 | Effectiveness | Internal control and risk | | --- | --- | | As part of the Committee’s annual cycle of | Details of the Group’s internal controls and | | activities, the Committee conducts an | risk management framework are set out | | effectiveness review of the external auditor, | more fully on pages 84 to 88 in the Strategic | | assesses the appropriateness of the audit | report and pages 124 to 125 in the | | plan, and, assesses the external auditor’s | Governance report. The Group’s principal | | professional scepticism. From this review, | risks are set out on pages 89 to 96. | recommendations for improvement are The Committee has evaluated the effectiveness identified and communicated to the external of the internal control systems operated auditor where necessary. Committee members within the Group pursuant to the FRC’s guidance meet privately with the external auditor and on internal control. The evaluation covered: management throughout the year in order to gain feedback to support these assessments. @ all material financial, operational andcompliance controls; ## Risk management and @ management confirmation reports; Governance ## internal control @ reports on controls; The Board assumes ultimate responsibility @ reports on fraud perpetrated against for the effective management of risk and theGroup; internal control across the Group. However, the Committee assists the Board in monitoring @ the Group’s approach to anti-bribery and the Group’s internal financial controls, and corruption and whistleblowing; and internal control and risk management @ reports from both the internal and systems, and monitoring and reviewing the externalauditors. work and effectiveness of the Internal Auditfunction. The review did not identify any significant weaknesses in the system of internal control ### Internal audit and risk management. The Internal Audit function plays an integral | role in the Company’s governance structure, | Whistleblowing and fraud | | --- | --- | | providing independent assurance and advice | Throughout 2022 the Committee, on behalf | | to help the Group achieve its strategic | of the Board, considered the confidential | | priorities. The half yearly internal audit plans | reporting and whistleblowing procedures the | | were approved by the Committee in May | Company has in place and remains satisfied | | 2022 and November 2022 when it also | that these procedures are sufficiently robust | | assessed the adequacy of the budget and | and appropriate. The Committee also tracks | | resources. Each audit plan is based on risk, | any Speak Up reports received, and monitors | | strategic priorities and consideration of the | any investigations undertaken and any | | strength of the control environment. Progress | restorative actions taken by the Company. | | against the plan is monitored at each | The Committee also reviews any instances | | meeting. The Committee reviews the results | offraud perpetrated against the Group | | of the internal audit reports during each | andthe action taken by management | | meeting. Management is responsible for | toprevent recurrences. | ensuring that issues raised by internal audit are addressed within the agreed timetable and their timely completion is reviewed by the Committee. Where internal or external circumstances give rise to an increased level of risk, the audit plan is modified accordingly. The effectiveness of internal audit is assessed by the Committee by evaluating internal audit reports and at meetings without management present. The Committee also reviewed the resources and skills of the Internal Audit function and concluded that they are appropriate for its activities. Accordingly, the Committee is satisfied that the quality, experience and expertise of theInternal Audit function is appropriate forthe business. Balfour Beatty plc Annual Report and Accounts 2022 141 ### COMMITTEE REPORTS CONTINUED ## Remuneration ## Committee @ The 2022 annual employee engagement ## Report of the survey delivered our best ever results, with | Remuneration Committee | higher responses rates and Group | | --- | --- | | As Chair of the Remuneration Committee, | engagement index scores increasing for | | Iam pleased to present our Directors’ | the fifth consecutive year. Colleagues in | | remuneration report for the year ended | the UK and US responded that they feel | | 31December 2022. At the AGM in 2020, the | cared for with 95% responding positively | | Remuneration Policy was approved by over | and 88% told us that they see themselves | | 93% of shareholders. In line with the normal | remaining with the business in 12 months' | | three-year cycle, we are required to put a | time, particularly important in a challenging | | new Remuneration Policy forward to a | market. | binding shareholder vote at the 2023 AGM. @ During the year, the Group has closely The proposed Remuneration Policy is set out monitored the impact of the rising cost of on pages 147 to 155 and a summary of how living on colleagues and considered how this will be implemented for the year ending best to support them during this challenging 31December 2023 is included on page 156. time. Further detail is included within the The remainder of the report sets out the wider workforce remuneration section. Annual Report on Remuneration detailing how the current Remuneration Policy was @ Our focus on our people, against a global applied over the year ended 31 December 2022. backdrop of skills shortages and economic uncertainty, remains a key priority – Our new Remuneration Policy is proposed in attracting and retaining the best talent, the context of the continued strong building an inclusive culture where people performance of the Group and aligned to our thrive. The Early Careers programme is an Build to Last strategy for continuous important part of Balfour Beatty's ‘grow improvement. Our strategy and the our own’ strategy and in 2022 we Remuneration Policy both continue to drive welcomed our largest ever cohort, with the Company forward and deliver results. continued improvement in diversity of hires. With 6.5% of its UK workforce in ### Strategic and business context ‘earn and learn’ positions at 31 December As set out in this Annual Report; 2022, exceeding the 5% target, Balfour Beatty retained Gold membership of The @ The Group is well positioned to capitalise 5% Club. on the growing focus on infrastructure across the Group's chosen markets, | underpinned by its unique capability and | Incentive outcomes for 2022 | | --- | --- | | balance sheet strength. Aligned with the | The outcomes of the Annual Incentive Plan | | objective to deliver profitable managed | (AIP) for the executive Directors reflected the | | growth and sustainable cash generation, | following (with further detail provided on | | this is reflected in the Board’s commitment | pages 159 and 160): | to a multi-year programme of strong @ Stretching financial targets were set at the shareholder cash returns. start of the year including a wider range | @ Under the leadership of Group Chief | and additional stretch in the cash flow | | --- | --- | | Executive, Leo Quinn, and Chief Financial | targets taking into account the Committee’s | | Officer, Philip Harrison, Balfour Beatty has | review of historic targets and outperformance | | managed the economic challenges of 2022 | delivered. Both the maximum profit target | | and delivered financial results ahead of | and cash target were exceeded, reflecting | | expectations reinforcing the platform for | profit before tax growth of 56% and Group | | sustained growth and improved | total cash flow of £175m. | productivity. The focus on inclusive talent @ Representative of the strong performance development ensures that Balfour Beatty and leadership of the Company by Leo has the best capability to drive Quinn and Philip Harrison, the element of performance and to deliver on its Zero bonus related to strategic business and Harm and Building New Futures strategies. personal objectives vested at 80% and 88% respectively. 142 Balfour Beatty plc Annual Report and Accounts 2022 ### MEMBERSHIP ROLES AND RESPONSIBILITIES OFTHE COMMITTEE @ Anne Drinkwater The Terms of Reference of the The Remuneration Committee’s Terms of (Chair of the Committee) Remuneration Committee are available in Reference were reviewed during the year to full on the Company’s website at: www. ensure compliance with the Code. @ Michael Lucki balfourbeatty.com/investors/governance/ @ Barbara Moorhouse board-committees. ### KEY ACTIONS FROM 2022 | | @ Leo Quinn has continued to show | considered the overall performance of the | | --- | --- | --- | | The Remuneration Committee’s time in | leadership, driving the development of | Company over the performance period and | | 2022 was focused on conducting a full | sustainability and carbon reporting across | shareholder experience, and considered the | | review of the Remuneration Policy in | the business and increasing the UK social | outcome reflective of the strong | | advance of the 2023 AGM and overseeing | value generated to £816m from £717m. He | achievement. In addition, the Remuneration | | the implementation of the current | has continued to oversee improvements in | Committee also considered any potential | Governance | Remuneration Policy during 2022. | employee engagement scores, diversity | windfall gains as a result of the award having | | --- | --- | --- | | Keyactions included: | and inclusion programmes and delivered | been made during a year when businesses | | | improved safety performance. Further | were experiencing uncertainty relating to the | @ conducted a full review of details of Leo Quinn’s strategic business COVID-19 pandemic. The Remuneration Remuneration Policy to ensure it and personal objectives are set out on Committee noted that the executive remains effective and aligned to the pages 159 and 160. Directors had requested that their 2020 PSP Group’s strategic objectives. This will awards were held back to June 2020 (rather include ongoing shareholder @ Philip Harrison successfully delivered the than March 2020 when the other PSP awards consultation in advance of the 2023 USPP refinancing plan despite difficult were made). The share price used for AGM policy vote; market conditions, alongside establishing calculating the number of shares granted for @ considered ongoing developments in new banking facilities to increase bonding the June 2020 PSP awards was 262.4p, external corporate governance and best capacity by 27%. He has overseen the which was higher than the 202.3p used for practice including the effective use of ESG development of an improved succession the March 2020 PSP awards and more in line measures within incentive arrangements. pipeline and improvements in employee with the share price used for the 2018 and @ ensured the current Remuneration engagement scores and safety culture. 2019 PSP awards, mitigating the impact of Policy was implemented in alignment Further details of Philip Harrison’s strategic potential windfall gains. with business strategy and culture; business and personal objectives are set out on page 160. @ reviewed wider workforce ### The 2023 Remuneration Policy demographics and remuneration to @ The achievement against elements of ### and key changes ensure alignment with culture and as bonus related to strategic business and Our current Policy was approved at the 2020 broader context for remuneration policy; and personal objectives represent the strong AGM with over 93.5% of votes in favour of it. @ reviewed and monitored remuneration leadership of the Company by Leo Quinn At this time, a number of best practice practice across the Group’s operations. and Philip Harrison, demonstrated by the features were introduced: increasing the high percentage out-turns for these elements. ### PRIORITIES FOR 2023 shareholding guidelines for new executive @ The formulaic assessment of the Annual Director appointees; including a post-employment Further consideration of how to effectively Incentive Plan against the plan targets shareholding guideline; expanding the ‘malus incorporate ESG measures within indicated maximum pay-out against the and clawback’ provisions to ensure that they incentive arrangements. financial targets and a high pay-out against can be operated in cases of gross Ensure the implementation of the the strategic business and personal misconduct and corporate failure; and Remuneration Policy maintains alignment objectives, resulting in 95% of maximum expanding the Remuneration Committee’s with culture and business strategy. | | to be paid to Leo Quinn and 97% of | powers to adjust downwards the formulaic | | --- | --- | --- | | Continue to monitor remuneration practice | maximum to Philip Harrison. In line with | vesting outcome produced by the PSP | | across the Group’s operations. | good practice, the Remuneration | performance conditions. | | Continue to monitor the impact of the cost | Committee reviewed the outcome for the | | During the year, the Remuneration Committee of living pressures and activity across the executive Directors and considered this has reviewed the current Policy taking into Group to support the wider workforce. reflective of the strong performance of the account: i) feedback provided by shareholders Company in 2022 and not warranting any as part of previous consultations; ii) the views discretionary adjustment against the of the non-executive Directors and formulaic outcomes. In line with the Policy, management (including themes from the 50% of the pay-out will be deferred into Remuneration Committee's workforce | | 19% | shares for three years. | | | --- | --- | --- | --- | | 25% | | | engagement activities); iii) the Group’s | | | | The performance conditions relating to the | strategy; and iv) market practice. Following | | | | 2020 PSP awards measured performance | this review, the Committee has concluded | ### ALLOCATION over the three years ended 31 December that the current Policy remains largely ### OF TIME | | 2022. TSR performance over the period was | fit-for-purpose and supports the strategy of | | --- | --- | --- | | | above upper quartile, the maximum operating | the Company. | | 56% | cash flow target was met and EPS exceeded | | maximum; as a result these awards will vest ##  in full. In assessing the appropriateness of l Remuneration policy this outcome, the Remuneration Committee l Remuneration of executive Directors and Executive Committee members l Governance and other matters Balfour Beatty plc Annual Report and Accounts 2022 143 ### COMMITTEE REPORTS CONTINUED | The 2023 Remuneration Policy | Remuneration for 2023 | | --- | --- | | and key changes continued | On 1 July 2022, in line with the normal salary | | Following our consultation with shareholders | review date, the Committee awarded a 3.5% | | and considering the feedback received, the | increase in base salary for the Group Chief | ## We believe that the proposed | Remuneration Committee is proposing the | Executive, in line with the wider workforce, | | | --- | --- | --- | | following changes to ensure that there is | and increased the base salary for the Chief | Remuneration Policy will | | sufficient flexibility built into the Policy for the | Financial Officer from £448k to £480k (a | | ## continue to deliver a robust next three-year cycle: circa. 7% increase). This increase recognised the breadth of the Chief Financial Officer's ## link between strategy, reward @ pension: from the end of December 2022, role and his contribution to the success of ## the pension cash allowance paid to the and performance, supporting the business, and took into account that, incumbent executive Directors will be against sector peers, the Chief Financial ## aligned with the wider workforce, currently Balfour Beatty’s drive to Officer’s base salary is positioned at the lower 7% of base salary; ## end of this group despite the market deliver ongoing profitable @ no increases to variable pay opportunity: capitalisation and revenue of Balfour Beatty ## managed growth.” the maximum AIP opportunity will remain being typically higher. The next base salary at 150% of base salary. The new Policy review date is 1July 2023. has been updated to confirm that the At the annual review on 1 July 2022, on-target bonus is 50% of maximum, in non-executive Directors’ base fees were line with best practice. The maximum PSP increased in line with the wider workforce. opportunities will remain at 200% of base The next review date is 1 July 2023. salary for the Group Chief Executive, other than in exceptional circumstances, 175% As confirmed in the Remuneration Policy, the of base salary for other executive Directors; pension cash allowance for incumbent executive Directors has been aligned to the @ AIP and PSP performance measures: the level of the wider workforce, currently 7% of current Policy provides that a minimum base salary, with effect from the end of 70% weighting is based on financial December 2022. No changes are proposed metrics for the annual bonus, and under to the maximum incentive opportunities. The the PSP a minimum of 30% of any award executive Directors will be able to earn a must be based on relative total shareholder maximum bonus of 150% of base salary. The return (TSR), with the balance being based Group Chief Executive will be granted a PSP on other financial targets. In order to award over shares worth 200% of base provide flexibility to ensure that the AIP salary and the Chief Financial Officer 175% of and PSP measures continue to be aligned base salary. with the key financial and strategic areas of business over the next three years: During the investor consultation it was acknowledged that the inclusion of cash as a @ under the new Policy, at least 50% of metric under both the AIP and PSP is the AIP will continue to be based on appropriate given the materiality of the metric financial measures. However, there is no to the business. current intention to increase the weighting on non-financial measures. For 2023, 75% of the AIP will continue to be based on profit and cash targets and 25% of the AIP will be based on strategic business and personal objectives; and @ for the PSP, the requirement to have a minimum of 30% of any PSP award based on relative total shareholder return (TSR) will be retained under the new Policy. Flexibility will be introduced for the balance of the award to be based on financial or non-financial metrics provided that at least 75% of the award is based on financial and/or TSR measures. The Remuneration Committee has also proposed some further minor and market practice changes to ensure there is sufficient flexibility built into other areas of the Our full Remuneration Remuneration Policy for the next three-year Policy can be found on the cycle. These changes are set out in full on Balfour Beatty website at: page 147. www.balfourbeatty.com. Balfour Beatty plc Annual Report and Accounts 2022144 | We have refined the proposed weighting of | Shareholder engagement | against general and sector-specific data, | | --- | --- | --- | | the metrics for the AIP for 2023 to further | The Remuneration Committee consulted the | alongside other statutory and voluntary wage | | underpin the objective to deliver profitable | Company’s top 20 shareholders and the main | levels, including the Real Living Wage. | | managed growth, as follows: | proxy voting advisory agencies to outline the | | Following the 2023 annual review, all UK proposed changes to the Policy and our 2023 AIP weightings: employees with the exception of a small remuneration proposals for 2023 and invited number where either a further review is @ increased weighting on Profit Before Tax their feedback. planned or pending for 2023 or they are part to50%; | | Our major shareholders who provided | of a specific group, e.g. Apprentices, will be | | --- | --- | --- | | @ reduced weighting on Group Total Cash | feedback were largely supportive of the | paid at a rate above the voluntary Real | | Flow to 25%; and | proposals and welcomed the Remuneration | LivingWage. | Committee retaining the current level of @ 25% of the AIP will continue to be based Balfour Beatty's UK gender pay gap variable pay opportunity. The key themes on strategic business and personal objectives. increased slightly in 2022 compared to 2021, from the feedback related to: i) focus on our These objectives will be disclosed in the although both the mean and median approach to supporting our people with the | 2023 Remuneration report and include | | measures show a narrowing of the gap | | | --- | --- | --- | --- | | | challenges they are facing as a result of the | | Governance | | measurable objectives aligned to delivering | | compared to the pre-COVID reporting period. | | rising cost of living; and ii) the performance on our Environmental, Social and Governance, The focused activity implemented through metrics and weightings for the 2023 AIP and People and Quality commitments. the Value Everyone Action Plan remains PSP. As a result of the feedback received, pivotal in our aims to narrow the gap. The 2023 PSP will be based on: the Remuneration Committee decided to Detailed analysis has been undertaken to retain the requirement to have a minimum of @ relative TSR, Earnings Per Share (EPS) and further understand how specific actions 30% of any PSP award based on relative TSR Operating Cash Flow (OCF), each continuing impact the pay gap which highlights that a under the new Policy. We also refined the with a weighting of 33.3% of the award; and significant reduction will only be achieved proposed weighting of the metrics for the AIP over the longer term. We will continue to @ the TSR peer group will be amended to for 2023 as set out above. develop this analysis to support the identification FTSE 250 companies excluding investment of targeted activities moving forward. trusts; a broad index that reflects Balfour ### Wider workforce remuneration Beatty’s size is considered to be more The Group Chief Executive to average UK In addition to the executive Directors, the appropriate than the FTSE companies ranked employee pay ratio increased for 2022 in Committee reviewed both the level and 51-200 (excluding investment trusts). comparison to 2021, reflecting the fact that a structure of remuneration for the members greater proportion of executive Director pay The Remuneration Committee will continue of the Executive Committee, with a focus on is linked to annual performance through a to be mindful of the importance of setting alignment with strategy and culture. The higher annual incentive plan opportunity, and appropriately stretching targets for both the Committee receives regular updates on pay the out-turn for both the AIP and PSP in 2022 AIP and PSP to ensure that the incentive and benefits for the wider workforce and being higher when compared to 2021. out-turns are commensurate with the takes these into account when reviewing performance delivered, wider stakeholder executive and senior management remuneration. ### Conclusion experience and the long-term sustainable For the wider workforce, the main salary review We believe that implementation of the success of the Group. The level of stretch in for the UK (excluding collective agreements) Remuneration Policy will continue to deliver a the targets for 2023 has been reviewed by was effective from 1 January 2022 at a time robust link between strategy, reward and the Remuneration Committee in light of the when inflation rates were progressively performance, supporting Balfour Beatty’s Group's current and expected performance increasing. A total budget of 4.5% was drive to deliver ongoing profitable managed over the performance period. As noted established with the guideline that 3.5% growth. The Company’s remuneration policies above, wider ranges and additional stretch should be allocated in January 2022 (within a have been, and will continue to be, have been applied following the Remuneration range based on performance, market implemented rigorously, aligned with the Committee’s review of historic cash targets. positioning etc). The further 1% budget was Group’s strategic goals and culture. We hope Given the commercial sensitivity, the 2023 used to support in-year market adjustments. you will support the Remuneration report at AIP targets will be disclosed on a retrospective the 2022 AGM. | basis in the 2023 Remuneration report. The | During the year, the Group has closely | | | --- | --- | --- | | EPS and OCF targets for the 2023 PSP are | monitored the impact of the rising cost of | | | disclosed prospectively on page 156. | living. In addition to reviewing pay, in | Anne Drinkwater | | | considering how to best support colleagues | Chair of the Remuneration Committee | in the UK, Balfour Beatty has built greater 15 March 2023 awareness of and improvements to employee benefits and the discounts scheme, enhanced family friendly policies and provided financial education (including a financial coaching pilot planned for 2023). For 2023, Balfour Beatty will be increasing its salary review budget ensuring a specific focus on lower paid roles, with increases in the January 2023 main review consolidated into base pay (rather than ‘one-off’ payments). The Group aims to consistently apply pay principles to ensure fair, equitable and market competitive pay levels, benchmarking internally and externally Balfour Beatty plc Annual Report and Accounts 2022 145 ### REMUNERATION AT A GLANCE Ahead of the Annual Report on Remuneration, we have summarised below the key remuneration outcomes for 2022. Key: l Threshold l Target l Maximum l Actual ### AIP METRICS AND OUTCOMES 1 | Profit before tax and non-underlying items | | Group total cash flow | | | | --- | --- | --- | --- | --- | | Threshold £160.2m | | | Threshold £(94.5)m | | | | ACTUAL | | | ACTUAL | | Target £ 200. 2m | | | Target £(71.5)m | | | | £291m | | | £175m | | Maximum £220.3m | | Maximum £45.2m | | | | | >100% | | | >100% | | Actual £291m | of Maximum | | Actual £175m | of Maximum | ### Strategic business and personal objectives AIP out-turn | | ACTUAL | | ACTUAL | | ACTUAL | | ACTUAL | | --- | --- | --- | --- | --- | --- | --- | --- | | | 80% | | 88% | | 95% | | 97% | | of Maximum | | of Maximum | | of Maximum | | of Maximum | | ##  ##  GROUP CHIEF CHIEF FINANCIAL GROUP CHIEF CHIEF FINANCIAL EXECUTIVE OFFICER EXECUTIVE OFFICER ### PSP METRICS AND OUTCOMES 2 ### Total shareholder return Operating Cash Flow (OCF) Threshold £135mThreshold Median Target £169m ACTUAL ACTUAL Maximum £203mMaximum Upper Quartile ## >100% >100% Actual £219mActual Above Upper Quartile of Maximum of Maximum 3 ### Earnings per share PSP out-turn Threshold 22p ACTUAL Maximum 33p CEO 100% of Maximum ## >100% Actual 47.5p of Maximum CFO 100% of Maximum | EXECUTIVE DIRECTOR REMUNERATION SCENARIOS | | | | | EXECUTIVE DIRECTORS’ SHAREHOLDING GUIDELINES | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | GROUP CHIEF | | CHIEF FINANCIAL | | | GROUP CHIEF | | CHIEF FINANCIAL | | | | EXECUTIVE | | OFFICER | | | EXECUTIVE | | OFFICER | | | £ | | £4,107k £2,381k | | £2,137k £1,280k | (% of base | | 1,348% 200% | | 555% 150% | salary held) 47% 34% 29% 40% Key: |  PSP | | 25% | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 33% | 31% | | | | | | | | |  AIP | 24% | 41% | | | 26% | | | | | | | | |  Fixed pay | | | | 27% | 43% | | | | | | | | | | | | | | | | | 4 | | | 4 | | | | ACTUAL | ON- | | ACTUAL ON- | | | ACTUAL | | GUIDELINE | ACTUAL | | GUIDELINE | | | | | 5 | | | 5 | | | | | | | | | | TARGET | | | TARGET | | | | | | | | A reconciliation of the Group’s performances measures to its statutory results is provided in the Measuring our financial performance section. 1 Group total cash flow of £175m is the movement between opening and closing total net cash adjusted for £150m share buyback. 2 Operating cash flow of £219m is defined in the Measuring our financial performance section. 3 Underlying basic earnings per share from continuing operations. 4 In line with the Investors Association (IA) guidelines, calculations shown include shares beneficially owned at 31 December 2022 plus unvested shares, which are not subject to a further performance condition, on a net of tax basis, calculated using base salary at 31 December 2022. 5 Group Chief Executive’s and Chief Financial Officer’s remuneration scenarios are calculated on base salaries at 1 January 2022 of £800k and £448k respectively. Balfour Beatty plc Annual Report and Accounts 2022146 ### PROPOSED DIRECTORS’ REMUNERATION POLICY ### Proposed Directors' remuneration policy The 2023 Policy was developed over the course of the year with input from Remuneration Committee members, other Non-executive Directors and management, ensuring that conflicts of interest were suitably mitigated. The Remuneration Committee also took into account the themes from its workforce engagement activities and the pay policies across the Group. The Remuneration Committee consulted with shareholders during the year on the proposals and the feedback received was largely supportive. The Remuneration Committee also assessed the 2023 Policy for clarity, simplicity, risk management, predictability, proportionality and alignment to culture, as set out on page 157. A summary of the proposed changes to the Remuneration Policy are:- @ pension: from the end of December 2022, the pension cash allowance paid to the incumbent executive Directors has been aligned with the wider workforce, currently 7% of base salary; @ no increases to variable pay opportunity: the maximum AIP opportunity will remain at 150% of base salary. The new Policy has been updated to confirm that the on-target bonus is 50% of maximum, in line with best practice. The maximum PSP opportunities will remain at 200% of base salary for the Group Chief Executive, other than in exceptional circumstances, 175% of base salary for other executive Directors; @ at least 50% of the AIP will continue to be based on financial measures; @ for the PSP, the requirement to have a minimum of 30% of any PSP award based on relative total shareholder return (TSR) under the new Policy has been retained. Flexibility has been introduced for the balance of the award to be based on financial or non-financial metrics provided that at least 75% of the award is based on financial and/or TSR measures; and Governance @ other minor and market practice changes: @ clarifying that dividend equivalents on deferred share awards and performance share awards that vest for executive Directors will normally be settled in shares, with cash settlement only to be applied where the circumstances make that appropriate, for example, where there is a regulatory restriction on the delivery of shares, or in respect of the tax liability arising in relation to the award; @ providing additional flexibility in the recruitment and promotion policy for executive Directors in line with market practice. For example, including appropriate flexibility where an interim appointment is being made to fill an executive Director role on a short-term basis; or if exceptional circumstances require that the Group Chair or a Non-executive Director takes on an executive function on a short-term basis; @ payments for loss of office for executive Directors: the new Policy includes the ability to pay outplacement fees; @ no substantive changes to the current Policy for leavers. Flexibility is being included in the new Policy to pay a bonus in cash rather than deferred shares on cessation of employment where this would reduce the administration of doing a simultaneous transaction i.e. granting a deferred share award which vests immediately with shares sold for cash on cessation of employment; and @ flexibility is being included to be able to pay additional fees to Non-executive Directors for other responsibilities or time commitments. Flexibility is also being included to extend the current ability to pay a travel allowance to Non-executive Directors based outside Europe for travel to the UK on Company business to all Non-executive Directors for intercontinental travel on Company business (excluding travel within home continent). Further context is set out in the Remuneration Committee Chair’s report . Balfour Beatty plc Annual Report and Accounts 2022 147 ### PROPOSED DIRECTORS’ REMUNERATION POLICY CONTINUED The following table sets out a summary of each element of the proposed executive Directors’ remuneration packages, their link to the Company’s strategy, the policy for how these are operated, the maximum opportunity and a description of any relevant performance metrics. Purpose and link to Element of pay Company’s strategy How it is operated in practice Maximum opportunity Performance metrics Base salary To attract and retain Salaries are normally reviewed and set There is no prescribed maximum annual While no high-calibre individuals. annually in July. The Committee considers increase. TheCommittee is guided by performance remuneration levels in companies of the general increase for the wider conditions apply To provide a comparable market capitalisation, revenue employee population. However, to fixed competitive salary and industry sector. increases may be awarded which are remuneration, a relative to comparable different to the general increases for the number of companies in terms of In addition, a key reference point for salary wider population where appropriate. This factors are size and complexity. increases is the average increase across includes the ability to award higher considered, the general workforce (with the exception increases in appropriate circumstances, notably market of promotions or significant changes in such as: competitiveness, responsibility). business @ on promotion or in the event of an Salaries are paid monthly. andpersonal increase in scope of the individual’s performance. role or responsibilities; @ where an individual has been appointed to the Board at a lower than typical market salary to allow for growth in the role, in which case larger increases may be awarded to move salary positioning to a typical market level as the individual gains experience; @ change in size and/or complexity of the Group; and/or @ significant market movement. Increases may be implemented over such time period as the Committee deems appropriate. Benefits To aid retention and to Private medical (including for the executive The Committee has not set a maximum None. remain competitive in Director’s family) and life assurance may be level of benefits executive Directors may the marketplace. In provided. A car and fuel card or car receive. The value is set at a level which addition, medical allowance are offered. the Committee considers to be benefits are provided appropriate taking into account the nature Other benefits may be provided based on to minimise disruption and location of the role and individual individual circumstances, which may include due to absence. circumstances. relocation costs or allowances, travel and accommodation expenses. Reimbursed expenses may include a gross-up to reflect any tax or social security due in respect of the reimbursement. Pension To remain competitive Executive Directors can elect eitherto: The maximum employer contribution None. in themarketplace. (whether by way of employer pension @ receive an employer contribution to the contribution, salary supplement, or a defined contribution (DC) section of combination) will not exceed the level of theGroup’s pension fund; contribution available to the wider @ receive a salary supplement in lieu of a workforce, currently 7% of base salary. pension; or @ receive a combination of an employer contribution to the DC pension fund and a salary supplement. Balfour Beatty plc Annual Report and Accounts 2022148 Purpose and link to | Element of pay | Company’s strategy How it is operated in practice Maximum opportunity Performance metrics | | | | | --- | --- | --- | --- | --- | | Annual Incentive | To motivate executive | The payment of any bonus is at | Maximum annual | Each year the Committee will select | | Plan (AIP) and | Directors and incentivise | the absolute discretion of the | incentive | performance measures for the annual | | Deferred Bonus | the achievement of key | Committee which has the | opportunity is | bonus that are aligned with the strategy | | Plan (DBP) | business performance | discretion to override the out-turn | 150% of | of the Company. | | | targets over the financial | of the bonus if appropriate to do | basesalary. | | At least 50% of the annual bonus will be year without encouraging so. It may exercise this discretion based on financial metrics. excessive risk taking. to take account of factors Managing risk is critical, including, but not limited to, the Subject to the Committee’s discretion to particularly given the underlying financial and override the bonus out-turn: nature of the Company’s operational performance of the @ for financial measures, up to 20% of business. Group, individual performance maximum is earned for threshold and HSE and Sustainability | To facilitate share | | performance rising to up to 50% for | | | --- | --- | --- | --- | | | record. | | Governance | | ownership, aid retention | | on-target performance and 100% for | | | and provide further | 50% of any payment is normally | maximum; and | | | alignment with | deferred into shares for three | | | @ for strategic or individual objectives shareholders. years. Deferred share awards may between 0% and 100% of maximum is take the form of nil cost options, earned based on the Committee’s conditional awards of shares or assessment of the extent to which the such other form as has a similar relevant metric or objective has been economic effect. met. Both the cash and deferred share The AIP performance measures and elements of the annual bonus are weightings for 2023 are disclosed on subject to malus and clawback page 156. provisions – see ‘Malus & Clawback’ below for further The choice and weighting of the metrics details. for future awards may be altered to reflect the changing needs of the Participants may also receive an business. additional award of shares in lieu of the value of dividends paid over The Committee retains the discretion to the deferral period in relation to retrospectively amend the measures, deferredshares (this payment weightings, targets and/or method of may assume that dividends had assessment for the in-year bonus to take been reinvested in Balfour Beatty into account a change in the business shares on a cumulative basis). strategy, significant acquisition or disposal, change in accounting treatment or other exceptional event to ensure that the scheme is able to fulfil its original purpose. Balfour Beatty plc Annual Report and Accounts 2022 149 ### PROPOSED DIRECTORS’ REMUNERATION POLICY CONTINUED Purpose and link to | Element of pay | Company’s strategy How it is operated in practice Maximum opportunity Performance metrics | | | | | --- | --- | --- | --- | --- | | Performance | To incentivise and reward | The Committee may grant awards as | The limit in the rules of the | PSP awards will be | | Share Plan (PSP) | delivery of long-term | conditional shares, as nil (or nominal) | PSP is 200% of base salary | granted in accordance with | | | performance linked to the | cost options, as forfeitable shares or | which will be applied to the | the rules of the PSP and | | | business strategy. | in such other form as has a similar | Group Chief Executive. | the discretions contained | | | | economic effect. | Other than inexceptional | therein. | To facilitate share circumstances, the normal ownership and provide PSP awards are granted annually so Performance measures limit for other executive further alignment with that no undue emphasis is placed on will be set on an annual Directors will be 175% of shareholders. performance in any one particular basis to reflect the base salary. financial year. Company’s strategy and To aid retention. provide stretching Awards will ordinarily vest, subject to conditions in the light of performance, following the the Company’s current and assessment of the applicable expected performance performance conditions which will over the performance typically be assessed over three period. A minimum of 30% years. Awards will be subject to an of any award will be based additional two-year holding period on relative total post vesting, during which time shareholder return (TSR). awarded shares may not ordinarily be The balance of any award sold (other than for tax). Alternatively, may be based on financial the holding period may be operated and/or non-financial on the basis that awards will not metrics provided that at normally be released (so that the least 75% of the award is participant is entitled to acquire based on financial and/or shares) until the end of the holding TSR measures. period of two years beginning on the vesting date. Subject to the Committee’s discretion to The Committee has the discretion to override the formulaic override the formulaic out-turn of the outturn of the award, there award if appropriate to do so. It may is up to 25% vesting for exercise this discretion to take threshold performance, account of factors including, but not rising to 100% vesting for limited to, the underlying financial maximum performance. and operational performance of the Group, individual performance and The PSP performance HSE and Sustainability record. measures and weightings for 2023 are disclosed on Malus and clawback provisions apply page 156. to all awards made under the PSP – see ‘Malus and clawback’ below for The choice and weighting further details. of the metrics for future awards may be altered to Participants also receive an additional reflect the changing needs award of shares in lieu of the value of of the business. dividends paid over the vesting period and, if the holding period is operated on the basis shares cannot be acquired until the end of it, over the holding period in relation to vested shares (this payment may assume that dividends had been reinvested in Balfour Beatty shares on a cumulative basis). Balfour Beatty plc Annual Report and Accounts 2022150 Purpose and link to | Element of pay | Company’s strategy How it is operated in practice | | | --- | --- | --- | | Shareholding | To align the interests of | In-post requirements | | guidelines | executive Directors with | Executive Directors are expected to accumulate a shareholding in the Company’s shares to the | | | those of shareholders. | value of 200% and 150% of base salary for the Group Chief Executive and the Chief Financial | Officer respectively. For new executive Directors, the requirement will be 200% of base salary, with the aim that this is built up within five years of employment commencing. Executive Directors are expected to retain at least 50% of shares (net of tax) which vest from awards made under the PSP and DBP until the target shareholding is attained. ### Post-cessation requirements For incumbent executive Directors, the post-vesting holding condition, which applies to PSP awards from 2019 onwards, requires the vested shares (net of tax) to be held until the fifth Governance anniversary of grant and will continue to apply post-cessation of employment. New executive Directors will be required to hold the lower of 100% of their in-post share ownership requirement or their actual holding on departure, for two years post cessation of employment. No post cessation restriction will apply to shares purchased by Directors from their own funds. The Committee retains discretion to vary the application of the shareholding guidelines in exceptional circumstances. ### Malus and clawback The rules of the PSP and the AIP (including any element deferred into shares under the DBP) include provisions for malus and clawback to apply if the Committee concludes that: @ any financial results or other performance measures used to assess the extent to which an award vested or payment was made was misstated, incorrect or misleading; @ the extent to which an award or payment was made was based on error; @ an event, act or omission occurs which results in any member of the Group suffering material reputational damage; @ any member of the Group has suffered an instance of corporate failure, which includes, but is not limited to: a material reduction in the value of the relevant company; an involuntary insolvency or similar circumstance; or any event that the Committee determines has a material negative impact on any of the stakeholders in the Company; or @ the relevant individual has committed misconduct. Clawback generally may be applied for up to two years following payment of a cash AIP, and up to two years following vesting in respect of awards granted under the DBP and PSP. ### Discretions retained by the Committee in operating the PSP and other variable pay schemes The Committee operates the Group’s various incentive plans according to their respective rules and (where applicable) in accordance with relevant legislation and HMRC guidance. In order to ensure efficient administration of these plans, certain operational discretions are reserved to the Committee. These include: @ determining who may participate in the plans; @ determining the timing of grants of awards and/or payments under the plans; @ determining the quantum of any awards and/or payments (within the limits set out in the policy table above); @ in exceptional circumstances, such as where there is a regulatory restriction on the delivery of shares or in respect of the tax liability arising in relation to the award, determining that a share-based award or any dividend equivalent shall be settled (in full or in part) in cash; @ determining the performance measures and targets applicable to an award (in accordance with the statements made in the policy table above), including discretion to amend or substitute the performance measures and targets in the event of changes in accounting standards or if anything happens which causes the Committee to reasonably to consider it appropriate to do so; @ where a participant ceases to be employed by the Group, determining whether ‘good leaver’ status shall apply; @ determining the extent of vesting of an award based on assessment of the performance conditions, including discretion as to the basis on which performance is to be measured if an award vests in advance of normal timetable (on cessation of employment as a ‘good leaver’ or on the occurrence of corporate events); @ whether, and to what extent, awards shall be reduced pro-rata to reflect the proportion of the performance period completed in the event of cessation of employment as a ‘good leaver’ or on the occurrence of corporate events; @ whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply; @ making appropriate adjustments to awards on account of certain events, such as major changes in the Company’s capital structure; and @ reduce, delay or impose additional conditions on payments and/or vesting of awards. Balfour Beatty plc Annual Report and Accounts 2022 151 ### PROPOSED DIRECTORS’ REMUNERATION POLICY CONTINUED ### Consideration of shareholders’ views The Committee considers feedback from shareholders received at each AGM, and any feedback from additional meetings or from published investor guidelines, as part of any review of executive remuneration. In addition, the Committee engages proactively with shareholders and will ensure that shareholders are consulted in advance where any material changes to the remuneration policy and implementation of that policy are proposed. Indeed, the process surrounding the formulation of the 2023 Policy included a programme of engagement with the Company’s largest institutional investors (including the top 20 shareholders) and a selection of proxy agencies in order to understand their views on the proposed approach. The major shareholders who provided feedback were largely supportive of the proposals and welcomed the Remuneration Committee retaining the current level of variable pay opportunity. As a result of the feedback received, the Remuneration Committee decided to retain the requirement to have a minimum of 30% of any PSP award based on relative total shareholder return (TSR) under the new Policy. ### Consideration of employment conditions elsewhere in the Group and differences between arrangements ### for executive Directors and other employees In determining the remuneration of the executive Directors, the Committee takes into account the general trends in pay and conditions across the Group as a whole. Whilst employees have not been consulted formally on executive pay, due in part to the diverse geographic disposition of the Group, the Committee also took into account the pay policies across the Group and themes from its workforce engagement activities. The Committee also seeks to ensure that the underlying principles which form the basis for decisions on Directors’ pay are consistent with those on which pay decisions for the wider workforce are taken. The following differences exist between the Company’s policy for the remuneration of executive Directors and the Group's approach to the payment of employees generally: @ participation in the PSP is typically aimed at the executive Directors and certain selected senior managers. Other employees may be invited to participate in the Restricted Share Plan (RSP) to aid retention and recognition. Shadow PSP and RSP schemes have been introduced on a cash-settled basis which mirror the conditions of the equity-settled PSP and RSP schemes, awards under which are principally made to senior managers based in the US. All UK employees, including executive Directors, are eligible to participate in the Company’s Share Incentive Plan up to prevailing HMRC limits; @ a lower level of maximum annual bonus opportunity applies to eligible employees other than executive Directors. For certain selected senior managers, a proportion of any bonus will be deferred into shares under the DBP (or a shadow cash-settled DBP for senior managers based in the US); @ benefits offered to other employees, depending on their employee grade, may include health insurance, death-in-service benefit, a company vehicle or cash allowance and access to other voluntary employee benefits. In general, these differences arise from the development of remuneration arrangements that are market competitive for the various categories of individuals. They also reflect the fact that, in the case of the executive Directors, a greater emphasis is placed on variable pay. ### Executive Director remuneration scenarios A significant proportion of executive Directors' remuneration is linked to performance, particularly at maximum performance levels. The charts below show how much the Group Chief Executive and Chief Financial Officer could earn in future periods based on different performance scenarios in respect of awards to be made in the 2023 financial year under Balfour Beatty’s remuneration policy. ### CHIEF EXECUTIVE OFFICER (£000) CHIEF FINANCIAL OFFICER (£000) 5000 | | | £4,633k | 3000 | | | --- | --- | --- | --- | --- | | | | 53% | | £2,508k | | 4000 | £3,805k | | 2500 | | 50% £2,088k 43% 2000 40% 3000 £2,356k | | | | | 1500 | £1,308k | | | | --- | --- | --- | --- | --- | --- | --- | --- | | 2000 | 35% | | | | | | | | | | 33% | 27% | | 32% | | | | | | | | | | 35% | 29% | 1000 26% 28% £907k £528k 1000 500 | | 100% 39% 24% 20% | | | 100% | 40% 25% 21% | | | --- | --- | --- | --- | --- | --- | --- | | 0 | | | 0 | | | | | | MINIMUM MINIMUMMAXIMUM MAXIMUMTARGET TARGET | MAXIMUM + | | | | MAXIMUM + | | | | SHARE PRICE | | | | SHARE PRICE | | | | APPRECIATION | | | | APPRECIATION | Balfour Beatty plc Annual Report and Accounts 2022152 The following assumptions have been made: Pension contributions (and/or salary For an internal executive Director supplement in lieu) will not exceed the level appointment, any remuneration awarded in @ minimum (performance below threshold) of contribution available to the wider workforce, respect of the prior role may be allowed to – fixed pay only with no vesting under any currently 7% of salary. The AIP potential pay out according to its terms, adjusted as of Balfour Beatty’s incentive plans; | | would be limited to 150% of salary, and | relevant to take into account the appointment. | | --- | --- | --- | | @ target – fixed pay plus a bonus (AIP) at the | grants under the PSP may be up to the plan | In addition, any other ongoing remuneration | | mid-point of the range (giving 50% of the | maximum of 200% of salary per annum. | obligations existing prior to appointment | | maximum opportunity) and vesting of | | maycontinue. | The Committee will not offer non-performance 50% of the face value of the award at related incentive payments (such as a For external and internal appointments, the grant under the PSP; ‘guaranteed sign-on bonus’, for example). Committee may agree that the Company will @ maximum (performance meets or meet certain relocation and/or incidental Other elements may be included in the exceeds maximum) – fixed pay plus 100% expenses asappropriate. following circumstances: of the bonus (AIP) opportunity and 100% Fees payable to a newly appointed Group of the face value of the award at grant @ an interim appointment being made to fill Chair or non-executive Director will be in under the PSP; and an executive Director role on a short-term Governance linewith the policy in place at the time of basis; | @ maximum + 50% share price growth | | theappointment. | | --- | --- | --- | | (performance meets or exceeds maximum | @ if exceptional circumstances require that | | | and 50% increase in share price) – fixed | the Group Chair or a non-executive | | ### Service agreements and pay plus maximum bonus (AIP) and Director takes on an executive function on ### payments for loss of office for maximum vesting under the PSP at a 50% a short-term basis; ### executive Directors higher share price than when the PSP @ if an executive Director is recruited at a It is the Company’s policy that executive award was granted. time in the year when it would be inappropriate Directors should have contracts with an Fixed pay comprises: to provide an incentive for that year as indefinite term, which can be terminated on there would not be sufficient time to one year’s notice by the Company and six @ salaries – base salary effective as at assess performance. Subject to the limit months’ notice by the executive Director. In 1July 2022; | | on variable remuneration set out below, | accordance with the Code, all executive | | --- | --- | --- | | @ benefits – amount received in the 2022 | the quantum in respect of the months | Directors submit themselves for re-election | | financial year; and | employed during the year may be transferred | at the AGM. | to the subsequent year so that reward is @ pension – cash allowance in lieu of provided on a fair and appropriate basis. pension at 7% of base salary. The Committee may also alter the performance measures, performance period, ### Recruitment and promotion vesting period, holding period and deferral ### policy for executive Directors period of the AIP or PSP, subject to the rules To ensure the ongoing leadership continuity of the PSP, if the Committee determines that of the Group, the Company will seek the the circumstances of the recruitment merit appointment of high-calibre executives, such alteration. The rationale will be clearly either by external appointment or internal explained in the next Directors’ remuneration promotion. The remuneration package for a report. new executive Director would be set in | accordance with the terms of the Company’s | The maximum level of variable remuneration, | | --- | --- | | remuneration policy at the time of | which may be granted (excluding ‘buy-out’ | | appointment and take into account the scope | awards) is 350% of salary. | and complexity of the role, the experience of The Committee may make payments or the individual, the prevailing market rate for awards in respect of hiring an employee to that experience and the importance and ‘buyout’ remuneration arrangements forfeited immediacy of securing that candidate. in connection with leaving a previous employer. When determining appropriate remuneration In doing so, the Committee will take account of arrangements, the Committee may include relevant factors including any performance other elements of pay which it considers are conditions attached to the forfeited appropriate. However, this discretion is capped arrangements and the time over which they and is subject to the limits referred to below. would have vested. The Committee will generally seek to structure ‘buyout’ awards or The salary would be set at a level, based on payments on a comparable basis to the the principles above, to secure the most remuneration arrangements forfeited. Any such appropriate candidate but paying no more payments or awards are excluded from the than is necessary and in the best interests of maximum level of variable remuneration the Company and its shareholders. This may referred to above. include agreement on future increases, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate. Balfour Beatty plc Annual Report and Accounts 2022 153 ### PROPOSED DIRECTORS’ REMUNERATION POLICY CONTINUED ### Service agreements and payments for loss of office for executive Directors continued In the event of termination, the following principles will apply: Provision Detailed terms Notice period One year by the Company, and six months by the executive Director. For any newly appointed executive Director, the Committee may offer a notice period of up to 12 months by either party. In the event of termination by the Company ‘for cause’ the executive Director would not be entitled to the period of notice specified above under his or her contract of employment or to any payment in lieu of notice. Notice payments If any existing contract was terminated by the Company (other than for cause), it would be liable to pay salary and contractual benefits for the notice period, including any period of garden leave. The Company may elect to make payment in lieu of any unexpired period of notice comprising salary and a cash sum in lieu of benefits. The Company reserves the right to apply mitigation to any payment in lieu of notice, for example by making phased payments where appropriate for the balance of any notice period, against which earnings from new employment would be offset. Annual bonus This will be reviewed on an individual basis and the decision whether or not to award a bonus in full or in part will be dependent upon a number of factors including the circumstances of their departure and their contribution to the business during the bonus period in question, such that a bonus will be paid only in circumstances that the Committee considers are 'good leaver' circumstances. Any bonus payment would typically be pro-rated for time in active service and paid at the usual time, subject to the Committee’s assessment of the extent to which the performance conditions would have been satisfied. The Committee retains discretion to pay the whole of any bonus earned in cash in appropriate circumstances. Having this ability to pay a bonus in cash rather than deferred shares on cessation of employment would reduce the administration of doing a simultaneous transaction i.e. granting a deferred share award which vests immediately with shares sold for cash on cessation of employment. Deferred bonus awards Any share-based entitlements granted to an executive Director under the DBP will be determined based on the relevant plan rules. For incumbent executive Directors, outstanding DBP awards will lapse on cessation of employment, except in certain good leaver circumstances prescribed by the plan rules when DBP awards will vest in full on the date of cessation. For new executive Director appointees, in certain 'good leaver' circumstances prescribed by the plan rules, DBP awards will vest on the normal vesting date. However, the Committee has discretion to determine that DBP awards will vest at cessation in appropriate circumstances. PSP awards Any share-based entitlements granted to an executive Director under the PSP will be determined based on the plan rules. The default treatment under the PSP is that any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, ill health, injury, disability, retirement or other circumstances at the discretion of the Committee, awards will not be forfeited on cessation of employment and, subject to the satisfaction of the relevant performance conditions, will vest under the normal vesting schedule, being reduced pro-rata to reflect the proportion of the performance period actually served. However, the Committee has discretion to determine that PSP awards vest at cessation and/or to amend time pro-rating in appropriate circumstances. Change of control There are no provisions for enhanced termination payments in the event of change of control of the Company. Incidental expenses The Company may meet relocation and other incidental expenses on termination of employment, for example and other payments relocation expenses, outplacement fees, the fees of legal or other professional advisers, and accrued but untaken holiday. It may also elect to continue to provide certain benefits rather than making payment in lieu of the benefit in question. Awards under the Company’s all-employee Share Incentive Plan will be treated in accordance with the rules of that plan. Where a ‘buyout’ or other award is made, the leaver provisions would be determined at the time of the award. The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment. Balfour Beatty plc Annual Report and Accounts 2022154 ### Legacy arrangements The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed: @ before the policy came into effect (provided that, in the case of any payment agreed after the Company’s 2014 Annual General Meeting, they are in line with the policy in place at the time the terms were agreed or were otherwise approved by shareholders); or @ at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company; and to satisfy contractual commitments under legacy remuneration arrangements. For these purposes, ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted. ### External appointments of executive Directors Governance The Committee recognises that benefits can arise from allowing executive Directors to take a non-executive directorship elsewhere. Executive Directors are permitted to have one external appointment, from which fees may be retained with the approval of the Board. ### Appointment of Non-executive Directors Non-executive Directors are appointed by the full Board following recommendations from the Nomination Committee. All Non-executive Directors are appointed for a term of three years. In accordance with the Code, all Non-executive Directors submit themselves for re-election at the AGM. Purpose and link to Element of pay Company’s strategy How it is operated in practice Maximum opportunity Non-executive To attract and retain The Group Chair is paid an annual fee and the non-executive Fees are set taking into account the Director fees high-quality and Directors are paid an annual base fee and additional responsibilities of the role and experienced responsibility fees for the role of Senior Independent expected time commitment. non-executiveDirectors. Director or for chairing a Board Committee. Additional Where benefits are provided to fees may be paid for other responsibilities or time Non-executive Directors they will be commitments. provided at a level considered to be appropriate taking into account the Non-executive Directors may receive a travel allowance individual circumstances. for intercontinental travel on Company business (excluding travel within home continent). The Non-executive Directors are not eligible to join any pension scheme operated by the Company and cannot participate in any of the Company’s share plans or annual incentive schemes. The Company will pay any reasonable business related expenses (including tax thereon where determined as a taxable benefit). The Group Chair and Non-executive Directors may also be eligible to receive benefits such as the use of secretarial support, assistance with the preparation of tax returns, or other benefits that may be appropriate. The appointment letters for Non-executive Directors may be terminated with three months’ notice (six months’ notice for the Group Chair) by either party and contain no provision for payment in the event of termination in addition to such notice. Balfour Beatty plc Annual Report and Accounts 2022 155 ### PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED ## Summary of the proposed implementation of the Remuneration Policy in 2023 Our approach for 2023 BASE SALARY During the year the Committee reviewed the market positioning for remuneration of the Group Chief Executive and Chief Financial Officer. On 1 July 2022, in line with the normal salary review date, the Committee awarded a 3.5% increase for the Group Chief Executive from £800k to £828k, in line with the wider workforce, and increased the base salary for the Chief Financial Officer from £448k to £480k (a circa. 7% increase). The Chief Financial Officer's increase recognised the breadth of his role and his contribution to the success of the business, and took into account that, against sector peers, the Chief Financial Officer’s base salary is positioned at the lower end of this group despite the market capitalisation and revenue of Balfour Beatty being typically higher. The next base salary review date is 1 July 2023. PENSION AND The pension provision for incumbent executive Directors has been aligned to the level of the wider workforce, currently 7% of base salary, | BENEFITS | with effect from 31 December 2022. | | --- | --- | | ANNUAL INCENTIVE | For 2023, the AIP for the executive Directors will be a maximum bonus of 150% of base salary, based on the achievement of three | | PLAN (AIP) | performance measures: | @ profit before tax (50%); @ cash (25%); and @ strategic business (including health & safety, environmental and sustainability measures) and personal objectives (25%). The three elements are measured and calculated independently of each other and 50% of any bonus earned will be deferred for three years in Balfour Beatty shares. While the Committee has chosen not to disclose in advance the performance targets for 2023 as these include items which the Committee considers commercially sensitive, retrospective disclosure of the targets and performance against them will be presented in the Remuneration report for 2023. LONG-TERM For 2023, the Group Chief Executive will be granted a Performance Share Plan (PSP) award over shares worth 200% of base salary and the INCENTIVE Chief Financial Officer 175% of base salary. The PSP awards to be granted in 2023 will be based on the achievement of three performance measures EPS (33.3%), cash (33.3%) and relative TSR (33.3%). The TSR peer group will be amended to be FTSE 250 companies (excluding investment trusts) as this is a broad index that reflects Balfour Beatty’s size (whilst removing investment trusts that largely move more independently to the general market) and is considered to be more appropriate than the FTSE companies ranked 51-200 (excluding investment trusts). Metric Measure Threshold Target Maximum Total shareholder return TSR ranking Median — Upper Quartile Cash Operating cash flow (OCF) £242m £346m £396m EPS Underlying basic EPS from continuing operations 33p — 50.7p The Committee considers that the performance measures are aligned to long-term business strategy and appropriately stretching reflecting the current environment. SHAREHOLDING 200% of base salary for the Group Chief Executive and 150% of base salary for the Chief Financial Officer. GUIDELINES The post vesting holding condition applying to PSP awards requires the vested shares (net of tax) to be held until the fifth anniversary of grant and will continue to apply post cessation of employment. NON-EXECUTIVE The Company’s approach to setting Non-executive Directors’ fees is by reference to fees paid at similar companies and reflects the time DIRECTORS commitment and responsibilities of each role. At the annual review on 1 July 2022, Non-executive Directors’ fees were increased in line with the wider workforce. The next review date is 1 July 2023. 1 July 2021 (£) 1 July 2022 (£) Group Chair 1 290,000 30 0,150 Base Fee 65,000 67,275 SID Fee 10,000 10,000 Committee Chair Fee 15,000 15,000 1 Fee for Charles Allen at appointment on 20 July 2021 Louise Hardy receives a fee of £10k per annum in respect to her responsibility as Workforce Engagement Lead from 21 July 2022. All Non-executive Directors may be paid a travel allowance for intercontinental travel on Company business (excluding travel within home continent). Balfour Beatty plc Annual Report and Accounts 2022156 ### Alignment with provision 40 of the Corporate Governance Code Code requirements Our approach SIMPLICITY & CLARITY The remuneration framework is made up of three key elements: fixed Remuneration arrangements should be transparent and promote pay (including base salary, pension and benefits), annual bonus (AIP) effective engagement with shareholders and the workforce. and a separate long-term incentive (PSP). Remuneration structures should avoid complexity and their rationale The framework is simple to understand for both participants and and operation should be easy to understand. shareholders and the incentive elements are aligned to the strategic priorities for the business. RISK Identified risks have been mitigated as follows: Remuneration arrangements should ensure reputational and other @ variable remuneration targets are set at levels which reward high risks from excessive rewards, and behavioural risks that can arise performance but which do not encourage inappropriate business risk; from target-based incentive plans, are identified and mitigated. @ deferral of part of any bonus earned under the AIP into shares and the Governance holding period applied to any PSP award ensure variable remuneration is linked to sustainable performance and discourages short-term behaviours; @ all AIP and PSP awards to executive Directors include provisions for malus and clawback; and @ the Committee has the discretion to vary formulaic outcomes for incentive vesting should outcomes not reflect the underlying performance of the Group. PREDICTABILITY The potential remuneration in future periods under several The range of possible values of rewards to individual Directors and performance scenarios for the Group Chief Executive and the Chief any other limits or discretions should be identified and explained at Financial Officer in respect of awards to be made in 2023 under our the time of approving the policy. proposed remuneration policy are set out on pages 152 and 153. The Committee is comfortable that the discretions available to it aresufficient. PROPORTIONALITY A significant proportion of an executive Director’s reward is linked to The link between individual awards, the delivery of strategy and the performance through the incentive framework, with a clear line of sight long-term performance of the Company should be clear. Outcomes between performance and the delivery of long-term shareholder value. should not reward poor performance. Performance measures and the underlying targets are reviewed regularly by the Committee to ensure that they are directly aligned to the Group’s strategic priorities, and targets are calibrated to reward for strong performance over the performance period. Executive Directors are required to build material shareholdings in the Company and are subject to a post-cessation shareholding requirement on PSP awards which will ensure that their interests are aligned to the Group’s long-term performance. ALIGNMENT TO CULTURE The Committee is focused on ensuring that the Company's cultural Incentive schemes should drive behaviours consistent with framework, with its values and behaviours, is reflected across the the Company's purpose, values and strategy. entire business and believes that the executive Directors are rewarded on both what they deliver and how that isdelivered. Balfour Beatty plc Annual Report and Accounts 2022 157 ### PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED ## Annual report on remuneration This part of the Remuneration report sets out how the Remuneration Policy was implemented over the year ended 31 December 2022. Details of the remuneration earned by Directors and the outcomes of incentive schemes, including details of relevant links to Company performance, are also provided in this part. The following sections have been audited by KPMG: Remuneration received by Directors for the year ended 31 December 2022 including related notes (page 158); Outstanding share awards (page 162), PSP awards granted during the year (page 163); Payments to past Directors and payments for loss of office (page 163); and Statement of Directors’ shareholdings and share interests (page 163). ### Remuneration received by Directors for the year ended 31 December 2022 The table below sets out the Directors’ remuneration for the year ended 31 December 2022 (or for performance periods ended in that year in respect of long-term incentives) together with comparative figures for the year ended 31 December 2021. Fixed pay Variable pay Annual | | | | | | Pension | | | | Annual | | incentive | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base salary | | Taxable | | cash | | | | incentive | | deferred | | Long-term | | | | | | | | | | and fees | 1 | benefits | 2,3 | allowance | | Sub total | | cash | 4 | shares | 4 | incentives | 5,6 | Sub total | | Other | | Total | 6 | | Year | | £ | | £ | | £ | | £ | | £ | | £ | | £ | | £ | | £ | | £ | Executive Directors Philip Harrison 2022 463,998 14,617 92,800 571,415 349,200 349,200 867,265 1,565,665 – 2,137,080 2021 441,500 14,585 88,300 544,385 285,600 285,600 425,999 997,199 – 1,541,584 Leo Quinn 2022 814,000 21,218 162,800 998,018 589,950 589,950 1,929,268 3,109,168 – 4,107,186 2021 800,000 21,169 160,000 981,169 510,000 510,000 973,711 1,993 ,711 – 2,974,880 Non-executive Directors 7 Charles Allen 2022 295,075 6,458 – 301,533 – – – – – 301,533 2021 142,454 135 – 142,589 – – – – – 142,589 Stephen Billingham 2022 81,138 1,229 – 82,367 – – – – – 82,367 2021 79,500 134 – 79,634 – – – – – 79,634 Stuart Doughty 2022 81,138 1,776 – 82,914 – – – – – 82,914 2021 79,500 1,570 – 81,070 – – – – – 81,070 Anne Drinkwater 2022 81,138 12,706 – 93,844 – – – – – 93,844 2021 79,000 668 – 79,668 – – – – – 79,668 8 Louise Hardy 2022 54,332 1,222 – 55,554 – – – – – 55,554 2021 – – – – – – – – – – Michael Lucki 2022 66,138 12,618 – 78,756 – – – – – 78,756 2021 64,500 – – 64,500 – – – – – 64,500 Barbara Moorhouse 2022 66,138 3,313 – 69,451 – – – – – 69,451 2021 64,500 1,113 – 65,613 – – – – – 65,613 Former Non- executive Director Philip Aiken 2021 165,677 – – 165,677 – – – – – 165,677 1 Base salary and fees were those paid in respect of the period of the year during which the individuals were Directors. 2 Taxable benefits are calculated in terms of UK taxable values. Leo Quinn received private medical insurance for himself and his spouse and received a car allowance of £20,000 per annum. Philip Harrison received private medical insurance for himself (and also for his spouse from 1 April 2022 to 5 April 2022) and received a car allowance of £14,000 per annum. Charles Allen is eligible for a contribution to his reasonable business expenses, receiving £3,954 and taxable travel expenses of £2,504 in 2022. 3 The non-executive Directors received taxable travel expenses and/or travel allowances which are shown in the taxable benefits column. For Anne Drinkwater and Michael Lucki this includes an allowance for travel in November 2021 which was paid in May 2022 and April 2022 respectively. 4 AIP 2022: further details of these awards are set out on pages 159 and 160. For 2021, details of the AIP awards were set out in the 2021 Remuneration report. 5 For 2022, this relates to the 2020 PSP award for which the performance period ended in 2022, with the valuation of vesting shares calculated on a three-month average share price to 31 December 2022 of 316.4p. This compares to the 262.4p average middle market price for the three dealing dates before the PSP award date which was used for calculating the number of shares granted, so there is a benefit relating to share price appreciation since award of 54.0p per share and a value of £329,268 and £148,016 on vesting shares for Leo Quinn and Phillip Harrison respectively. Further details of the 2020 PSP awards are set out on page 161. For 2021, this relates to the 2019 PSP award for which the performance period ended in 2021, details of which were set out in the 2021 Remuneration report. For 2021, the valuation of the vesting shares for the 2019 PSP has been adjusted from the valuation included in the 2020 Remuneration report to reflect the actual valuation on the 28 March 2022 vesting date, based on a share price of 262.2p. This compares to the 259.8p average middle market price for the three dealing days before the PSP award date (which was used to calculate the number of shares granted), so there was a benefit relating to share price appreciation since award of 2.4p per share and a value of £8,913 and £3,899 for Leo Quinn and Phillip Harrison respectively. Under the rules of the PSP, participants may receive an award of shares in lieu of the value of dividends paid over the vesting period on vested shares. For the 2019 PSP award this was 14,788 shares for Leo Quinn and 6,468 shares for Philip Harrison with a valuation of £38,774 and £16,959 respectively calculated on the closing share price on the 28 March 2022 vesting date. 6 Total figures and long-term incentive figures for 2021 have been adjusted from the figures included in the 2021 Remuneration report to reflect the actual valuation on 28 March 2022 vesting date of shares vesting under the 2019 PSP. 7 Charles Allen was appointed to the Board on 13 May 2021 and took over as Group Chair on 20 July 2021. 8 Louise Hardy was appointed to the Board on 1 April 2022. Balfour Beatty plc Annual Report and Accounts 2022158 ### AIP awards for the year ended 31 December 2022 For 2022, the AIP for the executive Directors was a maximum bonus of 150% of base salary based on the achievement of three performance measures: @ profit before tax (40%); @ cash (35%); and @ strategic business and personal objectives (25%). The three elements are measured and calculated independently of each other and 50% of the bonus earned is deferred for three years in the form of Balfour Beatty shares. For the profit before tax element, 20% of the award would vest for threshold performance, increasing to 50% vesting of that element at target performance and then to 100% of that element at maximum performance or above. For the Group total cash flow element, 20% of that element would vest for threshold performance, increasing to 50% vesting of that element at target performance and then to 100% of that element at maximum performance or above. ### AIP metrics and outcomes The formulaic assessment of the Annual Incentive Plan indicated 95% of maximum to be paid to Leo Quinn and 97% of maximum to Philip Governance Harrison based on the performance described above. In line with good practice, this outcome was reviewed, specifically in the context of alignment with shareholder interests. | PROFIT BEFORE TAX AND | | | | | | GROUP TOTAL | | | | | | STRATEGIC BUSINESS AND | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | NON-UNDERLYING ITEMS | | | | | | CASH FLOW¹ | | | | | | PERSONAL OBJECTIVES | | | | AIP OUT-TURN | | | | | | | | | £291m | | | | | | £175m | | | | | | | | | | | NOTE: OUT-TURN | | | | | ACTUAL | | NOTE: OUT-TURN | | | | ACTUAL | GROUP CHIEF | | CHIEF FINANCIAL | | GROUP CHIEF | | CHIEF FINANCIAL | | | WILL BE | | | | | | | WILL BE | | | | | EXECUTIVE | | OFFICER | | EXECUTIVE | | OFFICER | | | PROVISIONALLY | | | | | | | PROVISIONALLY | | | | | | | | | | | | | | ABOVE MAX | | | | | | | ABOVE MAX | | | | | | | | | | | | | | 100% | | | | | | | 100% | | | | | | | | | | | | | | | | | | 100% | | | | | 100% | | | | | | | | | | | | | | | | | | | | | | | | | 80% | | 88% | | 95% | | 97% | | | | | | OF MAX. | | | | | OF MAX. | | | | | | | | | | | | | | | | | | | | | | | | | OF MAX. | | OF MAX. | | OF MAX. | | OF MAX. | | | £160.2M THRESHOLD | £200.2M TARGET | £220.3M | MAXIMUM | | £(94.5)M | THRESHOLD | £(71.5)M TARGET | £45.2M MAXIMUM | | | | | | | | | | | 1 Group total cash flow of £175m is the movement between opening and closing total net cash adjusted for £150m share buyback. A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section. Performance against the 2022 AIP strategic business and personal objectives as it relates to the executive Directors was: CEO – Strategic business and personal objectives 2022 Objective Weight Outcome and comments Achievement ### Environmental, Social and Governance Social value Increase measured total 20% Total UK measured social value increased to £816m in 2022 versus £717m in 20% social value generated 2021, showing good progress towards 2030 target of £3bn. across the UK in 2022 versus 2021 Safety Continue to demonstrate 20% Demonstrated strong safety leadership with good progress in developing the 20% safety leadership and Group's safety culture, including innovations introduced to improve safety improve overall safety performance such as: automated cone laying; the What3Things? initiative; culture and performance and digital permitting. in 2022 versus 2021. The 2022 safety performance was strong with improvements in 2022 versus 2021 in many key Group metrics, including: @ zero fatalities; @ LTIR: 0.15 (improved versus 0.19 in 2021); and @ observations: 380,000 (improved versus 297,000 in 2021). Balfour Beatty plc Annual Report and Accounts 2022 159 PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED # **AIP metrics and outcomes continued** | | Objective | Weight | Outcome and comments | Achievement | | --- | --- | --- | --- | --- | | **Environment** | Develop appropriate carbon reporting arrangements across the business. | 20% | Significant focus on the reporting process with progress including: - carbon action workshops and regular calls for UK business to support understanding and aid carbon accounting; - developed a sustainability dashboard for UK projects and business units; and - established annual carbon reduction targets for all key UK projects and business units. | 12% | | **People** | Continue to develop and improve employee engagement across the Group through various people programmes, including Diversity & Inclusion and Learning & Development initiatives. As a minimum, maintain the employee engagement index score at 2021 levels. | 20% | Strong performance, including: - Group employee engagement score (UK & US) increased to 79% in 2022 survey (from 76% in 2021); including Gammon this increases to 80%. - Strong focus on delivery against Diversity & Inclusion action plans; achievements include: - UK 2030 D&I targets launched; - UK female representation increased to 20.1% (from 18.9% in 2021); UK minority ethnic increased to 10.6% (from 8.6% in 2021); - employees in 'learn and learn' roles increased to 6.5% at December 2022, versus 5% Club target; and - UK 'Right to Respect' programme developed and piloted in advance of broader roll out in 2023. | 16% | | **Quality** | Develop and implement appropriate improvement plans within US military housing including review of management structure and culture/ethics development. | 20% | - Appointment of new Investments CEO in January 2022. - Launched cultural improvement plan in US. - Launched Code of Ethics and associated e-learning programme. | 12% | | **Total** | | 100% | | 80% | # **CFO – Strategic business and personal objectives 2022** | | Objective | Weight | Outcome/comments | Achievement | | --- | --- | --- | --- | --- | | **Capital restructure** | Deliver effective USPP refinancing plan ahead of March 2023 maturity date. | 35% | USPP refinancing plan successfully delivered, lengthening maturity profile out to ten years, despite difficult market conditions. | 35% | | **Safety** | Improve overall safety culture and performance in 2022 versus 2021. | 10% | Key member of senior management team developing safety culture and performance improvement; the 2022 safety statistics show strong safety performance notably with no fatalities and improved LTIR performance. | 10% | | **Environment** | Develop appropriate carbon reporting arrangements across the Group. | 10% | Demonstrated leadership to drive and support progress in carbon reporting. Carbon targets are now established across the Group and reporting has been integrated into business reviews and budget process. | 4% | | **People** | To promote continuing development across the Group and specifically within the Finance function, measured by an increase in the employee engagement index score in 2022 when compared to 2021. | 20% | Good progress and improvement, measured by: - Group employee engagement score (UK & US) increased to 79% in 2022 (from 76% in 2021); including Gammon this increases to 80%; - the employee engagement index score for the Finance function increased to 84% (from 83% in 2021); and - increased focus on development within the Finance function and improved succession pipeline for key roles. | 14% | | **Quality** | To improve year-on-year UK Prompt Payment Code performance on invoices paid within 60 days. Retain appropriate levels of bank and surety facilities, targeting a 20% increase. | 25% | Strong performance with improvement and changes including: - percentage of UK invoices paid within 60 days increased to 96% (full year 2022) from 93% (full year 2021), exceeding government procurement standard of 95%; and - established new facilities in 2022 to increase bonding capacity by 27%. | 25% | | **Total** | | 100% | | 88% | 160*Refiner Realty plc Annual Report and Accounts 2022* ### Vesting of PSP awards for the year under review The PSP awards granted on 11 June 2020 were based on a performance period for the three years ended 31 December 2022. The performance conditions applying to one-third of each award were comparative total shareholder return measured versus the companies ranked 51–200 by market capitalisation in the FTSE All Share Index (excluding investment trusts), operating cash flow and earnings per share. 25% of each of the total shareholder return and earnings per share parts of the award would vest for threshold performance increasing to 100% of each part of the award vesting for maximum performance or above. For the operating cash flow part, 25% of that part would vest for threshold performance, increasing to 50% vesting of that part at target performance and then to 100% of that part at maximum performance or above. In assessing the appropriateness of the formulaic outcomes of the performance targets, the Remuneration Committee considered the underlying performance of the Group over the three-year period and, on balance, the Committee considered the vesting outcome appropriately reflected the Group’s underlying performance. In addition, the Remuneration Committee also considered any potential windfall gains as a result of the award being made during a year when businesses were experiencing uncertainty relating to the COVID-19 pandemic. The Remuneration Committee noted that the executive Directors had requested that their 2020 PSP awards were held back to June 2020 (rather than March 2020 when the other PSP awards were made). The share price used for calculating the number of shares granted for the June 2020 PSP awards was 262.4p, which was higher than the 202.3p used for the March 2020 PSP awards and more in line with the share price used for the 2018 and 2019 PSP awards, mitigating the impact of potential windfall gains. The Committee is satisfied that no discretionary adjustments were Governance necessary. Details of the PSP awards vesting for the year under review are therefore as follows: ### PSP metrics and outcomes Metric Performance condition Measure Threshold Target Maximum Actual Vesting % Total shareholder TSR against the 120 remaining TSR ranking 60.5 or – 30.75 or 13 100% return companies ranked 51–200 in the FTSE All above above Share Index (excluding investment trusts) Cash Operating cash £135m £169m £203m £219m 100% flow (OCF) Earnings per share Underlying basic 22p – 33p 47.5p 100% earnings per share from continuing operations Total vesting 100% | | Number | Number | Number | Value of | | | --- | --- | --- | --- | --- | --- | | | of shares | of shares | of shares | vesting | | | Name of Director Type of award Vesting date | at grant | to vest | to lapse | shares | 1 | Philip Harrison 2020 conditional 11 June 2023 274,104 274,104 – 867,265 Leo Quinn 2020 conditional 11 June 2023 609,756 609,756 – 1,929,268 1 Valuation of vesting shares calculated on a three-month average share price to 31 December 2022 of 316.4p. This compares to the 262.4p average middle market price for the three dealing dates before the PSP award date which was used for calculating the number of shares granted, so there is a benefit relating to share price appreciation of 54.0p per share since award. | TOTAL SHAREHOLDER | | OPERATING CASH FLOW | | | EARNINGS | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 1 | | | 2 | | | | | RETURN | | (OCF)TARGETS | | | PER SHARE | | | PSP OUT-TURN | | | | | | | | | | | GROUP CHIEF | CHIEF FINANCIAL | | | Above upper | | £219m | | | | 47.5p | EXECUTIVE | OFFICER | | | | | | ACTUAL | | | ACTUAL | | | ## quartile ACTUAL ## 100% 100% 100% 100% 100% OF MAX. OF MAX. OF MAX. OF MAX. OF MAX. MEDIAN THRESHOLD QUARTILE UPPER MAXIMUM £135M THRESHOLD £169M TARGET £203M MAXIMUM 22P THRESHOLD 33P MAXIMUM 1 Operating cash flow of £219m is defined in the Measuring our financial performance section. 2 Underlying basic earnings per share from continuing operations. A reconciliation of the Group’s performance measures to its statutory results is provided in the Measuring our financial performance section. Balfour Beatty plc Annual Report and Accounts 2022 161 ### PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED Maximum number of shares subject to award ### Outstanding share awards | | | At | Awarded | | | Vested | | Lapsed | | At | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 January | | during the | | during the | | during the | | 31 December | | Exercisable and/or | | | Name of Director Share award Date granted | | 2022 | | year | | year | | year | | 2022 | | vesting from | Philip Harrison 1,5,6 PSP 28 March 2019 269,438 – 162,471 106,967 – 28 March 2022 2,5,6 PSP 11 June 2020 274,104 – – – 274,104 11 June 2023 3,5,6 PSP 19 March 2021 257,0 05 – – – 257,00 5 19 March 2024 4,5,6,7 PSP 1 April 2022 – 302,119 – – 302,119 1 April 2025 8,10,11 DBP 1 April 2019 82,951 – 82,951 – – 1 April 2022 8,9,11,13 DBP 31 March 2020 13 9,10 9 4,807 – – 143,916 31 March 2023 8,9,11,13 DBP 31 March 2021 61,495 2,125 – – 63,620 31 March 2024 8,9,11,12 ,13 DBP 31 March 2022 – 113,076 – – 113,076 31 March 2025 Leo Quinn 1,5,6 PSP 28 March 2019 615,858 – 371,362 244,496 – 28 March 2022 2,5,6 PSP 11 June 2020 609,756 – – – 609,756 11 June 2023 3,5,6 PSP 19 March 2021 5 40,175 – – – 540,175 19 March 2024 4,5,6,7 PSP 1 April 2022 – 616,570 – – 616,570 1 April 2025 8,10,11 DBP 1 April 2019 165,904 – 165,904 – – 1 April 2022 8,9,11,13 DBP 31 March 2020 270,772 9,359 – – 280,131 31 March 2023 8,9,11,13 DBP 31 March 2021 120,208 4,155 – – 124,363 31 March 2024 8,9,11,12 ,13 DBP 31 March 2022 – 201,923 – – 201,923 31 March 2025 1 2019 PSP award: This award vested in part on 28 March 2022. Details of the Company’s performance against the performance conditions were set out in the 2021 Remuneration report. Philip Harrison and Leo Quinn also received 6,468 and 14,788 shares respectively in lieu of the dividends which would have been payable on the shares which vested. The closing middle market price of ordinary shares on the vesting date was 262.2p. 2 2020 PSP award: Further details of this award are set out on page 161. 3 2021 PSP award: This award is subject to three performance targets over a three-year performance period commencing 1 January 2021. TSR part (33.3% weighting), measured against a comparator group of companies ranked 51–200 by market capitalisation in the FTSE All Share Index (excluding investment trusts), no vesting below median ranking, 25% vesting of this part at median, rising to 100% vesting at upper quartile performance or better. No portion of the cash part (33.3%) will vest unless the 2023 operating cash flow (OCF) is greater than £104 million. 25% to 50% will vest for OCF between £104 million and £149 million, rising to full vesting for OCF of £167 million or more. For the EPS part (33.3%), no vesting unless 2022 EPS is 18.5p, 25% vesting of this part at 18.5p, rising to full vesting at 27.7p or more. 4 2022 PSP award: Details are set out on page 163. 5 The average middle market price of ordinary shares in the Company for the three dealing dates before the PSP award dates, which was used for calculating the number of shares granted, was 259.8p for the 2019 award, 202.3p for the award granted on 23 March 2020, 262.4p for the award granted on 11 June 2020, 296.2p for the 2021 award and 259.5p for the 2022 award. The closing middle market price of ordinary shares on the date of the awards was 257.1p, 197.3p, 259.0p, 298.0p and 256.8p respectively. 6 All PSP awards are granted for nil consideration and are in respect of 50p ordinary shares in Balfour Beatty plc. It is the Company’s current intention that awards will be satisfied by shares purchased in the market. 7 A maximum of 3,624,249 conditional shares were awarded for all participants in the PSP in 2022, which are exercisable on 1 April 2025. 8 All DBP awards are granted for nil consideration and are in respect of 50p ordinary shares in Balfour Beatty plc. It is the Company’s current intention that awards will be satisfied by shares purchased in the market. 9 The DBP awards made on 31 March 2020, 31 March 2021 and 31 March 2022 will vest on 31 March 2023, 31 March 2024 and 31 March 2025 respectively, providing the participant is still employed by the Group at the vesting date (unless specified leaver conditions are met, in which case early vesting may be permitted). 10 The DBP awards made on 1 April 2019 vested on 1 April 2022. The closing middle market price of ordinary shares in the Company on the vesting date was 256.8p. 11 The shares subject to the DBP awards made on 1 April 2019, 31 March 2020, 31 March 2021 and 31 March 2022 were purchased at average prices of 259.7p, 216.9p, 300.8p and 261.3p respectively. 12 On 31 March 2022, for all participants in the DBP, a maximum of 947,192 conditional shares were awarded which will normally be released on 31 March 2025. 13 On 6 July 2022 and 5 December 2022 a further 53,578 conditional shares and 23,981 conditional shares were granted in lieu of entitlements to the final 2021 and interim 2022 dividend respectively for all participants in the DBP. These shares were allocated at prices of 253.4p and 329.0p respectively. 14 The closing market price of the Company’s ordinary shares on 31 December 2022 was 337.6p. During the year, the highest and lowest closing market prices were 346.0p and 215.6p respectively. Balfour Beatty plc Annual Report and Accounts 2022162 ### PSP awards granted during the year On 1 April 2022, the following PSP awards were granted to executive Directors: | | | | | Number of | | % of face value | | Vesting determined | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Share price | shares over | | that would vest | | | by performance | | | | Basis of award | | applied at | which award | Face value | | at threshold | | | over three | | Executive Type of award | | granted | date of grant | was granted | of award | | performance | | | years to Vesting date | | Philip Harrison Conditional 175% of salary of | | | 259.5p 302,119 £784,000 25% 31 December 2024 1 April 2025 | | | | | | | | £448,000 Leo Quinn Conditional 200% of salary of 259.5p 616,570 £1,600,000 25% 31 December 2024 1 April 2025 £800,000 Awards will vest to executives after three years, subject to the achievement of three independently measured performance conditions as set out below: Metric Performance condition Threshold Target Maximum Governance One-third Relative TSR against a comparator group of companies ranked Median – Upper quartile relativeTSR 51–200 by market capitalisation in the FTSE All Share Index (25% vests) (100% vests) (excluding investment trusts); straight-line vesting between points | One-third cash Group’s Operating Cash Flow from continuing operations; | | | £130m | | £185m | | | £204m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | straight-line vesting between points | (25% vests) | | (50% vests) | | | (100% vests) | | | One-third EPS Group’s EPS; straight-line vesting between points 28.7p | | | | | | – 43.9p | | | | | | (25% vests) | | | | | (100% vests) | | For these PSP awards, a post-vesting holding period will apply requiring the shares (net of tax) to be retained for two years. ### Payments to past Directors and payments for loss of office There were no payments to past executive Directors or payments for loss of office made during 2022. ### Statement of Directors’ shareholdings and share interests The interests of the Directors and connected persons (including, amongst others, members of the Director’s immediate family) in the share capital of Balfour Beatty plc and its subsidiary undertakings during the year are set out below: | | Beneficially | | | Beneficially | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | owned at | | | owned at | | | | | | | 1 January | | | 31 December | | | Outstanding | Outstanding | | Directors | | 2022 | 1,2 | | 2022 | 2,3,4 | PSPawards | DBP awards | Philip Harrison 485,948 619,271 833,228 320,612 Leo Quinn 2,612,590 2,983,726 1,766,501 606,417 Charles Allen – 100,000 Stephen Billingham 44,248 44,375 Stuart Doughty 4,550 4,550 Anne Drinkwater 4,500 4,500 Louise Hardy – – Michael Lucki – – Barbara Moorhouse 4,000 4,000 1 Or date of appointment, if later. 2 Includes any shares held in the Company’s all-employee Share Incentive Plan. 3 Or date of stepping down from the Board, if earlier. 4 As at 14 March 2023, the latest practicable date prior to the date of this report, there had been no changes to the above. 5 The closing market price of the Company’s ordinary shares as at 31 December 2022, 337.6p, was used to calculate the value of shares for the purpose of the executive Directors' shareholding guidelines on page 164. Balfour Beatty plc Annual Report and Accounts 2022 163 ### PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED ### Executive Directors’ shareholding guidelines EXECUTIVE DIRECTORS’ ### The Group Chief Executive and Chief Financial Officer are required SHAREHOLDING GUIDELINES under the Company’s shareholding guidelines to hold shares in the | Company worth 200% and 150% of base salary respectively and | | GROUP CHIEF | CHIEF FINANCIAL | | --- | --- | --- | --- | | must retain no fewer than 50% of the shares, net of taxes, vesting | | EXECUTIVE | OFFICER | | under their outstanding DBP and PSP awards until the required | (% of base | 1,348% 200% | 555% 150% | | shareholding is met. | salary held) | | | In line with the Investors Association (IA) guidelines, the calculations shown in the chart include shares beneficially owned at 31 December 2022 plus unvested shares, which are not subject to a further performance condition (outstanding DBP awards), on a net of tax basis. Both executive Directors’ share interests met the Company’s shareholding guidelines at 31 December 2022. ACTUAL GUIDELINE ACTUAL GUIDELINE ### Performance graph As in previous reports, the Remuneration Committee has chosen to compare the TSR on the Company’s ordinary shares against the FTSE 250 Index (excluding investment trusts) principally because this is a broad index of which the Company is a constituent member. The values indicated in the graph show the share price growth plus reinvested dividends from a £100 hypothetical holding of ordinary shares in Balfour Beatty plc and in the index and have been calculated using 30-day average values. Total shareholder return (TSR) 350 300 250 200 150 Value (£) (rebased) 100 50 Source: Thomson Reuters Datastream 0 31/12/12 31/12/13 31/12/14 31/12/15 31/12/16 31/12/17 31/12/18 31/12/19 31/12/20 31/12/21 31/12/22 Balfour Beatty plc FTSE 250 (excluding Investment Trusts) ### Group Chief Executive’s remuneration table The total remuneration figures for the Group Chief Executive during each of the last 10 financial years are shown in the table below. The total remuneration figure includes the AIP award based on that year’s performance and the PSP award based on the three-year performance period ending in the relevant year. The AIP payout and PSP vesting level as a percentage of the maximum opportunity are also shown for each of these years. Year ended 31 December 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 1,3,4 remuneration £961,350 £797,5 6 8 £1,442,070 £1,445,250 £4,124,104 £2,982,121 £3,066,624 £2,254,806 £2,974,880 £4,107,186 2 AIP (%) 21.0% 0% 47.0% 47.5% 97.0% 69.06% 96.25% 59.25% 85% 95% PSP (%) 0% 0% 0% 0% 88.6% 6 4.17% 60.92% 33.33% 60.3% 100% 1 The figures for 2013 and 2014 are annualised figures for Andrew McNaughton who was appointed on 31 March 2013 and stepped down on 3 May 2014. The figures from 2015 onwards relate to Leo Quinn. 2 Andrew McNaughton did not qualify for any 2014 AIP. 3 Total remuneration for 2021 has been adjusted from the total figure included in the 2021 Remuneration report to reflect the actual valuation on the 28 March 2022 vesting date of shares vesting under the 2019 PSP. 4 The figures for 2017 and 2018 exclude the vesting of awards made under the recruitment terms for the Group Chief Executive. Full details of these were included in the 2018 Remuneration report. Balfour Beatty plc Annual Report and Accounts 2022164 ## Percentage change in Directors' remuneration compared with all UK employees The table below shows the percentage change in the remuneration of the Directors undertaking the roles of Group Chief Executive and Chief Financial Officer and the Non-executive Directors between the financial years, compared with the percentage increase for the same years for all UK employees of the Group where UK employees have been selected as the most appropriate comparator. Charles Allen was not a Director until 13 May 2021 and therefore his percentage change between 2021 and 2022 is shown in the table on an annualised basis. Louise Hardy was not a Director until 1 April 2022 and is therefore not shown in the table. | | % change between 2021 and 2022 | | | | % change between 2020 and 2021 | | | | % change between 2019 and 2020 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base salary | Benefits^{1} | Annual bonus | Total remuneration | Base salary | Benefits | Annual bonus | Total remuneration | Base salary | Benefits | Annual bonus | Total remuneration | | Leo Quinn, Group Chief Executive | 2% | 2% | 16% | 9% | 3% | 3% | 43% | 21% | (3)% | (3)% | (38)% | (22)% | | Philip Harrison, Chief Financial Officer | 5% | 4% | 22% | 14% | 11% | 8% | 57% | 30% | (2)% | 1% | (39)% | (22)% | | Charles Allen, Group Chair | 31% | 2,930% | - | 34% | - | - | - | - | - | - | - | - | | Stephen Billingham, Senior Independent Director | 2% | 817% | - | 3% | 6% | (42)% | - | 6% | (1)% | (29)% | - | (1)% | | Stuart Doughty, Non-executive Director | 2% | 13% | - | 2% | 6% | 77% | - | 7% | (1)% | (52)% | - | (2)% | | Anne Drinkwater, Non-executive Director | 3% | 1,802% | - | 18% | 5% | (87)% | - | (1)% | 6% | (12)% | - | 5% | | Michael Lucki, Non-executive Director | 3% | - | - | 22% | 7% | (100)% | - | (9)% | (3)% | (39)% | - | (10)% | | Barbara Moorhouse, Non-executive Director | 3% | 198% | - | 6% | 7% | (5)% | - | 7% | (3)% | 34% | - | (2)% | | All UK employees | 7% | 13% | 11% | 7% | (2)% | 5% | 122% | 0% | 0% | 3% | (44)% | 0% | $^{1}$ Benefits for Non-executive Directors relate to taxable travel expenses and/or travel expenses which are shown in the taxable benefits column of the Remuneration received by Directors for the year ended 31 December 2022 table on page 158. The reported percentage increases in benefits in 2022 from 2021 have been impacted significantly by COVID-19 restrictions on travel in 2021. Note: In response to the COVID-19 pandemic, the executive Directors and Non-executive Directors took a voluntary 20% reduction in salary/fees in April and May 2020. ## Pay ratio of Group Chief Executive to average employee The Regulations require certain companies to disclose the ratio of the Chief Executive's pay, using the amount set out in the single total figure table, to that of the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees. The table below shows the relevant data for Balfour Beatty's UK employees for 2022, together with the 2021, 2020 and 2019 data, calculated using Option A as set out in the legislation. | Year | Method of calculation adopted | 25th percentile pay ratio | Median pay ratio | 75th percentile pay ratio | | --- | --- | --- | --- | --- | | | | (Group Chief Executive UK employees) | (Group Chief Executive UK employees) | (Group Chief Executive UK employees) | | 2022 | Option A | 115.1 | 81.1 | 59.1 | | 2021 | Option A | 84.1 | 57.1 | 40.1 | | 2020 | Option A | 64.1 | 45.1 | 32.1 | | 2019 | Option A | 93.1 | 65.1 | 45.1 | Pay details for the Group Chief Executive and individuals whose 2022 remuneration is at the median, 25th percentile and 75th percentile amongst UK-based employees are as follows: | | Group Chief Executive | 25th percentile | Median | 75th percentile | | --- | --- | --- | --- | --- | | Salary | £826,000^{1} | £29,061 | £39,900 | £56,700 | | Total pay and benefits | £4,107,186 | £35,575 | £50,749 | £69,777 | $^{1}$ Group Chief Executive base salary at 31 December 2022 The median, 25th percentile and 75th percentile figures used to determine the above ratios were calculated by reference to the full-time equivalent annualised remuneration (comprising salary, benefits, pension, annual bonus and long-term incentives) of all UK-based employees of the Group as at 31 December 2022 (i.e. 'Option A' under the Regulations). The Committee selected the calculation methodology as it was felt to produce the most statistically accurate result. The Committee considers that the median pay ratio for 2022 that is disclosed in the above table is consistent with the pay, reward and progression policies for Balfour Beatty's UK employees taken as a whole. It reflects the fact that a greater proportion of executive Director pay is linked to annual performance through a higher annual incentive plan opportunity (a percentage of which is subject to deferral into shares) and a long-term incentive plan. The increases in the pay ratios for 2022 when compared to 2021 reflect the higher out-turn for both the AIP and PSP in 2022 when compared to 2021. Balfour Beatty plc Annual Report and Accounts 2022 165 Appendix **PROPOSED DIRECTORS' REMUNERATION POLICY CONTINUED** # **Relative importance of spend on pay, dividends and underlying pre-tax profit** The following table shows the Company's actual spend on pay for all Group employees relative to dividends and underlying pre-tax profit: | | 2021 | 2020 | % change | | --- | --- | --- | --- | | Staff costs (£m) | 1,187 | **1,259** | 6% | | Dividends (£m) | 29 | **58** | 100% | | Underlying pre-tax profit (£m) | 187 | **291** | 56% | 1. Staff costs include base salary, benefits and bonuses for all Group employees (excluding joint ventures and associates). # **Directors' pension allowances** No Directors were contributing members of the Balfour Beatty Pension Fund during 2022. The executive Directors were in receipt of a cash allowance in lieu of pension equivalent to 20% of base salary as disclosed in the Directors' remuneration table on page 158. The pension contribution level for executive Directors contrasts to the wider UK workforce who currently typically receive pension contributions of up to 7% of salary. From the end of December 2022, the salary supplement in lieu of pension contribution paid to the incumbent executive Directors has been aligned with the wider workforce. # **External appointments of executive Directors** No executive Director held external appointments in 2022. # **Service contracts** Executive Directors' contracts are on a rolling 12 month basis and are subject to 12 months' notice when terminated by the Company and six months' notice when terminated by the Director. The current Non-executive Directors, including the Chairman, do not have a service contract and their appointments, whilst for a term of three years, may be terminated with three months' notice (six months' notice for the Group Chair) by either party. All Non-executive Directors have letters of appointment and their appointment and subsequent re-appointment is subject to annual approval by shareholders. | Name | Commencement date | Unexpired term remaining | | --- | --- | --- | | Leo Quinn, Group Chief Executive | 1 January 2015 | Terminable on 12 months' notice | | Philip Harrison, Chief Financial Officer | 1 June 2015 | Terminable on 12 months' notice | | Charles Allen, Group Chair | 13 May 2021 | Fixed term expiring on 12 May 2024 (subject to renewal) and terminable on six months' notice | | Stephen Billingham, Non-executive Director and Senior Independent Director | 1 June 2015 | Fixed term expiring on 31 May 2024 (subject to renewal) and terminable on three months' notice | | Stuart Doughty, Non-executive Director | 8 April 2015 | Fixed term expiring on 7 April 2024 (subject to renewal) and terminable on three months' notice | | Anne Drinkwater, Non-executive Director | 1 December 2018 | Fixed term expiring on 30 November 2024 (subject to renewal) and terminable on three months' notice | | Louise Hardy, Non-executive Director | 1 April 2022 | Fixed term expiring on 31 March 2025 (subject to renewal) and terminable on three months' notice | | Michael Lucki, Non-executive Director | 1 July 2017 | Fixed term expiring on 30 June 2025 (subject to renewal) and terminable on three months' notice | | Barbara Moorhouse, Non-executive Director | 1 June 2017 | Fixed term expiring on 31 May 2023 (subject to renewal) and terminable on three months' notice | 166 Balfour Beatty plc Annual Report and Accounts 2022 ## Consideration by the Directors of matters relating to Directors' remuneration The members of the Remuneration Committee are independent Non-executive Directors, as defined under the Corporate Governance Code. No member of the Committee has conflicts of interest arising from cross-directorships and no member is involved in the day-to-day executive management of the Group. During the year under review, the members of the Committee were as follows: - Anne Drinkwater (Committee Chair); - Michael Lucki; and - Barbara Moorhouse. The Committee also receives advice from several sources, namely: - the Group Chief Executive and the Group HR Director, who are invited to attend meetings of the Committee but are not present when matters relating directly to their own remuneration are discussed; and - Deloitte LLP. At regular intervals the Committee reviews the appropriateness and independence of the advice received from remuneration consultants. As the result of a competitive tender process in 2020, Deloitte LLP was appointed as independent remuneration consultants to the Committee. Deloitte LLP is a member of the Remuneration Consultants Group and, as such, voluntarily operates under its Code of Ethics in relation to executive remuneration consulting in the UK. During the year, the Committee's remuneration consultants provided a range of advice to the Committee, including: - analysis of market practice and corporate governance update; - provision of benchmark data for senior management and Non-executive Director remuneration; - assistance with reviewing the remuneration policy and recommendations for the new remuneration policy; - assistance with the consultation of shareholders in respect of the new remuneration policy; - assistance with the drafting of the Remuneration report; and - calculation of vesting levels under the TSR element of the PSP awards. During 2022, Deloitte LLP received fees amounting to £106,750 excluding VAT (£62,150 excluding VAT in 2021) in respect of advice given to the Committee. Deloitte also provided tax and legal services to the Group related to the operation of the Group's share plans. Other than as disclosed above, Deloitte LLP has no connection with the Company or individual Directors. The Committee is satisfied the advice provided by Deloitte LLP is independent. ## Terms of reference During the period, the Committee has agreed a number of changes to be made to its Terms of Reference, as part of the annual review. Full Terms of Reference can be found in the Investors section of the Company's website at: www.balfourbeatty.com/investors/governance/board-committees/. ## Statement of shareholder voting at the AGM At the AGM on 12 May 2022, the resolution to approve the Annual Report on remuneration received the following votes from shareholders: | | Total number of votes | % of votes cast | | --- | --- | --- | | For | 464,255,659 | 93.59% | | Against | 31,798,975 | 6.41% | | Total votes cast | 496,054,634 | 100% | | Abstentions | 42,544 | | The resolution to approve the Remuneration policy was approved at the AGM on 25 June 2020 and received the following votes from shareholders: | | Total number of votes | % of votes cast | | --- | --- | --- | | For | 471,417,406 | 93.57% | | Against | 32,405,719 | 6.43% | | Total votes cast | 503,823,126 | 100% | | Abstentions | 36,178,361 | | By order of the Board **Anne Drinkwater** Chair of the Remuneration Committee 15 March 2023 Supervision Balfour Beatty plc Annual Report and Accounts 2022 167 ### DIRECTORS' REPORT The Directors of Balfour Beatty plc present their report, together with the The powers of the Directors to issue or buyback the Company’s audited financial statements for the year ended 31 December 2022. For shares are determined by the Companies Act 2006 and the Articles the purpose of the Financial Reporting Council’s Disclosure Guidance and ofAssociation. The Directors are authorised to issue and allot shares Transparency Rule (DTR) 4.1.8R, the Directors’ report is also the and to buy back shares subject to annual shareholder approval at the Management report for the year ended 31 December 2022. AGM. Such authorities were granted by shareholders at the 2022 AGM and it will be proposed at the 2023 AGM that the Directors As permitted by Section 414 C(11) of the Companies Act 2006, some begranted new authorities to issue, allot and buyback shares. matters required to be included in the Directors’ report have instead been included in the Strategic report. These disclosures are incorporated by Under the authority provided at the 2021 AGM the Company commenced reference in the Directors’ report. The Strategic report can be found on its 2022 share buyback programme on 11 March 2022. Further authority pages 1 to 105. for share buybacks was provided at the 2022 AGM. During the year ended 31 December 2022, the Company purchased 51,970,862 ordinary shares for a total consideration of £149,999,829.66 (exclusive of expenses). ### Corporate governance These shares were held in treasury with no voting or dividend rights. The Governance section on pages 106 to 167, forms part of this On7June 2022, 50,334,350 treasury shares were cancelled (comprising Directors’ report. shares purchased in the 2021 share buyback programme), and on The Company complied with the UK Corporate Governance Code 20December 2022, 51,970,862 treasury shares were cancelled leaving with the exception of provision 38, which the Company complied abalance of no treasury shares held as at 31 December 2022. with in part. In compliance with provision 38 of the Code, only the TheCompany commenced the 2023 share buyback programme on basic salary of executive Directors is pensionable. As set out in the 3January 2023. As at the 13 March 2023 (the latest practicable date Directors’ Remuneration Policy, pension contributions (or salary prior tothe date of this document), the Company had purchased supplement in lieu) for new executive Directors will, in compliance 12,665,396 ordinary shares for a total consideration of £45,489,462.30 with the Code, be aligned with the majority of the wider UK and these shares are held in treasury with no voting or dividend rights. workforce and, from the end of December 2022, the pension Throughout the year, the Company’s issued share capital was publicly contributions (or salary supplement in lieu) paid to the incumbent listed on the London Stock Exchange and it remains so as at the date of executive Directors was aligned with the wider workforce. this report. There are no specific restrictions on the size of a shareholding which is governed by the Articles of Association and the prevailing law. ### Directors and their interests Other than in respect of shares that vest under the Company’s share The Directors who were Directors at 31 December 2022 were Charles schemes and are subject to a two-year holding period, there are no Allen, Leo Quinn, Philip Harrison, Stephen Billingham, Anne specific restrictions on the transfer of shares which are both governed by Drinkwater, Stuart Doughty, Barbara Moorhouse, Michael Lucki, and the Articles of Association and the prevailing law. The Directors are not Louise Hardy. Further details and individual biographies for current aware of any agreements between holders of the Company’s shares that Directors are set out on page 111. may result in restrictions on the transfer of shares or on voting rights. The interests of the Directors and their connected persons in the No person has special rights of control over the Company’s share capital Company’s shares, (as notifiable to the Company under Article 19 of and all issued shares are fully paid. Shares held by the Balfour Beatty the Market Abuse Regulation) are set out on page 163. In the period Employee Share Ownership Trust rank pari passu with the ordinary shares between 31 December 2022 and the date of this report Louise Hardy in issue and have no special rights. was appointed as a non-executive director of Travis Perkins plc and Barbara Moorhouse was appointed as a non-executive director of Voting rights and rights of acceptance of any offer relating to the shares Dŵr Cymru Welsh Water. held in this trust rest with the trustees, who may take account of any recommendation from the Company. Voting rights are not exercisable by At no time during 2022 did any of the Directors have a material the employees on whose behalf the shares are held in trust. Dividends are interest in any contract with the Company or any of its subsidiaries. waived by the trustees in relation to the shares held in trust. Details of shares held by the Balfour Beatty Share Ownership Trust in ### Directors’ indemnities and insurance relation to the Company’s share schemes can be found in Note 32.3 The Group maintains directors’ and officers’ liability insurance which on page 229. provides appropriate cover for legal action brought against its Directors. Qualifying third-party indemnity provisions were in force during 2022 ### Major shareholders’ interests and as at the date of this report for the benefit of certain employees Notifications provided to the Company by major shareholders in who are directors of a subsidiary company. accordance with the DTR are published via a Regulatory Information Qualifying pension scheme indemnity provisions (as defined by Section Service and on the Company’s website. 235 of the Companies Act 2006) were in force during the year ended The Company has been notified of the following interests in voting rights in 31December 2022 for the benefit of the trustee directors of the Balfour its shares as at 31 December 2022 and as at the date of this report. Please Beatty Pension Fund. note that percentages provided are as at the date ofnotification. Percentage of Percentage of ### Articles of Association | | | voting rights (%) | | voting rights (%) | | | --- | --- | --- | --- | --- | --- | | The Company has not adopted any special rules regarding the | | | as at | | as at | | appointment and replacement of Directors or the amendment of | 2022 ARA disclosure | 31 December 2022 | | 13 March 2023 | | | theArticles of Association, other than as provided for under UK | BlackRock, Inc 6.25 6.25 | | | | | | company law. | Schroders plc 5.10 5.10 | | | | | ### Share capital ### Dividends Details of the share capital of the Company as at 31 December 2022, An interim dividend of 3.5 pence (2021: 3.0 pence) was paid on including the rights attaching to the shares, are set out in Note 31 on 5December 2022. A final dividend of 7.0 pence per share (2021: page 227. No shares were issued during 2022. 6.0pence) hasbeen recommended by the Board for shareholder approval at the 2023 AGM, giving total dividends per ordinary share of 10.5 pence for 2022 (2021: 9.0 pence). The Directors will continue to Balfour Beatty plc Annual Report and Accounts 2022168 offer a Dividend Reinvestment Plan, which allows holders of ordinary shares to reinvest their cash dividends in the Company's shares through a specially arranged share dealing service. ### Branches As the Group is an international business, there are activities operated through branches in certain jurisdictions. ### Auditor KPMG LLP has indicated its willingness to continue as auditor to the Company following the rotation of the lead audit partner. A resolution for its reappointment will be proposed at the 2023 AGM. ### Company Secretary Tracey Wood is Company Secretary and was Company Secretary throughout the year ended 31 December 2022. ### Innovation, future development and research and development Information concerning innovation, future development and research and development is set out on pages 30 and 45 and forms part of the Directors' report disclosures. ### Sustainability A full description of the Group's approach to sustainability, including information on its community engagement programme, appears on pages 55 to 63. ### Policies The Group's Code of Ethics and other published policies, including policies on: speak up, health and safety; conflicts of interest, sustainability; sustainable procurement; social value; environment; supply chain media; PR and marketing; quality; and information security; remain in place and can be accessed on the Company's website www.balfourbeatty.com. ### Engagement with suppliers and customers Details of the Company's approach to stakeholder engagement, including engagement with customers and suppliers can be found on pages 26 to 29. ### Greenhouse gas emissions Details of Balfour Beatty's greenhouse gas emissions and the actions which the Group is taking to reduce them are set out on pages 57 to 63 and form part of the Directors' report disclosures. ### Employment The Balfour Beatty Group operates across a number of geographies and end markets. Balfour Beatty provides a Human Resources framework for promoting diversity, ethical behaviour and learning and development as well as continuing to fulfil its commitments in relation to regulation and corporate governance. The Group provides fair and flexible employment policies and practices that respond to the different needs of its people. Information concerning employee diversity is set out on pages 69 and forms part of the Directors' report disclosures. Balfour Beatty strives to provide employment, training and development opportunities for the disabled community wherever possible, does not discriminate, and is committed to supporting employees who become disabled during employment, and helping disabled employees make the best use of their skills, expertise and potential, consistent with any other employee. The Company operates an employee share incentive plan (SIP) which enables UK-based employees to acquire the Company's ordinary shares on a potentially tax-favourable basis, in order to encourage employee share ownership and provide additional alignment between the interests of employees and shareholders. Participants in the SIP are the beneficial owners of shares but not the registered owners, and the voting rights to such shares are exercised by the trustee of the SIP at the discretion of the participants. Information concerning financial and economic factors affecting the performance of the Group and the Company's share price is available to all employees via the Company's intranet site. Further information on how Directors have engaged with employees and how they have had regard to employee interests can be found on pages 116-120. ### Employees Details on the average number of employees within the Group can be found on page 200. ### Diversity Details on the Company's Board Diversity Policy can be found in the Nomination Committee report on page 132. Details of the Group's approach to diversity and inclusion can be found on page 69. ### Disclosures required under Listing Rule 9.8.4 There are no disclosures required to be made under UK Listing Rule 9.8.4. Details of long-term incentive plans can be found in the Summary of policy and implementation in 2023 on page 156. ### Events after the reporting date Events after the reporting date are set out in Note 39 on page 234. ### Political donations At the AGM held in May 2022, shareholders gave authority, for the purposes of Part 14 of the Companies Act 2006, for the Company and its subsidiaries to make donations to political organisations up to a maximum aggregate amount of £25,000. This approval is a precautionary measure in view of the broad definition of these terms in the Companies Act. No such expenditure or donations were made during the year and shareholder authority will be sought again at the 2023 AGM. In the US, corporate political contributions totalling US$81,000 (£65,000) were made by business units during 2022. The majority of the contributions were made by the business unit based in California to support voter approval for the issuance of school bonds. Any political contributions or donations are tightly controlled and must be approved in advance in accordance with the Company's internal procedures and must also adhere strictly to the Company's Code of Ethics. ### Capitalised interest Details of the Group's capitalised interest can be found in Note 15 on page 205. ### Financial instruments The Group's financial risk management objectives and policies (including its hedging policy) and its exposure to the following risks – liquidity, foreign currency, interest rate, price and credit – are detailed in Note 40 on pages 235 to 239. ### Going concern and viability The Group's going concern statement is detailed in Note 1 on page 187. The long-term Viability statement is set out on page 97. Business Balfour Beatty plc Annual Report and Accounts 2022 169 ### DIRECTORS' REPORT CONTINUED ### Change of control provisions @ select suitable accounting policies and then apply them consistently; The Group’s bank facility and surety agreements contain provisions @ make judgements and estimates that are reasonable, relevant, that, where the parties are unable to agree the implications of any reliable, and prudent; change of control, on notice being given to the Group, the lenders and sureties may exercise their discretion to require prepayment of any @ for the Group financial statements, state whether they have been loans or outstanding bonds and cancel all commitments under the prepared in accordance with UK-adopted international accounting agreement concerned. standards; A number of significant joint venture and contract bond agreements @ for the Parent Company financial statements, state whether include provisions which become exercisable by a counterparty on applicable UK accounting standards have been followed, subject to achange of control. These include the right of acounterparty to any material departures disclosed and explained in the Parent request additional security and to terminate anagreement. Company financial statements; The Group’s US private placement arrangements require the @ assess the Group and Parent Company’s ability to continue as a Company, promptly upon becoming aware that a change of control of going concern, disclosing, as applicable, matters related to going the Company has occurred (and in any event within 10 business concern; and days), to give written notice of such fact to all noteholders and make @ use the going concern basis of accounting unless they either intend an offer to prepay the entire unpaid principal amount of the notes, to liquidate the Group or the Parent Company or to cease together with accrued interest. operations, or have no realistic alternative but to do so. Some other commercial agreements, entered into in the normal The Directors are responsible for keeping adequate accounting course of business, include change of control provisions. The Group’s records that are sufficient to show and explain the Parent Company’s share and incentive plans include usual provisions relating to change transactions and disclose with reasonable accuracy at any time the of control. There are no agreements providing for compensation for financial position of the Parent Company and enable them to ensure the Directors or employees on a change of control. that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is ### Annual General Meeting necessary to enable the preparation of financial statements that are All resolutions continue to be put to a poll rather than a show of free from material misstatement, whether due to fraud or error, and hands. Each substantially separate issue is proposed via a separate have general responsibility for taking such steps as are reasonably resolution and proxy forms provide for shareholders to vote for, vote open to them to safeguard the assets of the Group and to prevent and against or withhold their vote on each resolution. detect fraud and other irregularities. All Board members typically attend the AGM and are available to Under applicable law and regulations, the Directors are also responsible answer questions during the formal part of the meeting as well as for preparing a Strategic Report, Directors’ Report, Directors’ being present for informal discussion over refreshments after the AGM. Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The 2023 AGM will be held at The Curve, Axis Business Park, Hurricane Way, Langley SL3 8AG, United Kingdom on Friday 12May 2022 The Directors are responsible for the maintenance and integrity of the commencing at 10am. corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ### Statement of Directors as to disclosure of ### information to the Company's auditor ### We confirm that to the best of our knowledge: Responsibility statement of the Directors in respect ### of the Annual Financial Report @ each of the persons who are Directors at the time when this We confirm that to the best of our knowledge: Directors’ Report is approved confirms that, so far as they are aware, there is no relevant audit information of which the @ the financial statements, prepared in accordance with the Company’s auditor is unaware and that they have taken all the applicable set of accounting standards, give a true and fair view of steps that they ought to have taken as a Director to make the assets, liabilities, financial position and profit or loss of the themselves aware of any relevant audit information and to establish Company and the undertakings included in the consolidation taken that the Company’s auditor is aware of that information. as a whole; and @ the Strategic report includes a fair review of the development and ### Statement of Directors’ responsibilities in respect performance of the business and the position of the Company and the ### of the Annual Report and the financial statements undertakings included in the consolidation taken as a whole, together The Directors are responsible for preparing the Annual Report and the with a description of the principal risks and uncertainties that they face. Group and Parent Company financial statements in accordance with We consider the Annual Report and Accounts, taken as a whole, is applicable law and regulations. fair, balanced, and understandable and provides the information Company law requires the Directors to prepare Group and Parent necessary for shareholders to assess the Group’s position and Company financial statements for each financial year. Under that law performance, business model and strategy. they are required to prepare the Group financial statements in This confirmation is given and should be interpreted in accordance accordance with UK-adopted international accounting standards and with the provisions of Section 418 of the Companies Act 2006. applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards and By order of the Board applicable law, including FRS 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial Tracey Wood statements unless they are satisfied that they give a true and fair Group General Counsel and Company Secretary view of the state of affairs of the Group and Parent Company and of 15 March 2023 the Group’s profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are Registered Office: 5 Churchill Place, Canary Wharf, London E14 5HU required to: Registered in England and Wales, registered number 395826 Balfour Beatty plc Annual Report and Accounts 2022170 INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BALFOUR BEATTY PLC # 1 Our opinion is unmodified We have audited the financial statements of Balfour Beatty plc ("the Company") for the year ended 31 December 2022 which comprise the Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Changes in Equity, Company Statement of Changes in Equity, Group and Company Balance Sheets, Group Statement of Cash Flows, and the related notes, including the accounting policies in Note 2. The financial statements exclude the commentary provided by the Directors on pages 180, 181, 182, 184 and 186. In our opinion: - the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2022 and of the Group's profit for the year then ended; - the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; - the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. # Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit and Risk Committee. We were first appointed as auditor by the Company's shareholders on 19 May 2016. The period of total uninterrupted engagement is for the seven financial years ended 31 December 2022. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. Apart from the matter noted below, we have not performed any non-audit services during the year ended 31 December 2022 or subsequently which are prohibited by the FRC Ethical Standard. During 2023, we identified that a KPMG member firm had provided preparation of local financial statement services over the period 2017 to 2022 to an entity that is not material to the Group and over which no audit procedures were performed for the purpose of the Group audit. The services, which have been terminated, were administrative in nature and did not involve any management decision-making or bookkeeping. The work in each case had no direct or indirect effect on Balfour Beatty plc's consolidated financial statements. In our professional judgment, we confirm that based on our assessment of the breach, our integrity and objectivity as auditor has not been compromised and we believe that an objective, reasonable and informed third party would conclude that the provision of this service would not impair our integrity or objectivity for any of the impacted financial years. The Audit and Risk Committee has concurred with this view. # 2 Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. We summarise below the key audit matters unchanged from 2021, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. Financial statements Balfour Beatty plc Annual Report and Accounts 2022 171 INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BALFOUR BEATTY PLC CONTINUED # **2 Key audit matters: our assessment of risks of material misstatement continued** | The risk | Our response | | --- | --- | | **Contract accounting** Construction Services revenue £6,409 million (2021: £5,920 million), contract assets £209 million (2021: £132 million), contract liabilities £550 million (2021: £565 million), contract provisions £179 million (2021: £149 million) | **Risk vs 2021: ➡** | | Refer to pages 138-141 (Audit and Risk Committee report), Note 2.4 (Principal accounting policies – Revenue recognition), Note 2.27(a) (Judgements and key sources of estimation uncertainty – Revenue and margin recognition) | | # **Subjective estimates** For the majority of its contracts, the Construction Services segment recognises revenue over time and measures the progress based on the input method by considering the proportion of contract costs incurred for the work performed to the balance sheet date, relative to the estimated total forecast costs of the contract at completion. The recognition of revenue and profit within the Construction Services segment therefore relies on estimates in relation to the forecast total costs of each contract. Cost contingencies may also be included in these estimates to take account of specific uncertain risks, or disputed claims against the Group, arising within each contract. These contingencies are reviewed by the Group on a regular basis throughout the contract life and amounts are re-estimated, until the outcome of the contract is known. The revenue on contracts within the Construction Services segment may also include variations and claims, which fall under either the variable consideration or contract modification requirements of IFRS 15 Revenue from Contracts with Customers. These are recognised on a contract-by-contract basis when evidence supports that the contract modification is enforceable or when variable consideration is highly probable that a significant reversal in the amount of revenue recognised will not occur. The effect of these matters is that, as part of our risk assessment, we determined that contract revenue within the Construction Services segment and other related contract balances have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the Group financial statements as a whole, and possibly many times that amount. Therefore, auditor judgement is required to assess whether the Directors' estimates for total forecast costs and variable consideration are acceptable. The financial statements (Note 2.27(a)) disclose the nature and extent of the estimates and judgements made by the Group. We performed the tests below rather than seeking to rely on the Group's controls because the nature of the balances is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Using a variety of quantitative and qualitative criteria we selected a sample of contracts to assess and challenge the most significant and complex contract estimates. We obtained the project review papers from the Group to support the estimates made and challenged the judgements underlying those papers with operational, legal, commercial and financial management. Our procedures included: - ➤ **Historical comparisons:** assessing the Group's ability to accurately forecast end of life contract margins by comparing the previous total forecast costs and variable consideration previously recognised to final agreed outcomes; - ➤ **Customer correspondence scrutiny:** analysing correspondence with customers around variations and claims to challenge the estimates of claims and variations made by the Group; - ➤ **Legal correspondence scrutiny:** analysing correspondence with lawyers, and other legal opinions including arbitration results or other legal advice obtained by the Group, around variations and claims; - ➤ **Test of detail:** analysing the end of job forecasts on contracts selected and challenging the estimates within the forecasts by considering the amounts already procured, the amounts still to be procured, the site and time related cost forecasts against programme and run rates, and any contingency held; - ➤ **Test of detail:** inspecting selected contracts for key clauses; identifying relevant contractual mechanisms such as paintgain shares, disallowed costs, liquidated damages and success fees and assessing whether these key clauses have been appropriately reflected in the amounts recognised in the financial statements; - ➤ **Site visits:** for certain higher risk or larger value contracts, attending in person site visits or holding video conference calls with sites, with the involvement of our own industry specialists for a sample of these, inspecting the physical progress on site for individual projects and identifying areas of complexity through observation and discussion with site personnel; - ➤ **Use of our own specialists:** utilising our own Project specialists for a sample of contracts to assist with identifying the risks and opportunities associated with the contract and developing a range of possible contract out-turns and challenging the appropriateness of revenue recognised and provisions held in relation to these contracts; and - ➤ **Assessing transparency:** considering the adequacy of the Group's disclosures relating to forecast total costs and variable consideration included in Note 2.27(a) around the nature of estimates and judgements involved in respect of these items. # **Our findings:** We consider the amount of Construction Services revenue, contract assets, contract liabilities and contract provisions recognised to be acceptable (2021: acceptable). 172**Balfour Beatty plc**^{}[] Annual Report and Accounts 2022 ## 2 Key audit matters: our assessment of risks of material misstatement continued | The risk | Our response | | --- | --- | | **Recoverability of the parent Company's investment in subsidiaries** Investment in subsidiaries £1,733 million (2021: £1,726 million) Refer to Note 20.2 (Investments) | **Risk vs 2021: ↔** | | **Low risk, high value** The carrying amount of the parent Company's investment in subsidiaries represents 47% of the parent Company's total assets. Their recoverability is not at a high risk of significant misstatement or subject to significant judgement. However, due to their materiality in the context of the parent Company financial statements, this is considered to be the area that had the greatest effect on our overall parent Company audit. In particular, we've spent more time on the parent Company's investment in Balfour Beatty Investment Holdings Limited (BBIHL), where a value in use model has been used to support the investment's carrying amount. | We performed the tests below rather than seeking to rely on any of the Company's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures included: - **Our sector experience:** considering the underlying assumptions in determining the cash flows and growth assumptions applied with reference to historical forecasting accuracy, and wider macro environment conditions of BBIHL; - **Benchmarking assumptions:** challenging the assumptions used by the Company in the calculation of BBIHL's discount rates, including comparisons with external data sources; - **Sensitivity analysis:** performing our own sensitivity analysis over BBIHL's value in use, including a reasonably possible reduction in assumed growth rates and operating margins to identify areas on which to focus our procedures, including the consideration of the possible impacts of future economic uncertainty; and - **Tests of detail:** comparing the carrying amount of 100% of investments (2021: 100%) with the relevant subsidiaries' draft balance sheets to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount. **Our results:** We found the Company's conclusion that there is no impairment of its investment in subsidiaries to be acceptable (2021: acceptable). | ## 3 Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £20.0 million (2021: £20.0 million), determined with reference to a benchmark of Group revenue, of £7,629 million, of which it represents 0.26% (2021: benchmark of Group revenue, of £7,185m, of which it represented 0.26%). We consider total revenue to be the most appropriate benchmark due to the focus on revenue by investors and the differing nature of the investments business (an asset-based business) compared to the contracting businesses (profit orientated entities). Whilst the contracting businesses are focused on profit measures, there has been significant volatility in recent years which has impacted the Group's profit before tax without any reduction in the scale of the contracting businesses. In setting our materiality, we have also given consideration to the Group's profit before tax normalised for a range of factors including contract write-downs. Materiality for the parent Company financial statements as a whole was set at £18.0 million (2021: £18.0 million), determined with reference to a benchmark of Company total assets of £3,721 million (2021: £3,496 million), of which it represents 0.48% (2021: 0.50%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the Group and parent Company was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to £15.0 million (2021: £15.0 million) for the Group and £13.5 million (2021: £13.5 million) for the parent Company. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We agreed to report to the Audit and Risk Committee any corrected or uncorrected identified misstatements exceeding £1.0 million (2021: £1.0 million), in addition to other identified misstatements that warranted reporting on qualitative grounds. ### Scoping and coverage Of the Group's 14 (2021: 14) reporting components, we subjected 6 (2021: 6) to full scope audits for Group reporting purposes and 4 (2021: 4) to specified risk-focused audit procedures. The components for which we performed specified risk-focused procedures were not individually financially significant enough to require a full scope audit for Group reporting purposes but did present specific individual risks that needed to be addressed. For two components, the specified audit procedures were performed over revenue and other contract accounting related balances, including contracts asset and liabilities and any contract provisions. For one component, the specified audit procedures were performed over expenses and cash; for another component, the specified procedures were performed over cash. Financial statements Balfour Beatty plc Annual Report and Accounts 2020 173 ### INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BALFOUR BEATTY PLC CONTINUED ### 3 Our application of materiality and an overview of the scope of our audit continued Scoping and coverage continued The components within the scope of our work accounted for 99% (2021: 98%) of Group revenue, 96% (2021: 94%) of Group profit before tax and 98% (2021: 97%) of Group total assets as illustrated below. GROUP REVENUE GROUP PROFIT BEFORE TAX GROUP TOTAL ASSETS ## 99% 96% 98% |  |  |  | | --- | --- | --- | | l Full scope audit 90% (2021: 88%) | l Full scope audit 80% (2021: 71%) | l Full scope audit 71% (2021: 71%) | | l Specified risk-focused procedures 9% (2021: 10%) | l Specified risk-focused procedures 16% (2021: 23%) | l Specified risk-focused procedures 28% (2021: 26%) | | l Out of scope 1% (2021: 2%) | l Out of scope 4% (2021: 6%) | l Out of scope 1% (2021: 3%) | The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team set the component materialities, which ranged from £1.6 million to £12.0 million (2021: £0.2 million to £8 million), having regard to the mix of size and profile of the Group across the components. The work on 7 of the 10 operational components (2021: 7 of the 10 components) was performed by the component auditors and the rest, including the audit of the parent Company was performed by the Group audit team. The Group audit team visited three (2021: two) overseas components. Due to ongoing COVID-19 restrictions the Group audit team was prevented from visiting the one component in Hong Kong. Instead, senior members of the Group audit team used video conferencing to oversee the component auditor’s work, held discussions with component management and attended virtual site visits of contracts. Video and telephone conference meetings were also held with all component auditors regularly, including those that were not physically visited. At these meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. The scope of the audit work performed was predominantly substantive as we placed limited reliance upon the Group’s internal controls over financial reporting. The impact of climate change on our audit In planning our audit, we considered the potential impacts of climate change on the Group’s business and its financial statements. The Group has set out in its Strategic Report its ambition to go beyond net zero Carbon by 2040 and as part of this have stated their commitment to meeting a target validated by the Science Based Targets initiative by 2030 and the United Nations Race to Zero Campaign, both of which cover Scope 1, Scope 2 and Scope 3 greenhouse gas emissions (GHGs). Whilst the Group has set these targets, it does not believe that there is a material impact on the financial reporting judgements and estimates and as a result the valuations of the Group’s assets and liabilities have not been significantly impacted by these risks as of 31 December 2022. As a part of our audit, we have performed a risk assessment, including enquiries of management to understand how the impact of commitments made by the Group in respect of climate change, as well as the physical or transition risks of climate change, may affect the financial statements and our audit. We also held discussions with our own climate change professionals to challenge our risk assessment. There was no impact of this on our key audit matters. Whilst the Group is still undertaking work to quantify and assess the potential impact of climate change in the business, based on the procedures we performed in inspecting and challenging the Group’s plans for transitioning to net zero Scope 1 and Scope 2 GHGs, we did not identify any significant risk in this period of climate change having a material impact on the Group’s critical accounting estimates. For contract accounting, as well as contract provisions, this is due to a range of factors including the shorter-term nature of this estimate (the majority of contracts will substantially complete within two years of the Balance Sheet date) and contract mechanisms in place which limit risk (e.g. either where risk remains with the customer or is passed to the supply chain). For other estimates this is due to a range of factors including the use of market-based estimates, and the nature of the estimate (retirement benefit obligations, retirement benefit assets, financial assets measured through OCI, employee and other provisions). We have read the disclosure of climate-related information in the front half of the annual report and considered consistency with the financial statements and our audit knowledge. We have not been engaged to provide assurance over the accuracy of the climate risk disclosures in the Annual Report. Balfour Beatty plc Annual Report and Accounts 2022174 ### 4 Going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group’s and the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect the Group’s and Company’s available financial resources and metrics relevant to debt covenants over this period was a deterioration in contract profitability due to economic conditions, unforeseen operational challenges or commercial disputes, or a combination of these, leading to a sustained medium-term decline in profits, delays to planned disposals of PPP financial assets and delays to the start date of contracts leading to a reduction in revenue. We also considered less predictable but realistic second order impacts, such as a unique one-off event including the financial consequences of a major health and safety breach. We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going concern period by assessing the Directors’ sensitivities over the level of available financial resources and covenant thresholds indicated by the Group’s financial forecasts taking account of severe but plausible adverse effects that could arise from these risks individually and collectively. Our procedures also included: » critically assessing assumptions in the base case and downside scenarios, particularly in relation to profit and its impact on forecast liquidity and covenant compliance, by comparing to historical trends, overlaying knowledge of the entity’s plans based on approved budgets, as well as our knowledge of the entity and the sector in which it operates; and » considering whether the going concern disclosure in Note 1 to the financial statements gives a full and accurate description of the Directors’ assessment of going concern, including the identified risks, and related sensitivities. Our conclusions based on this work: Financial statements » we consider that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; » we have not identified, and concur with the Directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or Company’s ability to continue as a going concern for the going concern period; » we have nothing material to add or draw attention to in relation to the Directors’ statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for the going concern period, and we found the going concern disclosure in Note 1 to be acceptable; and » the related statement under the Listing Rules set out on page 83 is materially consistent with the financial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation. ### 5 Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: » enquiring of Directors, the Audit and Risk Committee, internal audit and compliance officers and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud; » reading Board and all relevant Committee minutes; » considering remuneration incentive schemes (primarily the annual incentive plan) and performance targets for management and Directors, including underlying profit from operations targets for management remuneration; » using analytical procedures to identify any unusual or unexpected relationships; and » using our own forensic specialists to assist us in identifying fraud risks based on discussions of the circumstances of the Group and the Company. We communicated identified fraud risk factors throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group audit team to component audit teams of relevant fraud risks identified at the Group level and requests to component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement to the Group. As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we performed procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular the risk that revenue earned in the Construction Services segment is recorded in the wrong period and the risk that Group and component management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates and judgements such as the estimation of forecast costs and the recognition of variable consideration. Further detail in respect of revenue recognition in the Construction Services segment, including the estimation of forecast costs and variable consideration, is set out in the Contract Accounting key audit matter disclosure in section 2 of this report. However, on this audit we do not believe there is a fraud risk related to revenue recognition in the Support Services segment due to the size of its revenue and judgements relative to the Group, nor in the Infrastructure Investments segment based on the contractual nature of the segment’s revenue with no significant judgement or estimation required in recognising revenue. Balfour Beatty plc Annual Report and Accounts 2022 175 ### INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BALFOUR BEATTY PLC CONTINUED ### 5 Fraud and breaches of laws and regulations – ability to detect continued We did not identify any additional fraud risks. We performed procedures including: » identifying journal entries and other adjustments to test for all full scope components based on specific risk-based criteria and comparing the identified entries to supporting documentation. These included those posted with unusual account pairings; and » assessing significant accounting estimates for bias. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the Directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the Directors and other management the policies and procedures regarding compliance with laws and regulations. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group audit team to component audit teams of relevant laws and regulations identified at the Group level, and a request for component auditor teams to report to the Group audit team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at the Group. The potential effect of these laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related company legislation), distributable profits legislation, pension legislation, and taxation legislation. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, anti-fraud law and environmental law, recognising the nature of the Group’s activities. Auditing standards limit the required audit procedures to identify non- compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. We discussed with the Audit and Risk Committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Balfour Beatty plc Annual Report and Accounts 2022176 ### 6 We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and Directors’ report Based solely on our work on the other information: » we have not identified material misstatements in the strategic report and the Directors’ report; » in our opinion the information given in those reports for the financial year is consistent with the financial statements; and » in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ remuneration report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: » the Directors’ confirmation within the viability statement on page 97 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; » the Emerging and Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being Financial statements managed and mitigated; and » the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the viability statement, set out on page 97 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’s longer-term viability. Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ corporate governance disclosures and the financial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge: » the Directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; » the section of the annual report describing the work of the Audit and Risk Committee, including the significant issues that the Committee considered in relation to the financial statements, and how these issues were addressed; and » the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal control systems. We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect. ### 7 We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: » adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or » the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or » certain disclosures of Directors’ remuneration specified by law are not made; or » we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. Balfour Beatty plc Annual Report and Accounts 2022 177 ### INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BALFOUR BEATTY PLC CONTINUED ### 8 Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 170, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’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 they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The Company is required to include these financial statements in an annual financial report prepared using the single electronic reporting format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial report has been prepared in accordance with that format. ### 9 The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s 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 and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Paul Sawdon (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 15 March 2023 Balfour Beatty plc Annual Report and Accounts 2022178 ### GROUP INCOME STATEMENT For the year ended 31 December 2022 | | | | | 2022 | | | | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Non- | | | | | | Non- | | | | | | | underlying | | | | | | underlying | | | | | Underlying | | | | items | | Underlying | | | | items | | | | | items | 1 | (Note 10) | | Total | | items | 1 | (Note 10) | | Total | | Notes | | | £m | | £m | £m | | £m | | | £m | £m | Revenue including share of joint ventures and associates 8 , 9 31 – 8, 9 31 8,280 (17) 8,263 Share of revenue of joint ventures and associates 19.2 (1, 3 0 2) – (1, 3 0 2) (1, 0 7 8) – (1, 0 7 8) Group revenue 4 7, 6 2 9 – 7, 6 2 9 7 ,202 (17) 7,1 8 5 Cost of sales (7, 2 0 2) – (7, 2 0 2) (6,8 62) (42) (6,9 0 4) Gross profit/(loss) 4 27 – 4 27 340 (59) 2 81 Gain on disposals of interests in investments 34.2/34.3 – – – 26 – 26 Amortisation of acquired intangible assets 15 – (6) (6) – (5) (5) Other net operating (expenses)/income (2 5 3) 2 (2 5 1) (226) (36) (262) Group operating profit/(loss) 174 (4) 17 0 14 0 (10 0) 40 Share of results of joint ventures and associates excluding gain on disposals of interests in investments 35 – 35 48 – 48 Gain on disposals of interests in investments 34.2/34.3 70 – 70 9 – 9 Share of results of joint ventures and associates 19.2 10 5 – 10 5 57 – 57 Profit/(loss) from operations 6 279 (4) 275 197 (10 0) 97 Investment income 8 50 – 50 39 – 39 Finance costs 9 (3 8) – (38) (4 9) – (4 9) Profit/(loss) before taxation 2 91 (4) 287 18 7 (10 0) 87 Financial statements Taxation 11 (1) 1 – 7 45 52 Profit/(loss) for the year 290 (3) 287 19 4 (55) 13 9 Attributable to Equity holders 2 91 (3) 288 19 5 (5 5) 14 0 Non-controlling interests (1) – (1) (1) – (1) Profit/(loss) for the year 290 (3) 287 19 4 (55) 13 9 1 Before non-underlying items (Notes 2.10 and 10). 2022 2021 Notes Pence Pence Earnings per share – basic 12 46.9 2 1. 3 – diluted 12 46.3 2 1.1 Dividends per share proposed for the year 13 10. 5 9.0 Balfour Beatty plc Annual Report and Accounts 2022 179 **GROUP INCOME STATEMENT CONTINUED** For the year ended 31 December 2022 # **Commentary on the Group income statement\*** Total profit before taxation for 2022 was £287m (2021: £87m), which is inclusive of a non-underlying loss before tax of £6m (2021: £100m). The total profit after tax was £287m (2021: £139m). # **Background** The Group income statement includes the majority of the Group's income and expenses for the year with the remainder being recorded within the Group statement of comprehensive income. The Group's income statement is presented showing the Group's underlying and non-underlying results separately on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. The income statement shows the revenue and results of continuing operations. There were no discontinued operations in either year. # **Revenue** Revenue from operations including non-underlying items and the Group's share of joint ventures and associates increased by 8% to £8,931m from £8,263m in 2021 primarily due to foreign currency movements in the year. The Group's revenue in Support Services decreased by 7% following the exit from the gas and water sector. # **Share of results of joint ventures and associates** Joint ventures and associates are those entities over which the Group exercises joint control or has significant influence and whose results are generally incorporated using the equity method whereby the Group's share of the post-tax results of joint ventures and associates is included in the Group's operating profit. The Group's underlying profit generated from its share of joint ventures and associates increased in part due to disposals of Infrastructure Investments assets. The Group disposed of five assets (Regard at Med Center, Aspire at Discovery Park, Preserve at Southwind, Preserve at Bartlett and Waterchase Apartments) within its share of joint ventures and associates resulting in an underlying gain of £70m. Refer to Note 34.2. # **Underlying profit from operations** The underlying profit from operations for the year increased to £278m (2021: £197m), primarily due to the improved profitability in Construction Services. Within the Construction Services underlying profit of £149m (2021: £79m), the significant improvement arose from the return to profitability in UK Construction following write-downs on private sector property projects in central London in 2021, with the increases in US Construction and Gammon supported by exchange rate movements. Support Services underlying profit from operations was lower at £83m (2021: £102m), however its 8.4% profit from operations margin exceeded the 6-8% margin target range set by the Group in 2021. At Infrastructure Investments, underlying profit increased to £81m (2021: £49m) due to higher gains on investment disposals. # **Non-underlying items** Non-underlying items in 2022 comprised the amortisation of acquired intangible assets of £6m (2021: £5m) and a provision release relating to a previous disposal amounting to £2m (2021: £7m). Within non-underlying tax there was a £1m credit (2021: £45m). # **Net finance income** Net finance income of £12m in the year represents an increase from £10m finance cost in 2021. The increase was primarily driven by higher interest income on cash deposits of £8m (2021: £1m) and a higher net pension finance income of £5m (2021: £1m). There was also a decrease in impairments recognised on the Group's subordinated debt and accrued interest receivable from joint ventures and associates from £14m in 2021 to £2m in 2022. Refer to Notes 8 and 9. # **Taxation** The Group's underlying profit before tax from subsidiaries of £186m (2021: £130m) resulted in an underlying tax charge of £1m (2021: £7m credit). This comprised a £57m charge on underlying profits and a £56m credit relating to the recognition of additional UK tax losses. # **Earnings per share** Basic earnings per share were 46.9p (2021: 21.3p). Underlying basic earnings per share were 47.5p (2021: 29.7p). \* The commentary forms part of the Chief Financial Officer's review on pages 80 to 83 and does not form part of the financial statements. 180 **Refiner Realty plc** Annual Report and Accounts 2022 ### GROUP STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2022 2022 2021 Share of joint Share of joint ventures and ventures and Group associates Total Group associates Total Notes £m £m £m £m £m £m Profit for the year 18 2 10 5 287 82 57 13 9 Other comprehensive income/(loss) for the year Items which will not subsequently be reclassified to the income statement Actuarial (losses)/gains on retirement benefit | | assets/liabilities 32.1 (52) 1 (51) | | 98 7 10 5 | | --- | --- | --- | --- | | Tax on above 32.1 | | 20 – 20 | (22) (1) (23) | | | | (3 2) 1 (31) | 76 6 82 | Items which will subsequently be reclassified to the income statement | Currency translation differences 32.1 32 23 55 | 2 (1) 1 | | --- | --- | | Fair value revaluations – PPP financial assets 32.1 (3) (12 4) (1 2 7) | (3) (6) (9) | | – cash flow hedges 32.1 3 29 32 | 8 (6) 2 | – investments in mutual funds measured at fair value through OCI 32.1 (5) – (5) 3 – 3 Recycling of revaluation reserves to the ^ | | income statement on disposal | 34.2/34.3 – (3) (3) | | (3) (7) (10) | | | --- | --- | --- | --- | --- | --- | | Tax on above 32.1 | | | (1) 25 24 | (2) (2) (4) | | | | | | 26 (50) (2 4) | 5 (2 2) (17) | | | Total other comprehensive (loss)/income | | | | | Financial statements | forthe year (6) (4 9) (5 5) 81 (16) 65 Total comprehensive income for the year 32.1 17 6 56 232 16 3 41 20 4 Attributable to Equity holders 233 20 5 Non-controlling interests (1) (1) Total comprehensive income for the year 32.1 232 20 4 ^ Recycling of revaluation reserves to the income statement on disposal has no associated tax effect. ### Commentary on Group statement Fair value revaluations – PPP financial assets Assets constructed by PPP concession companies are classified ### ofcomprehensive income* principally as financial assets measured at fair value through OCI. Total comprehensive income for 2022 was £232m comprising a Inthe operational phase fair value is determined by discounting the total profit after tax of £287m and other comprehensive loss future cash flows allocated to the financial asset using discount rates after tax of £55m. based on long-term gilt rates adjusted for the risk levels associated with the assets, with market-related fair value movements recognised Background in OCI. During the year, gilt rates have increased resulting in fair value The Group statement of comprehensive income is presented on a losses including joint ventures and associates of £127m being taken total Group basis. Other comprehensive income (OCI) is categorised through OCI (2021: £9m). into items which will affect the profit and loss of the Group in subsequent periods when the gain or loss is realised and those which Fair value revaluations – cash flow hedges will not be recycled into the income statement. Cash flow hedges are principally interest rate swaps to manage the interest rate and inflation rate risks in Infrastructure Investments’ Items which will not subsequently be reclassified to the income subsidiary, joint venture and associate companies which are exposed statement by their long-term contractual agreements. The fair value of derivatives Actuarial movements on retirement benefit assets/liabilities are changes in response to prevailing market conditions. During the year, increases or decreases in the present value of the pension balances SONIA movements resulted in fair value gains on the interest rate because of: swaps of £3m (2021: gains of £8m) within the Group’s subsidiaries » differences between the previous actuarial assumptions and what and £29m (2021: losses of £6m) within the Group’s joint ventures has actually occurred; or being recognised in OCI. » changes in actuarial assumptions used to value the obligations. Recycling of revaluation reserves to the income statement on disposal Actuarial losses for the Group including joint ventures and associates Fair value gains and losses and currency translation differences totalled £51m in 2022 compared to a £105m gain in 2021. Refer to recognised in OCI are transferred to the income statement upon Note 30. disposal of the asset. £3m of gains (2021: £10m) were recycled to the income statement from OCI and included in the gain on disposal. Items which will subsequently be reclassified to the There is no associated tax on the amounts recycled to the incomestatement incomestatement. Currency translation differences The Group operates in a number of countries with different local currencies. Currency translation differences arise on translation of the balance sheet and results from the local functional currency into the Group’s presentational currency, sterling. * The commentary forms part of the Chief Financial Officer’s review on pages 80 to 83 and does not form part of the financial statements. Balfour Beatty plc Annual Report and Accounts 2022 181 ### GROUP STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 Share of joint ventures’ and | | | | Share | | Capital | | associates’ | | | Other | | | | | Non- | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Called-up | | premium | redemption | | | reserves | | | reserves | µ | Retained | | controlling | | | | | share capital | | account | | reserve | | (Note 19.6) | | (Note 32.1) | | | profits | | interests | | Total | | Notes | | £m | £m | | | £m | | £m | | £m | | | £m | | £m | £m | At 1 January 2021 345 17 6 1 65 13 7 6 12 9 1, 3 4 5 Total comprehensive income/(loss) for the year 32.1 – – – 41 5 15 9 (1) 204 Ordinary dividends 13 – – – – – (29) – (29) Joint ventures’ and associates’ dividends 19.1 – – – (68) – 68 – – Non-controlling interests’ dividends – – – – – – (1) (1) Purchase of treasury shares 31.1 – – – – – (15 1) – (151) Movements relating to share-based payments – – – – 2 6 – 8 Reserve transfers relating to joint ventures and associates 19.6 – – – 34 – (3 4) – – At 31 December 2021 345 17 6 1 72 14 4 6 31 7 1, 3 7 6 Total comprehensive income/(loss) for the year 32.1 – – – 56 25 15 2 (1) 232 Ordinary dividends 13 – – – – – (5 8) – (5 8) Joint ventures’ and associates’ dividends 19.1 – – – (14 8) – 14 8 – – Non-controlling interests’ dividends – – – – – – (1) (1) Purchase of treasury shares 31.1 – – – – – (15 1) – (1 51) Cancellation of ordinary shares 31.1 (51) – 51 – – – – – Movements relating to share-based + payments – – – – 1 (1 6) – (15) At 31 December 2022 294 176 52 (2 0) 17 0 706 5 1, 3 8 3 µ Other reserves include £22m of special reserve (2021: £2 2m). + Movements relating to share-based payments include £2m tax credit (2021: £nil) recognised directly within retained profits. ### Commentary on Group statement of changes Purchase of treasury shares In 2022 the Company commenced the second phase of its share ### inequity* buyback programme, which completed on 15 December 2022. The Total equity was £1,383m at 31 December 2022. Company purchased 52.0m (2021: 50.3m) shares for a total consideration of £150m (2021: £150m) and held these in treasury Background with no voting rights. The purchase of these shares, together with The Group statement of changes in equity includes the total associated fees and stamp duty amounting to £1m (2021: £1m), comprehensive income/(loss) attributable to equity holders of the utilised £151m (2021: £151m) of the Company’s distributable profits. Company and non-controlling interests and also discloses transactions which have been recognised directly in equity and not Cancellation of ordinary shares through the income statement. On 7 June 2022 and 20 December 2022, the Company cancelled 50.3m treasury shares and 52.0m treasury shares purchased as part of the Dividends 2021 and 2022 share buyback programmes respectively. This led to a The Board is recommending a final dividend of 7.0p. Dividends paid in decrease in called-up share capital of £51m (2021: £nil) and a the year comprised £37m for the final 2021 dividend (6.0p) and £21m corresponding increase in the capital redemption reserve. for the interim 2022 dividend (3.5p). Joint ventures’ and associates’ dividends Reserves Other reserves comprise: hedging reserves £(4)m (2021: £(5)m); PPP Dividends of £148m (2021: £68m) were received in the year from financial assets revaluation reserve £1m (2021: £4m); currency translation joint ventures and associates (JVA), resulting in a transfer of this reserve £132m (2021: £100m); special reserve £22m (2021: £22m); and amount between JVA reserves and Group retained profits. other reserves £19m (2021: £23m ). ### COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 | | | | Share | | Capital | | | Other | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Called-up | | premium | redemption | | | reserves | | | Retained | | | | | share capital | | account | | reserve | | (Note 32.2) | | ∆ | profits | | Total | | Notes | | £m | £m | | | £m | | £m | | | £m | £m | At 1 January 2021 345 176 1 123 771 1,416 Total comprehensive income for the year 32.2 – – – – 83 83 Ordinary dividends 13 – – – – (29) (29) Purchase of treasury shares 31.1 – – – – (151) (151) Movements relating to share-based payments – – – 5 2 7 At 31 December 2021 345 176 1 128 676 1,326 Total comprehensive income for the year 32.2 – – – – 175 175 Ordinary dividends 13 – – – – (58) (58) Purchase of treasury shares 31.1 – – – – (151) (151) Cancellation of ordinary shares 31.1 (51) – 51 – – – + Movements relating to share-based payments – – – 8 (24) (16) At 31 December 2022 294 176 52 136 618 1,276 ∆ Other reserves include £22m of special reserve (2021: £22m). + Movements relating to share-based payments include £1m tax credit (2021: £nil) recognised directly within retained profits. * The commentary forms part of the Chief Financial Officer’s review on pages 80 to 83 and does not form part of the financial statements. Balfour Beatty plc Annual Report and Accounts 2022182 # **BALANCE SHEETS** At 31 December 2022 | | Notes | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Non-current assets** | | | | | | | Intangible assets – goodwill | 14 | 876 | 8 17 | – | – | | – other | 15 | 292 | 296 | – | – | | Property, plant and equipment | 16 | 104 | 98 | – | – | | Right-of-use assets | 17 | 12 7 | 12 5 | – | – | | Investment properties | 18 | 27 | 29 | – | – | | Investments in joint ventures and associates | 19 | 426 | 503 | – | – | | Investments | 20 | 40 | 35 | 1,733 | 1,726 | | PPP financial assets | 21 | 26 | 30 | – | – | | Trade and other receivables | 24 | 286 | 24 9 | 2 | 2 | | Retirement benefit assets | 30 | 262 | 3 21 | – | – | | Deferred tax assets | 29 | 176 | 12 6 | 2 | – | | | | **2,642** | **2,623** | **1,737** | **1,726** | | **Current assets** | | | | | | | Inventories | 22 | 11 4 | 10 4 | – | – | | Contract assets | 23 | 300 | 2 14 | – | – | | Trade and other receivables | 24 | 881 | 865 | 1,560 | 1,422 | | Cash and cash equivalents – infrastructure investments | 27 | 19 | 17 | – | – | | – other | 27 | 1,168 | 1,016 | 424 | 345 | | Current tax receivable | | 6 | 7 | – | 1 | | Derivative financial instruments | 40 | 1 | – | – | – | | | | **2,481** | **2,223** | **1,984** | **1,766** | | **Total assets** | | **5,123** | **4,846** | **3,721** | **3,496** | | **Current liabilities** | | | | | | | Contract liabilities | 23 | (6 63) | (6 69) | – | – | | Trade and other payables | 25 | (1,595) | (1,458) | (2,052) | (1,958) | | Provisions | 26 | (20 4) | (17 4) | – | – | | Borrowings – non-recourse loans | 27 | (3 0) | (5) | – | – | | – other | 27 | (17 3) | (3 4) | (218) | (17) | | Lease liabilities | 28 | (4 9) | (4 4) | – | – | | Current tax payable | | (8) | (14) | – | – | | Derivative financial instruments | 40 | – | (1) | – | – | | | | **(2,722)** | **(2,399)** | **(2,270)** | **(1,975)** | | **Non-current liabilities** | | | | | | | Contract liabilities | 23 | (2) | (9) | – | – | | Trade and other payables | 25 | (1 41) | (11 7) | (3) | (3) | | Provisions | 26 | (19 7) | (205) | – | – | | Borrowings – non-recourse loans | 27 | (2 51) | (255) | – | – | | – other | 27 | (1 72) | (192) | (172) | (192) | | Lease liabilities | 28 | (8 3) | (85) | – | – | | Retirement benefit liabilities | 30 | (3 9) | (9 0) | – | – | | Deferred tax liabilities | 29 | (1 52) | (11 5) | – | – | | Derivative financial instruments | 40 | (1) | (3) | – | – | | | | **(1,018)** | **(1,071)** | **(175)** | **(195)** | | **Total liabilities** | | **(3,740)** | **(3,470)** | **(2,445)** | **(2,170)** | | **Net assets** | | **1,383** | **1,376** | **1,276** | **1,326** | | **Equity** | | | | | | | Called-up share capital | 31 | 294 | 345 | 294 | 345 | | Share premium account | 32 | 176 | 176 | 176 | 176 | | Capital redemption reserve | 32 | 52 | 1 | 52 | 1 | | Share of joint ventures' and associates' reserves | 32 | (20) | 72 | – | – | | Other reserves | 32 | 170 | 144 | 138 | 128 | | Retained profits | 32 | 706 | 631 | 618 | 676 | | **Equity attributable to equity holders of the Parent** | | **1,378** | **1,360** | **1,276** | **1,326** | | Non-controlling interests | 32 | 5 | 7 | – | – | | **Total equity** | | **1,383** | **1,376** | **1,276** | **1,326** | On behalf of the Board **Leo Quinn** Director 15 March 2023**Philip Harrison** Director Balfour Equity plc Annual Report and Accounts 2022 183 **BALANCE SHEETS CONTINUED** At 31 December 2022 # **Commentary on the Group balance sheet\*** Total assets of £5.1bn were 6% higher than last year and total liabilities of £3.7bn increased by 8%. Net assets remained consistent at £1.4bn primarily driven by an increase in profit for the year and other comprehensive income of £232m partially offset by ordinary dividends and share buybacks. # **Background** The Group's balance sheet shows the Group's assets and liabilities as at 31 December 2022 in accordance with IAS 1 Presentation of Financial Statements. # **Goodwill** The goodwill on the Group's balance sheet at 31 December 2022 increased to £876m (2021: £817m), solely due to foreign currency movements. # **Investments in joint ventures and associates** Investments in joint ventures and associates have decreased by £77m to £435m. The decrease was primarily driven by dividends in the year of £148m. # **Working capital** Net movements in working capital are discussed in the statement of cash flows commentary on page 188. # **Borrowings** # **Borrowings excluding non-recourse loans** The Group has a committed sustainability linked bank facility of £375m provided by a set of relationship banks. The purpose of the facility is to provide liquidity to support Balfour Beatty in its activities. This facility was undrawn at 31 December 2022. In December 2022, the Group agreed an additional committed bilateral bank facility of £30m. The facility is a sustainability linked loan on the same terms as the main £375m facility. This facility was also undrawn as at 31 December 2022. Refer to Note 27.1 for further information. In June 2022 the Group raised US$158m of debt in the form of new US private placement (USPP) notes on terms and conditions materially the same as the existing USPP notes. This new funding was used towards the repayment of the US$209m of USPP notes which matured in March 2023. # **Non-recourse loans** In addition, the Group has non-recourse facilities in companies engaged in certain infrastructure concession projects. At 31 December 2022, the Group's share of these non-recourse net borrowings amounted to £1,490m (2021: £1,471m), comprising £1,348m (2021: £1,328m) in relation to joint ventures and associates as disclosed in Note 19.2 and £242m (2021: £243m) on the Group balance sheet in relation to subsidiaries as disclosed in Note 27. # **Retirement benefit assets and liabilities** The Group's balance sheet includes net retirement benefit assets of £223m (2021: £231m) representing net surpluses in the Group's pension schemes, as measured on an IAS 19 basis. The movement in pension surplus in the year is primarily due to actuarial losses of £52m (2021: £98m gains) partially offset by ongoing deficit funding of £41m (2021: £39m). Any surplus of deficit contributions would be recoverable by way of a refund as, according to the relevant trust deed and rules documents, the Group has the unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the schemes have been settled. # **Other** In addition to the liabilities on the balance sheet, in the normal course of its business, the Group arranges for financial institutions to provide customers with guarantees in connection with its contracting activities, commonly referred to as bonds. These bonds provide a customer with a level of financial protection in the event that a contractor fails to meet its commitments under the terms of a contract. They are customary or mandatory in many of the markets in which the Group operates. In return for issuing the bonds, the financial institutions receive a fee and a counter-indemnity from the Company. As at 31 December 2022, contract bonds in issue by financial institutions covered £4.3bn (2021: £3.8bn) of the contract commitments of the Group. # **Equity commitments** During 2022, the Group invested £30m (2021: £19m) in a combination of equity and shareholder loans to Infrastructure Investments' project companies and at the end of the year had committed to provide a further £83m from 2023 onwards, inclusive of £55m expected for projects at preferred bidder stage. £10m of this is expected to be invested in 2023, as disclosed in Note 41(1). \* The commentary forms part of the Chief Financial Officer's review on pages 80 to 83 and does not form part of the financial statements. 184 Balfour Beatty plc Annual Report and Accounts 2022 # **GROUP STATEMENT OF CASH FLOWS** For the year ended 31 December 2022 | | Times | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Cash flows from operating activities** | | | | | Cash from operations | 33.1 | 18 5 | 35 4 | | Income taxes paid | | (17) | (1) | | **Net cash from operating activities** | | **16 8** | **353** | | **Cash flows from investing activities** | | | | | Dividends received from: | | | | | – joint ventures and associates – infrastructure investments | 19.5 | 114 | 30 | | – joint ventures and associates – other | 19.5 | 34 | 38 | | – other investments | 20 | 4 | – | | Interest received – infrastructure investments – joint ventures | 19.5 | 10 | 8 | | Interest received – infrastructure investments – subsidiaries | | 7 | 2 | | Acquisition of businesses | 34.1 | (3) | (3) | | Purchases of: | | | | | – intangible assets – infrastructure investments | 15 | (1) | (1) | | – intangible assets – other | 15 | – | (1) | | – property, plant and equipment | 16 | (3 1) | (35) | | – other investments | 20 | (7) | – | | Investments in and long-term loans to joint ventures and associates | 19.5 | (2 9) | (15) | | Return of equity from joint ventures and associates | 19.5 | 34 | 4 | | PPP financial assets cash expenditure | 21 | (2) | (3) | | PPP financial assets cash receipts | 21 | 5 | 10 | | Disposals of: | | | | | – investments in joint ventures – infrastructure investments | 19.5 | – | 50 | | – investments in joint ventures – other | 19.5 | 1 | 1 | | – subsidiaries net of cash disposed, separation and transaction costs – infrastructure investments | 34.3.2 | – | 16 | | – property, plant and equipment – other | | 8 | 10 | | – other investments | 20 | 2 | 5 | | **Net cash from investing activities** | | **14 6** | **11 8** | | **Cash flows used in financing activities** | | | | | Purchase of ordinary shares | 32.3 | (25) | – | | Purchase of treasury shares | 31.1 | (1 51) | (15 1) | | Proceeds from new loans relating to: | | | | | – infrastructure investments assets | 33.3 | 8 | 8 | | – other | 33.3 | 130 | – | | Repayments of loans relating to infrastructure investments assets | 33.3 | (7) | (6) | | Repayment of lease liabilities | 28 | (5 2) | (5 3) | | Ordinary dividends paid | 13 | (58) | (29) | | Other dividends paid – non-controlling interest | | (1) | (1) | | Interest paid – infrastructure investments | | (9) | (11) | | Interest paid – other | | (2 4) | (23) | | **Net cash used in financing activities** | | **(18 9)** | **(26 6)** | | **Net increase in cash and cash equivalents** | | **12 5** | **20 3** | | Effects of exchange rate changes | | 55 | 4 | | Cash and cash equivalents at beginning of year | | 999 | 792 | | **Cash and cash equivalents at end of year** | **33.2** | **1 17 9** | **999** | Report of statements Balfour Equity plc Annual Report and Accounts 2022 185 GROUP STATEMENT OF CASH FLOWS CONTINUED For the year ended 31 December 2022 # **Commentary on the Group statement of cash flows\*** Cash and cash equivalents increased during the year to £1,179m. The Group generated cash from operating activities in the year of £168m compared to £363m in the prior year. # **Background** The Group statement of cash flows shows the cash flows from operating, investing and financing activities during the year. # **Working capital** Working capital includes: inventories; contract assets and liabilities; trade and other receivables; trade and other payables; and provisions. Where the net working capital balance is in an asset position, i.e. the inventories and receivables balances are greater than the payables and provisions, this is referred to as unfavourable/positive working capital. Where this is not the case, this is referred to as favourable/negative working capital. # **Cash used in operations** Cash inflow from operations of £185m (2021: £354m) comprised a profit from operations of £275m (2021: £97m) and a working capital outflow of £54m (2021: £269m inflow) and includes the following significant adjustment items: share of results of joint ventures and associates £105m (2021: £57m); depreciation and amortisation charges £111m (2021: £109m); and pension payments including deficit funding of £43m (2021: £42m). # **Working capital movements** The movement of the individual working capital balances on the balance sheet will not be reflective of the underlying movement of working capital due to the balance sheet being affected by foreign currency movements and disposals. Working capital movements are disclosed in Note 33.1. Changes in the Group's working capital position during the year resulted in a cash outflow of £54m (2021: £269m inflow). This reduction in the negative working capital position was a net result of several movements including outflows relating to the private sector property projects in central London and the US military housing DoJ resolution and inflows relating to major infrastructure projects in the UK. # **Cash flows from investing activities** The Group received dividends of £148m (2021: £68m) from joint ventures and associates during the year. The Group continued its programme for the disposal of infrastructure investment assets and disposed of five assets within its investment in joint ventures and associates, Regard at Med Center, Aspire at Discovery Park, Preserve at Southwind, Preserve at Bartlett and Waterchase Apartments. Proceeds amounted to £12m, £50m, £4m, £13m and £14m respectively which are included within dividends received and return of equity from joint ventures and associates. The Group continued to invest in its joint ventures and associates, contributing £29m (2021: £15m) in the year. # **Cash flows from financing activities** On 15 December 2022 the Company completed the share buyback programme resulting in 52.0m (2021: 50.3m) shares purchased for a total consideration of £151m (2021: £151m), including associated fees and stamp duty amounting to £1m (2021: £1m). At 31 December 2022 the Group had US$259m of the US private placement (USPP) notes issued in 2013 still outstanding. In June 2022 the Group raised US$158m of debt in the form of new USPP notes on terms and conditions materially the same as the existing USPP notes. This new funding was used towards the repayment of the US$209m of USPP notes which matured in March 2023. The Group has total committed bank facilities of £405m, including the newly signed additional committed bilateral bank facility of £30m. Under the terms of these sustainability linked facilities, the Group is incentivised to deliver annual measurable performance improvement in three key areas: carbon emissions, social value generation, and an independent Environmental, Social and Governance (ESG) rating score. These facilities were undrawn at 31 December 2022. Interest payments amounted to £33m (2021: £34m) during the year, of which £9m (2021: £11m) related to infrastructure investments, £15m (2021: £10m) related to the USPP, £6m (2021: £6m) related to the interest paid on lease liabilities and £3m (2021: £7m) related to other finance charges. \* The commentary form part of the Chief Financial Officer's review on pages 80 to 83 and does not form part of the financial statements. 186**Refiner Realty plc**^{}[] Annual Report and Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS ## 1 Basis of accounting ### Going concern The Directors consider it reasonable to assume that the Group has adequate resources to continue for the foreseeable future and, for this reason, have continued to adopt the going concern basis in preparing the financial statements. The key financial risk factors for the Group remain largely unchanged. The Group's principal risks and the consequent impact these might have on the Group as well as mitigations that are in place are detailed on pages 89 to 96. The Group's US private placement and committed bank facility contain certain financial covenants, such as the ratio of the Group's EBITDA to its net debt which needs to be less than 3.0 and the ratio of its EBITDA to net borrowing costs which needs to be in excess of 3.0. These covenants are tested on a rolling 12-month basis as at the June and December reporting dates. At 31 December 2022, both these covenants were passed as the Group had net cash and net interest income from a covenant test perspective. The Directors have carried out an assessment of the Group's ability to continue as a going concern for the period of at least 12 months from the date of approval of the financial statements. This assessment has involved the review of medium-term cash forecasts of each of the Group's operations. The Directors have also considered the strength of the Group's order book which amounted to £17.4bn at 31 December 2022 and will provide a pipeline of secured work over the going concern assessment period. These base case projections indicate that the headroom provided by the Group's strong cash position and the debt facilities currently in place is adequate to support the Group over the going concern assessment period. At 31 December 2022, the Group's only debt, other than non-recourse borrowings ring-fenced within certain concession companies, comprised US private placement (USPP) notes. Of the USPP notes issued in 2013, US$209m matured in March 2023 and the remaining US$50m will mature in March 2025. The Group raised US$158m in June 2022 through the issue of new USPP notes which will mature in tranches in 2027, 2029 and 2032. In December 2022, the Group secured a new £30m bilateral committed bank facility which remained undrawn at 31 December 2022 and expires in December 2024 with an extension option for a further three years subject to certain specific conditions. In March 2023, the funds raised through the new PPP notes and the new bilateral bank facility were utilised towards repayment of the US$209m USPP notes. The Group's £375m committed sustainability linked bank facility, which was undrawn throughout the year ended 31 December 2022, remains fully available to the Group until October 2024. The Directors have stress-tested the Group's base case projections of both cash and profit against key sensitivities which could materialise as a result of adverse changes in the economic environment including a deterioration in commercial or operational conditions. The Group has sensitised its projections against severe but plausible downside scenarios which include: - elimination of a portion of unsecured work assumed within the Group's base case projections and a delay of three months for any awarded but not yet contracted work; - a deterioration of contract judgements and restriction of a portion of the Group's margins; and - delay in the disposal of investments assets by 12 months. In the severe but plausible downside scenarios modelled, the Group continues to retain sufficient headroom on liquidity throughout the going concern period. Through these downside scenarios, the Group is still expected to be in a net cash position and to remain within its banking covenants through the going concern assessment period. Based on the above and having made appropriate enquiries, the Directors consider it reasonable to assume that the Group and the Company have adequate resources to continue for the going concern period and, for this reason, have continued to adopt the going concern basis in preparing the financial statements. ### Consideration of climate change In preparing the financial statements, the Directors have considered the impact of climate change, particularly in the context of the risks identified in the TCFD disclosure on pages 98 to 105. There has been no material impact identified on the financial reporting judgements and estimates. In particular, the Directors considered the impact of climate change in respect of the following areas: - contract judgements made on the Group's Construction Services and Support Services contracts; - going concern and viability of the Group over the next three years; - cash flow forecasts used in the impairment assessments of non-current assets including the Group's intangible assets such as customer contracts and goodwill; - cash flow forecasts used in the impairment assessments of the Group's infrastructure investments assets; - carrying value and useful economic lives of property, plant and equipment; and - the valuation of assets held within the Group's pension schemes. As current legislation stands, there is currently no medium-term impact expected from climate change due to the contractual mechanisms and insurance arrangements in place. The Directors are however aware of the ever-changing risks attached to climate change and will regularly assess these risks against judgements and estimates made in preparation of the Group's financial statements. ### Basis of preparation The annual financial statements have been prepared in accordance with UK-adopted International Accounting Standards and in conformity with the requirements of the Companies Act 2006 (the Act). The financial statements have been prepared under the historical cost convention, except as described under Note 2.38. The functional and presentational currency of the Company and the presentational currency of the Group is sterling. The separate financial statements of the Company are presented as required by the Act and have been prepared in accordance with UK-adopted international accounting standards, including FRS 101 Reduced Disclosure Framework. Except as noted below, the Company's accounting policies are consistent with those described in the Group's consolidated financial statements. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management, presentation of a cash flow statement, related party transactions and comparative information. Where required, equivalent disclosures are given in the consolidated financial statements. In addition to the application of FRS 101, the Company has taken advantage of Section 408 of the Act and consequently its statement of comprehensive income (including the profit and loss account) is not presented as part of these financial statements. ## 2 Principal accounting policies ### 2.1 Accounting standards #### Adoption of new and revised standards The following accounting standards, interpretations and amendments, have been adopted by the Group in the year ended 31 December 2022: - Amendments to the following standards: - IAS 16 Property, Plant and Equipment - IAS 37 Provisions, Contingent Liabilities and Contingent Assets - IFRS 3 Business Combinations - Annual Improvements 2018 - 2020 These amended standards did not have a material effect on the Group. Balfour Realty plc Annual Report and Accounts 2022 187 Financial statements Balfour Beatty plc Annual Report and Accounts 2022188 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 Principal accounting policies continued 2.1 Accounting standards continued Accounting standards not yet adopted by the Group The following accounting standards, interpretations and amendments have been issued by the IASB but had either not been adopted by the UK or were not yet effective in the UK at 31 December 2022: » IFRS 17 Insurance Contracts » Amendments to the following standards: » IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies » IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current » IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates » IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction » IFRS 16 Leases: Lease Liability in a Sale and Leaseback » IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information The Directors do not expect the standards above to have a material effect on the Group and have chosen not to adopt any of the above standards and interpretations earlier than required. 2.2 Basis of consolidation The Group financial statements include the results of the Company and its subsidiaries, together with the Group’s share of the results of joint ventures and associates, drawn up to 31 December each year. a) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries are consolidated from the date that control commences until the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the fair value of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (discount on acquisition) is credited to the income statement in the period of acquisition. The interest of non-controlling equity holders is stated at the non-controlling equity holders’ proportion of the fair value of the assets and liabilities recognised. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between: (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest less direct costs of the transaction; and (ii) the previous carrying amount of the assets (including goodwill) less liabilities of the subsidiary. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of (i.e. reclassified to profit or loss or transferred directly to retained earnings). Any acquisition or disposal which does not result in a change in control is accounted for as a transaction between equity holders. The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the fair value of the consideration paid or received and the amount by which the non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of the Parent. Accounting policies of subsidiaries are adjusted where necessary to ensure consistency with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. b) Joint ventures and associates Joint ventures are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the entity, rather than rights to its individual assets and obligations for its individual liabilities. Associates are those entities over whose financial and operating policies the Group has significant influence, but not control or joint control. The results, assets and liabilities of joint ventures and associates are incorporated in the financial statements using the equity method of accounting except when classified as held for sale. The equity return from the military housing joint ventures of the Group is contractually limited to a maximum level of return, beyond which the Group does not share in any further return. Therefore the Group’s investment in these projects is recognised at initial equity investment plus the value of the Group’s accrued preferred return from the underlying projects. Any excess of the fair value of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the joint venture or associate entity at the date of acquisition is recognised as goodwill. Any deficiency of the fair value of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the joint venture or associate at the date of acquisition (discount on acquisition) is credited to the income statement in the period of acquisition. Investments in joint ventures and associates are initially carried in the balance sheet at cost (including goodwill arising on acquisition) and adjusted by post-acquisition changes in the Group’s share of net assets of the joint venture or associate, less any impairment in the value of individual investments. Losses of joint ventures and associates in excess of the Group’s interest in those joint ventures and associates are only recognised to the extent that the Group is contractually liable for, or has a constructive obligation to meet, the obligations of the joint ventures and associates. Unrealised gains and losses on transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in the relevant joint venture or associate. c) Joint operations The Group’s share of the results, assets and liabilities of contracts carried out in conjunction with another party are included under each relevant heading in the income statement and balance sheet. The results of a small number of joint operations are drawn up to a date other than 31 December, typically in the last two weeks of December. Adjustments are made for any significant transactions between such date and 31 December. 2.3 Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange at the reporting date. Significant exchange rates used in the preparation of these financial statements are shown in Note 3. For the purpose of presenting consolidated financial statements, the results of foreign subsidiaries, associates and joint venture entities are translated at average rates of exchange for the year, unless the exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Assets and liabilities are translated at the rates of exchange prevailing at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rates of exchange at the reporting date. Currency translation differences arising are transferred to the Group’s foreign currency translation reserve and are recognised in the income statement on disposal of the underlying investment. ## 2 Principal accounting policies continued ### 2.3 Foreign currencies continued In order to hedge its exposure to certain foreign exchange risks, the Group may enter into forward foreign exchange contracts. Refer to Note 2.2889 for details of the Group's accounting policies in respect of such derivative financial instruments. ### 2.4 Revenue recognition The Group recognises revenue when it transfers control over a product or service to its customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Where consideration is not specified within the contract and is therefore subject to variability, the Group estimates the amount of consideration to be received from its customer. The consideration recognised is the amount which is highly probable not to result in a significant reversal in future periods. Where a modification to an existing contract occurs, the Group assesses the nature of the modification and whether it represents a separate performance obligation required to be satisfied by the Group or whether it is a modification to the existing performance obligation. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust its transaction price for the time value of money. The Group's activities are wide ranging, and as such, depending on the nature of the product or service delivered and the timing of when control is passed onto the customer, the Group will account for revenue over time and at a point in time. Where revenue is measured over time, the Group uses the input method to measure progress of delivery. Revenue is recognised as follows: - + revenue from construction and services activities is recognised over time and the Group uses the input method to measure progress of delivery; - + revenue from manufacturing activities is recognised at a point in time when title has passed to the customer; and - + dividend income in the Parent Company is recognised when the equity holders' right to receive payment is established. ### 2.5 Construction and services contracts When the outcome of individual contracts can be estimated reliably, contract revenue is recognised by reference to the measure of progress at the reporting date using the input method. Costs are recognised as incurred and revenue is recognised on the basis of the proportion of total costs at the reporting date to the estimated total costs of the contract. Estimates of the final out-turn on each contract may include cost contingencies to take account of the specific risks within each contract that have been identified during the early stages of the contract. The cost contingencies are reviewed on a regular basis throughout the contract life and are adjusted where appropriate. However, the nature of the risks on contracts are such that they often cannot be resolved until the end of the project and therefore may not reverse until the end of the project. The estimated final out-turns on contracts are continuously reviewed, and in certain limited cases, recoveries from insurers are assessed, and adjustments made where necessary. No margin is recognised until the outcome of the contract can be estimated with reasonable certainty. Provision is made for all known or expected losses on individual contracts once such losses are foreseen. Revenue in respect of variations to contracts and incentive payments is recognised when there is an enforceable right to payment and it is highly probable it will be agreed by the customer. Variable consideration is assessed on a contract by contract basis according to the facts, circumstances and terms of each project and only recognised to the extent that it is highly probable not to significantly reverse in the future. Revenue in respect of claims is recognised only if it is highly probable not to reverse in future periods. Profit for the year includes the benefit of claims settled in the year to the extent not previously recognised on contracts completed in previous years. ### 2.6 Segmental reporting The Group considers its Board of Directors to be the chief operating decision maker and therefore the segmental disclosures provided in Note 5 are aligned with the monthly reports provided to the Board of Directors. The Group's reporting segments are based on the types of services provided. Operating segments with similar economic characteristics have been aggregated into three reportable segments which reflect the nature of the services provided by the Group. A description of each reportable segment is provided in Note 5. Further information on the business activities of each reportable segment is set out on pages 194 to 195. Operating segments are aggregated on the basis of the nature of the services provided and the manner in which returns are earned by the Group. Further information on the nature of services provided within each segment is included in Note 4. Working capital is the balance sheet measure reported to the chief operating decision maker. The profitability measure used to assess the performance of the Group is underlying profit from operations. Segment results represent the contribution of the different segments after the allocation of attributable corporate overheads. Transactions between segments are conducted at arm's-length market prices. Segment assets and liabilities comprise these assets and liabilities directly attributable to the segments. Corporate assets and liabilities include cash balances, bank borrowings, tax balances and dividends payable. Non-recourse net borrowings are directly attributable to Infrastructure Investments and therefore not included within Corporate activities. Major customers are defined as customers contributing more than 10% of the Group's external revenue. ### 2.7 Pre-contract bid costs and recoveries Pre-contract costs are expensed as incurred until preferred bidder status is awarded at which point further costs are capitalised as there is a high probability that the Group would be able to recover these costs. Amounts subsequently recovered in respect of pre-contract costs that have been written off before preferred bidder status was awarded are recognised in full in the income statement when they are received in cash. ### 2.8 Profit from operations Profit from operations is stated after the Group's share of the post-tax results of equity accounted joint venture entities and associates, but before investment income and finance costs. ### 2.9 Investment income and finance costs Interest income is accrued on a time basis using the effective interest method by reference to the principal outstanding and the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Finance costs of debt, including premiums payable on settlement and direct issue costs, are charged to the income statement on an accruals basis over the term of the instrument, using the effective interest method. Finance costs also include interest cost on the discount unwind of lease liabilities and impairment of loans to joint ventures and associates and accrued interest thereon. ### 2.10 Non-underlying items Non-underlying items are items of financial performance which the Group believes should be presented separately on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. Such items will not affect the absolute amount of the results for the period and the trend of results. The Group's underlying results exclude non-underlying items. Financial statements Balfour Realty plc Annual Report and Accounts 2020 189 NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 2 Principal accounting policies continued ### 2.10 Non-underlying items continued Non-underlying 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 examples, however, from time to time it may be appropriate to disclose further items as non-underlying items in order to highlight the underlying performance of the Group. Refer to Note 10. ### 2.11 Taxation The tax charge comprises current tax and deferred tax, calculated using tax rates that have been enacted or substantively enacted by the reporting date. Current tax and deferred tax are charged or credited to the income statement, except when they relate to items charged or credited directly to equity, in which case the relevant tax is also accounted for within equity. Current tax is based on the profit for the year. Deferred tax is provided, using the liability method, on temporary differences arising between the tax leases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax on such assets and liabilities is not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date. Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Management is closely monitoring the impact of the Organisation for Economic Co-operation and Development's (OECD) Pilar Two model rules to introduce a global minimum tax rate of 15% to address the tax concerns about uneven profit distribution and tax contributions of large multinational corporations. The Pilar Two top-up tax solution is expected to be enacted in 2023 in the UK with application from 1 January 2024. In December 2021 the OECD released a draft legislative framework that is expected to be used by individual jurisdictions that signed the agreement to amend their local tax laws. At the date when these financial statements were authorised for issue, none of the jurisdictions in which the Group operates had enacted or substantively enacted tax legislation related to the Pilar Two top-up tax solution. Management is closely monitoring the progress of the legislative process in each jurisdiction the Group operates in. The Group does not operate in any jurisdiction where the statutory tax rate is 15% or below. ### 2.12 Intangible assets #### a) Goodwill Goodwill arises on the acquisition of subsidiaries and other businesses, joint ventures and associates and represents the excess of the fair value of consideration over the fair value of the identifiable assets and liabilities acquired. Goodwill on acquisitions of subsidiaries and other businesses is included in non-current assets. Goodwill on acquisitions of joint ventures and associates is included in investments in joint ventures and associates. Goodwill is reviewed annually for impairment and is carried at cost less accumulated impairment losses. Goodwill is included when determining the profit or loss on subsequent disposal of the business to which it relates. Goodwill arising on acquisitions before the date of transition to IFRS (1 January 2004) has been retained at the previous UK GAAP amounts subject to being tested for impairment. Goodwill written off or discount arising on acquisition credited to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. #### b) Other intangible assets Other intangible assets are stated at cost less accumulated amortisation and impairment losses. Amortisation charges in respect of software and infrastructure investments intangibles are included in underlying items. #### c) Research and development Internally generated intangible assets developed by the Group are recognised only if all the following conditions are met: an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Other research expenditure is written off in the period in which it is incurred. ### 2.13 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure associated with bringing the asset to its operating location and condition. ### 2.14 Investment properties The Group classifies land and buildings which it holds to generate capital appreciation and/or to earn rental income as investment properties. The Group has chosen to state its investment properties at cost less accumulated depreciation and impairment losses. The Group depreciates its investment properties over 25 years. Land is not depreciated. ### 2.15 Leasing As a lessee, the Group assesses whether a contract is, or contains, a lease at the inception of a contract. A lease exists if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess if a lease exists, the Group assesses whether: (i) the contract involves the use of an identified asset; (ii) the Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the lease term; and (iii) the Group has the right to direct the use of the asset. In order to determine if the contract involves the use of an identified asset, the Group exercises judgement to assess if the supplier has a substantive substitution right over the asset. An asset is not identified if it has been determined that the supplier has substantive substitution rights. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost and subsequently depreciated over the lease term. The lease liability is measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the Group's incremental borrowing rate. The Group has elected to apply the practical expedient which allows the Group to use a single discount rate for a portfolio of leases with similar characteristics. 190 Ralfear Realty plc Annual Report and Accounts 2022 ## 2 Principal accounting policies continued ### 2.15 Leasing continued The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of less than 12 months and leases of low value assets. Instead, the Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. ### 2.16 Impairment of assets Assets that have an indefinite useful life (such as goodwill arising on acquisitions) are reviewed at least annually for impairment. Other intangible assets, property, plant and equipment and right-of-use assets are reviewed for impairment whenever there is any indication that the carrying amount of the asset may not be recoverable. If the recoverable amount of an asset is less than its carrying amount, an impairment loss is recognised. Recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is assessed by discounting the estimated future cash flows that the asset is expected to generate. For this purpose assets, including goodwill, are grouped into cash-generating units representing the level at which they are monitored by the Board of Directors for internal management purposes. Goodwill impairment losses are not reversed in subsequent periods. Reversals of other impairment losses are recognised in income when they arise. ### 2.17 Investments Investments are recognised and derecognised on the trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs. Investments in mutual funds are measured at fair value. Gains and losses arising from changes in the fair value of these investments are recognised in equity, until the investment is disposed or is determined to be impaired, at which time the cumulative gain or loss is included in the net profit or loss for the period. Investments that are held until they reach maturity are measured at amortised cost. Investments in subsidiaries are recognised and held at cost and subsequently tested for impairment on an annual basis. Where an impairment is identified, a provision for impairment is recorded against the carrying value of the investment. ### 2.18 Government grants Government grants are recognised when there is a reasonable assurance that the Group will be able to comply with the conditions attached to the grant and that the grant will be received. Grants are recognised in the income statement on a systematic basis as a deduction from the related category of cost in the periods in which the expenses are recognised. ### 2.19 Inventories Inventories are valued at the lower of cost and net realisable value. Cost includes an appropriate proportion of manufacturing overheads incurred in bringing inventories to their present location and condition and is determined using the first-in first-out method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. ### 2.20 Trade receivables Trade receivables are initially recorded at fair value and subsequently measured at amortised cost as reduced by allowances for estimated irrecoverable amounts and expected credit losses. ### 2.21 Trade payables Trade payables are not interest bearing and are stated at cost. ### 2.22 Provisions Provisions for insurance liabilities retained in the Group's captive insurance arrangements, legal claims, defects and warranties, environmental restoration, onerous leases, and other onerous commitments are recognised at the best estimate of the expenditure required to settle the Group's liability. Provisions are recognised when: (i) the Group has a present legal or constructive obligation as a result of a past event; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount of the obligation can be estimated reliably. ### 2.23 Borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Premiums payable on settlement or redemption and direct issue costs are included in the carrying amount of the instrument and are charged to the income statement on an accruals basis using the effective interest method together with the interest payable. ### 2.24 Retirement benefit costs The Group, through trustees, operates a number of defined benefit and defined contribution retirement and other long-term employee benefit schemes, the largest of which are of the defined benefit type and are funded. Defined benefit contributions are determined in consultation with the trustees, after taking actuarial advice. For defined benefit pension schemes, the cost of providing benefits recognised in the income statement and the defined benefit obligations are determined at the reporting date by independent actuaries, using the projected unit credit method. The liability recognised in the balance sheet comprises the present value of the defined benefit pension obligations, determined by discounting the estimated future cash flows using the market yield on a high-quality corporate bond, less the fair value of the scheme assets. Actuarial gains and losses are recognised in the period in which they occur in the statement of comprehensive income. Contributions to defined contribution pension schemes are charged to the income statement as they fall due. Any surplus of deficit contributions to the Balfour Beatty Pension Fund (BBPF) and the Railways Pension Scheme (RPS) would be recoverable by way of a refund as, according to the relevant trust deed and rules documents, the Group has the unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the BBPF and RPS have been settled. ### 2.25 Share-based payments Employee services received in exchange for the grant of equity-settled and cash-settled awards are charged to the income statement on a straight-line basis over the vesting period, based on the fair values of the awards at the date of grant. The credits in respect of the amounts charged are included within separate reserves in equity until such time as the awards are exercised, when the shares are transferred or cash payments made to employees. ### 2.26 Financial instruments Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. #### a) Classification of financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial statements Balfour Beatty plc Annual Report and Accounts 2020 191 NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 2 Principal accounting policies continued ### 2.26 Financial instruments continued #### a) Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to manage interest rate risk and to hedge exposures to fluctuations in foreign currencies in accordance with its risk management policy. The Group does not use derivative financial instruments for speculative purposes. A description of the Group's objectives, policies and strategies with regard to derivatives and other financial instruments is set out in Notes 40. Derivatives are initially recognised in the balance sheet at fair value on the date the derivative transaction is entered into and are subsequently re-measured at their fair values. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement together with any changes in the fair value of the hedged item that are attributable to the hedged risk. Changes in the fair value of the effective portion of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income (OCI). Changes in the fair value of the ineffective portion of cash flow hedges are recognised in the income statement. Amounts originally recognised in OCI are transferred to the income statement when the underlying transaction occurs or, if the transaction results in a non-financial asset or liability, are included in the initial cost of that asset or liability. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in OCI is retained in equity until the hedged transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in OCI is transferred to the income statement for the period. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives and recorded in the balance sheet at fair value when their risks and characteristics are not closely related to those of the host contract. Changes in the fair value of those embedded derivatives recognised in the balance sheet are recognised in the income statement as they arise. #### c) PPP concession companies Assets constructed by PPP concession companies are classified principally as financial assets measured at fair value through OCI. In the construction phase, income is recognised by applying an attributable profit margin to the construction costs representing the fair value of construction services performed. In the operational phase, income is recognised by allocating a proportion of total cash receivable over the life of the project to service costs by means of a deemed rate of return on those costs. The residual element of projected cash is allocated to the financial asset using the effective interest rate method, giving rise to interest income. Due to the nature of the contractual arrangements, the projected cash flows can be estimated with a high degree of certainty. In the construction phase, the fair value of the Group's PPP financial assets is determined by applying an attributable profit margin to the construction costs representing the fair value of construction services performed. In the operational phase, fair value is determined by discounting the future cash flows allocated to the financial asset using discount rates based on long-term gift rates adjusted for the risk levels associated with the assets, with market-related movements in fair value recognised in OCI. Amounts originally recognised in OCI are transferred to the income statement upon disposal of the asset. ### 2.27 Judgements and key sources of estimation uncertainty The preparation of consolidated financial statements under IFRS requires management to make judgements, estimates and assumptions that affect amounts recognised for assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the reporting period. Actual outcomes may differ from these judgements, estimates and assumptions. The judgements, estimates and assumptions that have the most significant effect on the carrying value of assets and liabilities of the Group as at 31 December 2022 are discussed below. #### a) Revenue and margin recognition (judgement and estimate) The Group's revenue recognition and margin recognition policies, which are set out in Notes 2.4 and 2.5, are central to how the Group values the work it has carried out in each financial year. These policies require forecasts to be made of the outcomes of long-term construction services and support services contracts, which require both estimates and judgements to be made of both cost and income recognition on each contract. On the cost side, estimates of forecasts are made on the final out-turn of each contract in addition to potential costs to be incurred for any maintenance and defects liabilities. On the income side, estimates and judgements are made on variations to consideration which typically include variations due to changes in scope of work, recoveries of claim income from customers, and potential liquidated damages that may be levied by customers. On cost reimbursable contracts there are also estimates required on the level of deal/swaddle costs which requires an assessment of whether costs are recoverable under the terms of the contract and therefore should be recognised as income. Judgements and estimates are reviewed regularly throughout the contract life based on latest available information and adjustments are made where necessary. The Group continues to regularly assess these judgements and estimates. As at 31 December 2022, the Group's contract assets, contract liabilities and contract provisions amounted to £309m, £665m and £335m respectively as set out in Notes 23 and 26. The Group has considered the nature of the estimates involved in deriving these balances and concluded that it is possible, on the basis of existing knowledge, that outcomes within the next financial year may be different from the Group's assumptions applied as at 31 December 2022 and could require a material adjustment to the carrying amounts of these assets and liabilities in the next financial year. However, due to the level of uncertainty, combination of cost and income variables and timing across a large portfolio of contracts (in excess of 1,000) at different stages of their contract life, it is impracticable to provide a quantitative analysis of the aggregated judgements that are applied at a portfolio level. Within this portfolio, there are a limited number of long-term contracts where the Group has incorporated significant judgements over contractual entitlements relating to recoveries of claim income from customers and liquidated damages levied by the customer. These recoveries have been recognised at the amount that is considered highly probable not to significantly reverse. However, there are a host of factors affecting potential outcomes in respect of these entitlements which could result in a range of reasonably possible outcomes on these contracts in the following financial year, ranging from a gain of £52m to a loss of £124m. The Directors have assessed the range of reasonably possible outcomes on these limited number of contracts based on facts and circumstances that were present and known at the balance sheet date. As with any contract applying long-term contract accounting, these contracts are also affected by a variety of uncertainties that depend on future events, and so often need to be revised as contracts progress. 192*Reflivar Realty plc Annual Report and Accounts 2022* ## 2 Principal accounting policies continued ### 2.27 Judgements and key sources of estimation uncertainty continued #### (d) Non-underlying items (judgement) Non-underlying items are items of financial performance which the Group believes should be presented separately on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. Determining whether an item is part of underlying items or non-underlying items requires judgement. A total non-underlying loss after tax of £3m (2021: £50m) was charged to the income statement for the year ended 31 December 2022. Refer to Note 10. #### c) Financial assets measured at fair value through OCI (judgement and estimate) At 31 December 2022, £1,270m (2021: £1,325m) of PPP financial assets constructed by the Group's subsidiary, joint venture and associate companies were classified as financial assets measured at fair value through OCI. Judgement is required in determining the appropriate classification of these assets and hence the accounting treatment required. In the operational phase the fair value of these financial assets is measured at each reporting date by discounting the future value of the cash flows allocated to the financial asset. A range of discount rates is used from 4.6% to 10.0% (2021: 1.8% to 7.2%), which reflects the prevailing risk-free interest rates and the different risk profiles of the various concessions. These represent key sources of estimation uncertainty. Refer to Note 40. A £127m loss was taken to other comprehensive income in 2022 (2021: £8m loss) and a cumulative fair value gain of £178m had arisen on these financial assets as a result of market-related movements in the fair value of these financial assets at 31 December 2022 (2021: £305m gain). #### d) Provisions (judgement and estimate) Provisions are liabilities of uncertain timing or amount and therefore in making a reliable estimate of the quantum and timing of liabilities judgement is applied and re-evaluated at each reporting date. The range of potential outcomes on contract provisions as a result of uncertain future events could result in a materially positive or negative swing to profitability and cash flow. The Group has considered the nature of these estimates and concluded that it is possible, on the basis of existing knowledge, that outcomes within the next financial year may be different from the Group's assumptions and judgements applied as at 31 December 2022 and could require a material adjustment to the carrying amounts of assets and liabilities in the next financial year. As disclosed in Note 26, the majority of the Group's provision balance relates to contract provisions, which include loss provisions, defect and warranty provisions, where estimates are made around forecast costs and judgements are made on timing and whether it is probable there will be an outflow of future economic benefit. Contract loss provisions may also include estimates around variable consideration as disclosed in Note 2.27(a). However, due to the level of uncertainty, combination of variables and timing across a large portfolio of complex contracts at different stages of their contract life, it is impracticable to provide a quantitative analysis of the aggregated judgements that are applied at a portfolio level. To the extent that the sensitivities disclosed in Note 2.27(a) affect a loss-making contract, this will have an impact on the Group's provisions in the next financial year. #### e) Retirement benefit obligations (judgement and estimate) Details of the Group's defined benefit pension schemes are set out in Note 30, including tables showing the sensitivity of the pension scheme obligations and assets to different actuarial assumptions. At 31 December 2022, the net retirement benefit assets recognised on the Group's balance sheet were £223m (2021: £231m). The effects of changes in the actuarial assumptions underlying the schemes' obligations and discount rates and the differences between expected and actual returns on the schemes' assets are classified as actuarial gains and losses. During 2022, the Group recognised net actuarial losses of £51m (2021: £105m gains) in OCI, including its share of the actuarial gains and losses arising in joint ventures and associates. Judgement is applied when assessing the recognition of the pension surplus. Any surplus of deficit contributions to the Balfour Beatty Pension Fund (BBPF) and the Railways Pension Scheme (RPS) would be recoverable by way of a refund as, according to the relevant trust deed and rules documents, the Group has the unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the BBPF and RPS have been settled. ## 3 Exchange rates The following key exchange rates were applied in these financial statements: ### Average rates | €1 base | 2022 | 2021 | Change | | --- | --- | --- | --- | | US$ | 1.24 | 1.37 | (9.5)% | | HK$ | 9.72 | 10.69 | (9.1)% | ### Closing rates | €1 base | 2022 | 2021 | Change | | --- | --- | --- | --- | | US$ | 1.20 | 1.35 | (11.1)% | | HK$ | 9.39 | 10.52 | (10.7)% | Balfour Beatty plc Annual Report and Accounts 2022 193 Financial statements ### NOTES TO THE FINANCIAL STATEMENTS CONTINUED Balfour Beatty plc Annual Report and Accounts 2022194 4 Revenue 4.1 Nature of services provided 4.1.1 Construction Services The Group’s Construction Services segment encompasses activities in relation to the physical construction of assets provided to public and private customers. Revenue generated in this segment is measured over time as control passes to the customer as the asset is constructed. Progress is measured by reference to the cost incurred on the contract to date compared to the contract’s end of job forecast (the input method). Payment terms are based on a schedule of value that is set out in the contract and fairly reflect the timing and performance of service delivery. Contracts with customers are typically accounted for as one performance obligation (PO). Types of assets Typical contract length Nature, timing of satisfaction of performance obligations and significant payment terms Buildings 12 to 36 months The Group constructs buildings which include commercial, healthcare, education, retail and residential assets. As part of its construction services, the Group provides a range of services including design and/or build, mechanical and electrical engineering, shell and core and/or fit-out and interior refurbishment. The Group’s customers in this area are a mix of private and public entities. The contract length depends on the complexity and scale of the building and contracts entered into for these services are typically fixed price. In most instances, the contract with the customer is assessed to only contain one PO as the services provided by the Group, including those where the Group is also providing design services, are highly interrelated. However, for certain types of contracts, services relating to fit-out and interior refurbishment may sometimes be assessed as a separate PO. Infrastructure 1 to 3 months for small-scale infrastructure works 24 to 60 months for large-scale complex construction The Group provides construction services for three main types of infrastructure assets: highways, railways and other large-scale infrastructure assets such as waste, water and energy plants. Highways represent the Group’s activities in constructing motorways in the UK, US and Hong Kong. This includes activities such as design and construction of roads, widening of existing motorways or converting existing motorways. The main customers are government bodies. Railway construction services include design and managing the construction of railway systems delivering major multi-disciplinary projects, track work, electrification and power supply. The Group serves both public and private railways including high-speed passenger railways, freight and mixed traffic routes, dense commuter networks, metros and light rail. Other infrastructure assets include construction, design and build services on large-scale complex assets predominantly servicing the waste, water and energy sectors. Contracts entered into relating to these infrastructure assets can take the form of fixed-price, cost-plus or target-cost contracts with shared pain/gain mechanisms. Contract lengths vary according to the size and complexity of the asset build and can range from a few months for small-scale infrastructure works to four to five years for large-scale complex construction works. In most cases, the contract itself represents a single PO where only the design and construction elements are contracted. In some instances, the contract with the customer will include maintenance of the constructed asset. The Group assesses the maintenance element as a separate PO and revenue from this PO is recognised in the Support Services segment. Refer to Note 4.1.2. 4.1.2 Support Services The Group’s work in this segment supports existing assets through maintaining, upgrading and managing services across utilities and infrastructure assets. Revenue generated in this segment is measured over time as control passes to the customer as and when services are provided. Progress is measured by reference to the cost incurred on the contract to date compared to the contract’s end of job forecast (the input method). Payments are structured as milestone payments set out in the respective contracts. Types of assets Nature, timing of satisfaction of performance obligations and significant payment terms Utilities Within the Group’s services contracts, the Group provides support services to various types of utility assets. For contracts servicing power transmission and distribution assets, the Group constructs and maintains electricity networks, including replacement or new build of overhead lines, underground cabling, cable tunnels and offshore wind farm maintenance. Contracts entered into are normally fixed-price and contract lengths can vary from 12 to 36 months, and up to 20 years for offshore wind farm maintenance contracts. Each contract is normally assessed to contain one PO. However, where a contract contains both a construction phase and a maintenance phase, these are assessed to contain two separate POs. For contracts servicing utility assets, the Group provides services such as renewal, upgrade and expansion of underground main pipelines for assets within the gas network. Within the water network, services include clean and waste water mains renewal and repair, metering and treatment facilities. Contracts are typically delivered through framework agreements which are normally granted on a regulatory cycle period of five years for water contracts and eight years for gas contracts. Individual instructions delivered under the framework agreements can vary in size and duration but usually last between one to six weeks for smaller projects or up to one to two years for major projects. Each instruction is accounted for as a separate PO. Payments are normally set according to a schedule of rates or are cost reimbursable and may include a pain/gain element. Infrastructure The Group provides maintenance, asset and network management and design services in respect of highways, railways and other publicly available assets. The customer in this area of the Group is mainly government bodies. Types of contract include a fixed schedule of rates, fixed-price, target-cost arrangements and cost-plus. Contract terms range from 1 to 25 years. Where contracts include a lifecycle element, this is accounted for as a separate POaPO and recognised when the work is delivered. ## 4 Revenue continued ### 4.1 Nature of services provided continued #### 4.1.3 Infrastructure Investments The Group invests directly in a variety of assets, predominantly consisting of infrastructure assets where there are opportunities to manage the asset upon completion of construction. The Group also invests in real estate type assets, in particular private residential and student accommodation assets. Revenue generated in this segment is from the provision of construction, maintenance and management services and also from the recognition of rental income. The Group's strategy is to hold these assets until optimal values are achieved through disposal of mature assets. | Types of services | Nature, timing of satisfaction of performance obligations and significant payment terms | | --- | --- | | **Service concessions** | The Group operates a UK and US portfolio of service concession assets comprising assets in the roads, healthcare, student accommodation, biomass and waste and offshore transmission sectors. The Group accounts for these assets under IFRIC 12 Service Concession Arrangements. Where the Group constructs and maintains these assets, the two services are deemed to be separate performance obligations and accounted for separately. If the maintenance phase includes a lifecycle element, this is considered to be a separate PD. Contract terms can be up to 40 years. The Group recognises revenue over time using the input method. Consideration is paid through a fixed unitary payment charge spread over the life of the contract. | | **Management services** | **Revenue from this service is presented across Buildings, Infrastructure or Utilities in Note 4.2.** The Group provides real estate management services such as property development and asset management services. Contract terms can be up to 50 years. The Group recognises revenue over time as and when service is delivered to the customer. | | **Housing development** | **Revenue from this service is presented within Buildings in Note 4.2.** The Group also develops housing units on land that is owned by the Group. Revenue is recognised on the sale of individual units at the point in time when control of the asset is transferred to the purchaser. This is deemed to be when an unconditional sale is achieved. | | | **Revenue from this service is presented within Buildings in Note 4.2.** | #### 4.2 Disaggregation of revenue The Group presents a disaggregation of its underlying revenue according to the primary geographical markets in which the Group operates as well as the types of assets serviced by the Group. The nature of the various services provided by the Group is explained in Note 4.1. This disaggregation of underlying revenue is also presented according to the Group's reportable segments as described in Note 5. For the year ended 31 December 2022 | Revenue by primary geographical markets | | United Kingdom £m | United States £m | Rest of world £m | Total £m | | --- | --- | --- | --- | --- | --- | | Construction Services | Revenue including share of joint ventures and associates | 2,761 | 3,650 | 1,071 | 7,482 | | | Group revenue | 2,761 | 3,645 | 3 | 6,409 | | Support Services | Revenue including share of joint ventures and associates | 982 | – | 7 | 989 | | | Group revenue | 982 | – | 6 | 988 | | Infrastructure Investments | Revenue including share of joint ventures and associates | 151 | 304 | 5 | 460 | | | Group revenue | 53 | 179 | – | 232 | | **Total revenue** | **Revenue including share of joint ventures and associates** | **3,894** | **3,954** | **1,083** | **8,931** | | | **Group revenue** | **3,796** | **3,824** | **9** | **7,629** | | Revenue by types of assets serviced | | Buildings £m | Infrastructure £m | Utilities £m | Other £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | | Construction Services | Revenue including share of joint ventures and associates | 3,878 | 2,960 | 639 | 5 | 7,482 | | | Group revenue | 3,387 | 2,401 | 616 | 5 | 6,409 | | Support Services | Revenue including share of joint ventures and associates | 5 | 625 | 349 | 10 | 989 | | | Group revenue | 5 | 625 | 348 | 10 | 988 | | Infrastructure Investments | Revenue including share of joint ventures and associates | 291^{1} | 154 | 15 | – | 460 | | | Group revenue | 229^{1} | 3 | – | – | 232 | | **Total revenue** | **Revenue including share of joint ventures and associates** | **4,174** | **3,739** | **1,003** | **15** | **8,931** | | | **Group revenue** | **3,621** | **3,029** | **964** | **15** | **7,629** | | Timing of revenue recognition | Construction Services £m | Support Services £m | Infrastructure Investments £m | Total £m | | --- | --- | --- | --- | --- | | Over time | 7,475 | 984 | 430 | 8,889 | | At a point in time | 7 | 5 | 30 | 42 | | **Revenue including share of joint ventures and associates** | **7,482** | **989** | **460** | **8,931** | | Over time | 6,402 | 983 | 202 | 7,587 | | At a point in time | 7 | 5 | 30 | 42 | | **Group revenue** | **6,409** | **988** | **232** | **7,629** | $^{1}$ Includes rental income of £69m including share of joint ventures and associates or £16m including share of joint ventures and associates. Balfour Realty plc Annual Report and Accounts 2022 195 Financial statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **4 Revenue continued** # **4.2 Disaggregation of revenue continued** For the year ended 31 December 2021 | Revenues primary geographical markets | | United Kingdom £m | United States £m | Rest of world £m | Total £m | | --- | --- | --- | --- | --- | --- | | Construction Services | Revenue including share of joint ventures and associates | 2,589 | 3,341 | 816 | 6,746 | | | Group revenue | 2,589 | 3,324 | 7 | 5,920 | | Support Services | Revenue including share of joint ventures and associates | 1,039 | – | 27 | 1,066 | | | Group revenue | 1,039 | – | 7 | 1,046 | | Infrastructure Investments | Revenue including share of joint ventures and associates | 165 | 295 | 8 | 468 | | | Group revenue | 55 | 181 | – | 236 | | **Total revenue** | **Revenue including share of joint ventures and associates** | **3,793** | **3,636** | **851** | **8,280** | | | **Group revenue** | **3,683** | **3,505** | **14** | **7,202** | | Revenue by types of assets carried | | Buildings £m | Infrastructure £m | Utilities £m | Other £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | | Construction Services | Revenue including share of joint ventures and associates | 3,725 | 2,380 | 630 | 11 | 6,746 | | | Group revenue | 3,391 | 1,907 | 611 | 11 | 5,920 | | Support Services | Revenue including share of joint ventures and associates | – | 578 | 469 | 19 | 1,066 | | | Group revenue | – | 578 | 449 | 19 | 1,046 | | Infrastructure Investments | Revenue including share of joint ventures and associates | 319^{a} | 132 | 15 | 2 | 468 | | | Group revenue | 232^{a} | 3 | – | 1 | 236 | | **Total revenue** | **Revenue including share of joint ventures and associates** | **4,044** | **3,090** | **1,114** | **32** | **8,280** | | | **Group revenue** | **3,623** | **2,488** | **1,060** | **31** | **7,202** | | Timing of revenue recognition | Construction Services £m | Support Services £m | Infrastructure Investments £m | Total £m | | --- | --- | --- | --- | --- | | Over time | 6,745 | 1,064 | 436 | 8,245 | | At a point in time | 1 | 2 | 32 | 35 | | **Revenue including share of joint ventures and associates** | **6,746** | **1,066** | **468** | **8,280** | | Over time | 5,919 | 1,044 | 204 | 7,167 | | At a point in time | 1 | 2 | 32 | 35 | | **Group revenue** | **5,920** | **1,046** | **236** | **7,202** | a Includes rental income of £20m including share of joint ventures and associates or £12m excluding share of joint ventures and associates. # **4.3 Transaction price allocated to the remaining performance obligations (excluding joint ventures and associates)** | | 2020 £m | 2024 £m | 2025 onwards £m | Total £m | | --- | --- | --- | --- | --- | | Construction Services | 5,498 | 3,470 | 2,724 | 11,692 | | Support Services | 668 | 405 | 1,325 | 2,396 | | Infrastructure Investments | 104 | 41 | 1,864 | 2,009 | | **Total transaction price allocated to remaining performance obligations** | **8,270** | **3,916** | **5,913** | **16,099** | The total transaction price allocated to the remaining performance obligations represents the contracted revenue to be earned by the Group for distinct goods and services which the Group has promised to deliver to its customers. These include promises which are partially satisfied at the period and/or those which are unsatisfied but which the Group has committed to providing. In deriving this transaction price, any element of variable revenue is estimated at a value that is highly probable not to reverse in the future. The transaction price above does not include any estimated revenue to be earned on framework contracts for which a firm order or instruction has not been received from the customer. 196**ReWear Realty plc**^{}[] Annual Report and Accounts 2022 ## 5 Segment analysis Reportable segments of the Group: - Construction Services – activities resulting in the physical construction of an asset; - Support Services – activities which support existing assets or functions such as asset maintenance and refurbishment; and - Infrastructure/Investments – acquisition, operation and disposal of infrastructure assets such as roads, hospitals, student accommodation, military housing, multifamily residences, offshore transmission networks, waste and biomass and other concessions. This segment also includes the Group's housing development division. ### 5.1 Total Group | | Construction Services 2022 £m | Support Services 2022 £m | Infrastructure Investments 2022 £m | Corporate activities 2022 £m | Total 2022 £m | | --- | --- | --- | --- | --- | --- | | **Income statement – performance by activity** | | | | | | | Revenue including share of joint ventures and associates | 7,482 | 989 | 460 | – | 8,931 | | Share of revenue of joint ventures and associates | (1,073) | (1) | (228) | – | (1,302) | | Group revenue | 6,409 | 988 | 232 | – | 7,629 | | Group operating profit/(loss)* | 129 | 83 | (4) | (34) | 174 | | Share of results of joint ventures and associates | 20 | – | 85 | – | 105 | | Profit/(loss) from operations* | 149 | 83 | 81 | (34) | 279 | | Non-underlying items: | | | | | | | – amortisation of acquired intangible assets | (1) | – | (5) | – | (6) | | – other net operating income | 2 | – | – | – | 2 | | – | 1 | – | (5) | – | (4) | | Profit/(loss) from operations | 150 | 83 | 76 | (34) | 275 | | Investment income | | | | | 50 | | Finance costs | | | | | (38) | | **Profit before taxation** | | | | | **287** | 1 Before non-underlying items (Notes 2.18 and 1.0) | | Construction Services 2021 £m | Support Services 2021 £m | Infrastructure Investments 2021 £m | Corporate activities 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | | **Income statement – performance by activity** | | | | | | | Revenue including share of joint ventures and associates* | 6,746 | 1,066 | 468 | – | 8,280 | | Share of revenue of joint ventures and associates | (826) | (20) | (232) | – | (1,078) | | Group revenue* | 5,920 | 1,046 | 236 | – | 7,202 | | Group operating profit/(loss)* | 47 | 101 | 25 | (33) | 140 | | Share of results of joint ventures and associates | 32 | 1 | 24 | – | 57 | | Profit/(loss) from operations* | 79 | 102 | 49 | (33) | 197 | | Non-underlying items: | | | | | | | – amortisation of acquired intangible assets | – | – | (5) | – | (5) | | – settlement charge following resolution with DoJ | – | – | (41) | – | (41) | | – provision recognised for rectification works to be carried out on a development in London | (42) | – | – | – | (42) | | – other net operating expenses | (7) | (5) | – | – | (12) | | – | (49) | (5) | (46) | – | (100) | | Profit/(loss) from operations | 30 | 97 | 3 | (33) | 97 | | Investment income | | | | | 39 | | Finance costs | | | | | (49) | | **Profit before taxation** | | | | | **87** | 1 Before non-underlying items (Notes 2.18 and 1.0) | | Construction Services 2022 £m | Support Services 2022 £m | Infrastructure Investments 2022 £m | Corporate activities 2022 £m | Total 2022 £m | | --- | --- | --- | --- | --- | --- | | **Assets and liabilities by activity** | | | | | | | Contract assets | 209 | 62 | 29 | – | 300 | | Contract liabilities – current | (550) | (112) | (1) | – | (663) | | Inventories | 50 | 32 | 32 | – | 114 | | Trade and other receivables – current | 730 | 91 | 37 | 23 | 881 | | Trade and other payables – current | (1,374) | (171) | (44) | (6) | (1,595) | | Provisions – current | (179) | (3) | (8) | (14) | (204) | | **Working capital*** | **(1,114)** | **(101)** | **45** | **3** | **(1,167)** | | Total assets | 2,342 | 443 | 940 | 1,398 | 5,123 | | Total liabilities | (2,421) | (378) | (347) | (594) | (3,740) | | **Net assets** | **(79)** | **65** | **593** | **804** | **1,383** | * Includes non-operating items and current working capital. Financial statements Balfour Realty plc Annual Report and Accounts 2022 197 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **5 Segment analysis continued** # **5.1 Total Group continued** | | Construction Services 2021 £m | Support Services 2021 £m | Infrastructure Investments 2021 £m | Corporate activities 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | | **Assets and liabilities by activity** | | | | | | | Contract assets | 132 | 60 | 22 | – | 214 | | Contract liabilities – current | (565) | (102) | (2) | – | (669) | | Inventories | 49 | 27 | 28 | – | 104 | | Trade and other receivables – current | 706 | 109 | 31 | 19 | 865 | | Trade and other payables – current | (1,172) | (196) | (87) | (9) | (1,458) | | Provisions – current | (149) | (4) | (7) | (14) | (174) | | **Working capital*** | **(990)** | **(106)** | **(15)** | **(4)** | **(1,118)** | | Total assets | 2,158 | 497 | 997 | 1,194 | 4,848 | | Total liabilities | (2,237) | (390) | (398) | (444) | (3,470) | | **Net assets** | **(79)** | **107** | **598** | **750** | **1,376** | \* Includes non-operating items and current working capital. | | Construction Services 2022 £m | Support Services 2022 £m | Infrastructure Investments 2022 £m | Corporate activities 2022 £m | Total 2022 £m | | --- | --- | --- | --- | --- | --- | | **Other information** | | | | | | | Capital expenditure on property, plant and equipment (Note 16) | 13 | 15 | – | 3 | 31 | | Capital expenditure on intangible assets (Note 15) | – | – | 1 | – | 1 | | Depreciation (Note 16, Note 17 and Note 18) | 30 | 41 | 2 | 10 | 83 | | Gain on disposals of interests in investments within joint ventures and associates (Note 34.2) | – | – | 70 | – | 70 | | | Construction Services 2021 £m | Support Services 2021 £m | Infrastructure Investments 2021 £m | Corporate activities 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | | **Other information** | | | | | | | Capital expenditure on property, plant and equipment (Note 16) | 21 | 12 | – | 2 | 35 | | Capital expenditure on intangible assets (Note 15) | – | – | 1 | 1 | 2 | | Depreciation (Note 16, Note 17 and Note 18) | 30 | 37 | 2 | 10 | 79 | | Gain on disposals of interests in investments (Note 34.2) | – | – | 26 | – | 26 | | Gain on disposals of interests in investments within joint ventures and associates (Note 34.2) | – | – | 9 | – | 9 | | | United Kingdom 2022 £m | United States 2022 £m | Rest of world 2022 £m | Total 2022 £m | | --- | --- | --- | --- | --- | | **Performance by geographic destination** | | | | | | Revenue including share of joint ventures and associates | 3,894 | 3,954 | 1,083 | 8,931 | | Share of revenue of joint ventures and associates | (98) | (130) | (1,074) | (1,303) | | **Group revenue** | **3,796** | **3,824** | **9** | **7,629** | | | United Kingdom 2021 £m | United States 2021 £m | Rest of world 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | | **Performance by geographic destination** | | | | | | Revenue including share of joint ventures and associates | 3,793 | 3,636 | 861 | 8,280 | | Share of revenue of joint ventures and associates | (110) | (131) | (837) | (1,078) | | **Group revenue** | **3,683** | **3,505** | **14** | **7,202** | 1 Before non-underlying items (Notes 2, 10 and 10). # **Major customers** Included in Group revenue are revenues of £1,903m (2021: £1,288m) from the US Government and £2,670m (2021: £2,374m) from the UK Government, which are the Group's two largest customers, through multiple central and regional bodies. These revenues are included in the results across all three reported segments. 198**ReWear Realty plc**^{}[] Annual Report and Accounts 2022 ## 5 Segment analysis continued ### 5.2 Infrastructure Investments | | Share of joint ventures and associates (Note 16.2) | | | Share of joint ventures and associates (Note 16.2) | | | | --- | --- | --- | --- | --- | --- | --- | | | Group 2022 £m | Share of joint ventures and associates (Note 16.2) 2022 £m | Total 2022 £m | Group 2021 £m | Share of joint ventures and associates (Note 16.2) 2021 £m | Total 2021 £m | | **Underlying profit/(loss) from operations^{1}** | | | | | | | | UK^{2} | 3 | 1 | 4 | 6 | 1 | 7 | | North America | 18 | 14 | 32 | 15 | 14 | 29 | | Gain on disposals of interests in investments (Note 34.2/34.3) | – | 70 | 70 | 26 | 9 | 35 | | | 21 | 85 | 106 | 47 | 24 | 71 | | Bidding costs and overheads | (25) | – | (25) | (22) | – | (22) | | | (4) | 85 | 81 | 25 | 24 | 49 | | **Net assets/(liabilities)** | | | | | | | | UK^{2} | 384 | 140 | 524 | 370 | 220 | 590 | | North America | 124 | 187 | 311 | 61 | 190 | 251 | | | 508 | 327 | 835 | 431 | 410 | 841 | | Non-recourse borrowings net of associated cash and cash equivalents (Note 27) | (242) | – | (242) | (243) | – | (243) | | **Total Infrastructure Investments net assets** | **266** | **327** | **593** | **188** | **410** | **596** | $^{1}$ The Group's share of the results of joint ventures and associates is disclosed net of investment income, finance costs and taxation. $^{2}$ Including Ireland. $^{1}$ Before non-underlying items (Notes 3.16 and 10). ## 6 Profit/(loss) from operations ### 6.1 Profit/(loss) from operations is stated after charging/(crediting) | | 2022 £m | 2021 £m | | --- | --- | --- | | Depreciation of property, plant and equipment | 27 | 24 | | Depreciation of right-of-use assets | 54 | 54 | | Depreciation of investment properties | 2 | 1 | | Amortisation of other intangible assets | 13 | 18 | | Amortisation of contract fulfilment assets | 15 | 12 | | Net (credit) of trade receivables impairment provision | – | (9) | | Impairment of property, plant and equipment | – | 2 | | Profit on disposal of property, plant and equipment | (4) | (4) | | Government grant income | (6) | (4) | | Cost of inventory recognised as an expense | 154 | 178 | | Auditor's remuneration | 5 | 4 | ### 6.2 Analysis of auditor's remuneration | | 2022 £m | 2021 £m | | --- | --- | --- | | Services as auditor to the Company | 0.7 | 0.6 | | Services as auditor to Group subsidiaries | 3.4 | 2.9 | | **Total audit fees** | **4.1** | **3.5** | | Audit-related assurance fees | 0.8 | 0.5 | | Other assurance fees | – | – | | **Total non-audit fees** | **0.8** | **0.5** | | **Total fees in relation to audit and other services** | **4.9** | **4.0** | Financial statements Balfour Realty plc Annual Report and Accounts 2022 199 NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 7 Employee costs ### 7.1 Group | Employee costs during the year | 2022 £m | 2021 £m | | --- | --- | --- | | Wages and salaries | 1,259 | 1,187 | | Redundancy costs | 4 | 10 | | Social security costs | 98 | 87 | | Pension costs (Note 30) | 63 | 60 | | Share-based payments (Note 35) | 20 | 12 | | | **1,444** | **1,356** | | Average number of Group employees | 2022 Number | 2021 Number | | --- | --- | --- | | Construction Services | 12,233 | 12,857 | | Support Services | 3,794 | 3,564 | | Infrastructure Investments | 1,546 | 1,614 | | Corporate | 145 | 122 | | | **17,718** | **18,157** | Detailed disclosures of items of remuneration, including those accruing under the Company's equity-settled share-based payment arrangements can be found within the Remuneration report on pages 142 to 167. ### 7.2 Company The Company did not have any employees and did not incur any employee costs in the year (2021: £nil). Balfour Beatty Group Employment Ltd, which was established in February 2013, remains the employing entity for the Balfour Beatty Group's UK employees. ## 8 Investment income | | 2022 £m | 2021 £m | | --- | --- | --- | | Subordinated debt interest receivable | 27 | 23 | | Interest receivable on PPP financial assets (Note 21) | 2 | 5 | | Fair value gain on investment asset | 6 | 9 | | Interest received on bank deposits | 8 | – | | Other interest receivable and similar income | 2 | 1 | | Net finance income on pension scheme assets and obligations (Note 30.2) | 5 | 1 | | | **50** | **38** | ## 9 Finance costs | | 2022 £m | 2021 £m | | --- | --- | --- | | Non-recourse borrowings | 9 | 11 | | US private placement | 15 | 10 | | Interest on lease liabilities (Note 28) | 6 | 6 | | Other interest payable | 2 | 2 | | | 2 | 2 | | | 2 | 4 | | Impairment of joint ventures and associates | – | 4 | | | 2 | 10 | | | **38** | **49** | The impairment of loans to joint ventures and associates of £nil (2021: £4m) and accrued interest receivable of £2m (2021: £10m) relate to expected credit loss assessments performed. All of these impairments relate to subordinated debt and accrued interest receivable from joint ventures and associates held within the Infrastructure Investments segment. 200 Balfour Beatty plc Annual Report and Accounts 2022 ## 10 Non-underlying items | | 2022 £m | 2021 £m | | --- | --- | --- | | **Items (charged against)/credited to profit** | | | | 10.1 Amortisation of acquired intangible assets | (6) | (5) | | 10.2 Other non-underlying items | | | | – release of indemnity provisions relating to sale of Henry International Inc. | 2 | 6 | | – grant income repaid in relation to UK Job Retention Scheme | – | (19) | | – settlement charge following resolution with DoJ in relation to handling of work orders within Balfour Beatty Communities | – | (41) | | – provision recognised for rectification works to be carried out on a development in London | – | (42) | | – release of accrual relating to sale of Parsons Brinckerhoff | – | 1 | | Total other non-underlying items | 2 | (95) | | **Charged against profit before taxation** | (4) | (100) | | 10.3 Tax credit/charge: | | | | – impact of tax rate change on deferred tax assets previously recognised through non-underlying | 2 | 18 | | – tax on other items above | (1) | – | | – recognition of deferred tax assets in the UK | – | 11 | | – tax on grant income repaid in relation to UK Job Retention Scheme | – | 4 | | – tax on DoJ settlement charge | – | 4 | | – tax on rectification works provision | – | 8 | | Total tax credit | 1 | 49 | | **Charged against profit for the year** | (3) | (95) | 10.1 The amortisation of acquired intangible assets comprises: customer contracts £5m (2021: £4m); and customer relationships £1m (2021: £1m). The charge was recognised in the following segments: Construction Services £1m (2021: £nll); and Infrastructure Investments £5m (2021: £5ml). 10.2.1 On 27 October 2017, the Group disposed of its 100% interest in Henry International Inc (Henry). As part of the gain on disposal recorded, the Group recognised indemnity provisions relating to several projects which were indemnified by the Group as part of the sale. This estimate was subject to final ongoing negotiations with various clients. Following completion of these projects, a final reassessment of this provision was conducted resulting in a £2m release (2021: £6ml). The credit has been recognised in the Construction Services segment. 10.2.2 In 2020, the Group recognised grant income of £19m in respect of the UK Government's Job Retention Scheme (JRS), which was presented within non-underlying items to avoid distorting the underlying performance of the Group. The Group subsequently repaid this income in 2021 and, in line with the treatment adopted at 31 December 2020, the Group presented its voluntary refund of the grant income within non-underlying items in 2021. The amounts were recognised in the following segments: Construction Services £13m; Support Services £5m; and Corporate £1m. 10.2.3 In December 2021, the Group through its subsidiary Balfour Beatty Communities (BBC), reached a resolution with the US Department of Justice (DoJ) following the completion of its investigation into specific performance incentive fees improperly claimed by BBC between 2013 and 2019 related to maintenance work at certain US military housing installations. As part of the resolution, BBC agreed to pay a settlement totalling US$66.4m. These costs were recorded within non-underlying items, net of provisions already held in the previous year. The Group presented this within non-underlying items due to the size and nature of this charge. This charge was recognised in the Infrastructure Investments segment. 10.2.4 In 2021, the Group recognised a provision of £42m in relation to rectification works to be carried out on a development in London which was constructed by the Group between 2013 and 2016. The rectification work will include the replacement of stone panels affixed to the façade of the development to meet performance requirements. The provision was calculated in line with a methodology based on an independent expert's assessment of the rectification and included an estimate of costs associated with any potential consequential disruption to the development as a result of these rectification works. The provision did not include potential recoveries from third parties. The Group presented this within non-underlying items due to the size of the defect provision. This charge was recognised in the Construction Services segment. 10.2.5 The Group established an accrual in relation to separation costs incurred as part of the Group's sale of Parsons Brinckerhoff in October 2014. In 2021, the Group released £1m of this accrual following completion of works relating to this sale. This credit was recognised in Corporate activities. 10.3.1 There is an additional deferred tax credit of £2m to revalue deferred tax assets previously recognised through non-underlying items due to a corporation tax rate change enacted in the UK (2021: £18m). 10.3.2 The remaining non-underlying items recognised in the Group's operating profit gave rise to a tax charge of £1m which was recognised mainly on the amortisation of acquired intangible assets (2021: £nll). 10.3.3 In 2021 the Group recognised £11m net movement on deferred tax assets for tax losses in non-underlying items following the recognition of actuarial gains and losses in the Group's pension schemes. Financial statements Balfour Beatty plc Annual Report and Accounts 2020 201 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **10 Non-underlying items continued** **10.3.4** As explained in Note 10.2.2, a non-underlying charge of £19m was recognised in 2021 in relation to grant income repaid under the UK Government's JRS. This expense gave rise to a tax credit of £4m. **10.3.5** As explained in Note 10.2.3, a non-underlying charge of £41m was recognised in 2021 in relation to the resolution with the DoJ. This expense gave rise to a tax credit of £4m. **10.3.6** As explained in Note 10.2.4, a non-underlying charge of £42m was recognised in 2021 in relation to the rectification works to be carried out on a development in London. This expense gave rise to a tax credit of £8m. # **11 Income taxes** # **11.1 Income tax charge/(credit)** | | Underlying Items 2022 £m | Non-underlying Items (Note 10) 2022 £m | Total 2022 £m | Total 2021 £m | | --- | --- | --- | --- | --- | | Total UK tax | (33) | (2) | (35) | (67) | | Total non-UK tax | 34 | 1 | 35 | 15 | | **Total tax charge/(credit)*** | **1** | **(1)** | **–** | **(52)** | | **UK current tax** | | | | | | – current tax | 2 | – | 2 | – | | – adjustments in respect of previous periods | – | – | – | (5) | | | 2 | – | 2 | (5) | | **Non-UK current tax** | | | | | | – current tax | 32 | (14) | 18 | 6 | | – adjustments in respect of previous periods | (3) | – | (3) | (1) | | | 29 | (14) | 15 | 5 | | **Total current tax** | **31** | **(14)** | **17** | **–** | | **UK deferred tax** | | | | | | – origination and reversal of temporary differences | (20) | (2) | (22) | (27) | | – UK corporation tax rate change | (13) | – | (13) | (35) | | – adjustments in respect of previous periods | (2) | – | (2) | – | | | (35) | (2) | (37) | (62) | | **Non-UK deferred tax** | | | | | | – origination and reversal of temporary differences | 4 | 13 | 17 | 10 | | – adjustments in respect of previous periods | 1 | 2 | 3 | – | | | 5 | 15 | 20 | 10 | | **Total deferred tax** | **(30)** | **13** | **(17)** | **(52)** | | **Total tax charge/(credit)*** | **1** | **(1)** | **–** | **(52)** | * Excluding joint ventures and associates. 1 Before non-underlying items (Notes 2.10 and 10). The Group has recognised a £1m tax credit (2021: £45m) within non-underlying items in the year. Refer to Notes 10.3.1 to 10.3.6. The Group tax charge/(credit) excludes amounts for joint ventures and associates (refer to Note 19.2), except where tax is levied at the Group level. In addition to the Group tax charge/(credit), tax of £44m has been credited (2021: £27m charged) directly to other comprehensive income, comprising: a tax credit of £19m for subsidiaries (2021: £24m charge), and a tax credit in respect of joint ventures and associates of £25m (2021: £3m charge). Tax credit of £2m (2021: £nil) has been recognised directly in equity relating to share-based payments. Refer to Note 32.1. 202*Refiner Realty plc Annual Report and Accounts 2022* ## 11 Income taxes continued ### 11.2 Income tax charge/(credit) reconciliation | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit before taxation including share of results from joint ventures and associates | 287 | 87 | | Less: share of results of joint ventures and associates | (105) | (57) | | Profit before taxation | 182 | 30 | | Add: non-underlying items charged excluding share of joint ventures and associates | 4 | 100 | | Underlying profit before taxation for subsidiaries^{1} | 186 | 138 | | Tax on underlying profit before taxation at standard UK corporation tax rate of 19% (2021: 19%) | 35 | 25 | | **Adjusted for the effects of:** | | | | Expenses not deductible for tax purposes and other permanent items | 2 | 4 | | Benefit of tax incentives | (1) | (2) | | Tax levied at Group level on share of joint ventures^{2} and associates' profits^{3} | 13 | 5 | | Recognition of losses not previously recognised^{4} | (43) | (26) | | Effect of tax rates in non-UK jurisdictions | 12 | 6 | | Recognition of UK deferred tax at 25%^{5} | (12) | (17) | | Adjustments in respect of previous periods | (5) | (2) | | **Total tax charge/(credit) on underlying profit** | **1** | **(7)** | | Add: tax credit in non-underlying items (Note 10.3) | (1) | (45) | | **Total tax credit on profit from operations** | **–** | **(63)** | # These are mostly in connection with US joint ventures and associates where tax is levied at the Group level rather than within the share of joint ventures and associates. $^{1}$ Additional UK tax losses of £20/m were recognised in 2022 (2021: £19/m), of which £80m were recognised in non-underlying items. $^{2}$ Before non-underlying items (Notes 2.18 and 10). $^{3}$ The UK corporation tax rate will increase from 19% to 25% from 1 April 2023 and therefore the new deferred tax assets and liabilities are remeasured at 25%. This includes £13m credit (2021: £8m) in connection with the recognition of UK tax losses. ## 12 Earnings per share ### Earnings | | Basic 2022 £m | Diluted 2022 £m | Basic 2021 £m | Diluted 2021 £m | | --- | --- | --- | --- | --- | | Earnings | 288 | 288 | 140 | 140 | | Amortisation of acquired intangible assets – including tax charge of £1m (2021: £1m credit) | 7 | 7 | 4 | 4 | | Other non-underlying items – including tax credit of £2m (2021: £44m) | (4) | (4) | 51 | 51 | | **Underlying earnings** | **291** | **291** | **195** | **195** | | | Basic 2022 m | Diluted 2022 m | Basic 2021 m | Diluted 2021 m | | Weighted average number of ordinary shares | 612 | 620 | 657 | 664 | The basic earnings per ordinary share is calculated by dividing the profit for the year attributable to equity holders by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares and shares held in the Employee Share Ownership Trust. The diluted earnings per ordinary share uses an adjusted weighted average number of shares and includes shares that are potentially outstanding in relation to the equity-settled share-based payment arrangements detailed in Note 35 of the Annual Report and Accounts. Potential dilutive effect of ordinary shares issuable under equity-settled share-based payment arrangements is 8m (2021: 7m). ### Earnings per share | | Basic 2022 Pence | Diluted 2022 Pence | Basic 2021 Pence | Diluted 2021 Pence | | --- | --- | --- | --- | --- | | Earnings per ordinary share | 46.9 | 46.3 | 21.3 | 21.1 | | Amortisation of acquired intangible assets after tax | 1.2 | 1.1 | 0.6 | 0.6 | | Other non-underlying items after tax | (0.6) | (0.6) | 7.8 | 7.7 | | **Underlying earnings per ordinary share** | **47.5** | **46.8** | **29.7** | **29.4** | Earnings per ordinary share Balfour Equity plc Annual Report and Accounts 2022 203 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 13 Dividends | | Per share 2022 Period | Amount 2022 £m | Per share 2021 Period | Amount 2021 £m | | --- | --- | --- | --- | --- | | **Proposed dividends for the year** | | | | | | Interim – current year | 3.5 | 21 | 3.0 | 19 | | Final – current year | 7.0 | 40 | 6.0 | 37 | | | **10.5** | **61** | **9.0** | **56** | | **Recognised dividends for the year** | | | | | | Final – prior year | | 37 | | 10 | | Interim – current year | | 21 | | 19 | | | | **58** | | **28** | Subject to approval at the Annual General Meeting on 12 May 2023, the final 2022 dividend will be paid on 5 July 2023 to holders on the register on 19 May 2023 by direct credit or, where no mandate has been given, by cheque posted by 5 July 2023. The ordinary shares will be quoted ex-dividend on 18 May 2023. The last date for Dividend Reinvestment Plan (DRIP) elections will be 14 June 2023. # 14 Intangible assets – goodwill | | Cost £m | Accumulated impayment losses £m | Carrying amount £m | | --- | --- | --- | --- | | At 1 January 2021 | 1,036 | (225) | 811 | | Currency translation differences | (1) | 7 | 6 | | At 31 December 2021 | 1,035 | (218) | 817 | | Currency translation differences | 71 | (12) | 59 | | **At 31 December 2022** | **1,106** | **(230)** | **876** | # Carrying amounts of goodwill by segment | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | United Kingdom £m | United States £m | Total £m | United Kingdom £m | United States £m | Total £m | | Construction Services | 260 | 488 | 768 | 260 | 435 | 695 | | Support Services | 73 | – | 73 | 73 | – | 73 | | Infrastructure Investments | – | 55 | 55 | – | 49 | 49 | | **Group** | **333** | **543** | **876** | **333** | **484** | **817** | # Carrying amounts of goodwill by cash-generating unit | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | £m | Pre-tax discount rate % | £m | Pre-tax discount rate % | | UK Regional and Engineering Services | 248 | 9.1 | 248 | 9.2 | | Balfour Beatty Construction Group Inc | 464 | 9.3 | 414 | 9.3 | | Rail UK | 68 | 9.3 | 68 | 9.3 | | Balfour Beatty Investments US | 55 | 11.1 | 49 | 9.4 | | Other | 41 | 9.3 | 38 | 10.2 | | **Group total** | **876** | | **817** | | The recoverable amount of goodwill is based on value-in-use, a key input of which is forecast cash flows. The Group's cash flow forecasts are based on the expected future revenues and margins of each CGU, giving consideration to the current level of confirmed and anticipated orders. Cash flow forecasts for the next three years are based on the Group's Three-Year Plan, which covers the period from 2023 to 2025. The cash flow forecasts for each CGU were compiled from each of its constituent business units as part of the Group's annual financial planning process. The other key inputs in assessing each CGU are its long-term growth rate and discount rate. The discount rates have been calculated using the Weighted Average Cost of Capital (WACC) method, which takes account of the Group's capital structure (financial risk) as well as the nature of each CGU's business (operational risk). Long-term growth rates are assumed to be the estimated future GDP growth rates based on published independent forecasts for the country or countries in which each CGU operates, less 1.0% to reflect current economic uncertainties and their consequent estimated effect on public sector spending on infrastructure. 204**Balfour Beatty plc**^{}[] Annual Report and Accounts 2022 #### 14 Intangible assets – goodwill continued In the derivation of each CGU's value-in-use, a terminal value is assumed based on a multiple of earnings before interest and tax. The multiple is applied to a terminal cash flow, which is the normalised cash flow in the last year of the forecast period. However, due to the long-term nature and the degree of predictability of some contracts within Balfour Beatty Investments US, the forecast period used in the derivation of this CGU's value-in-use extends beyond the Group's three-year cash flow forecast period in line with the duration of the contracts disclosed in Note 41(e). The EBIT multiple is calculated using the Gordon Growth Model and is a factor of the discount rate and growth rate for each CGU. The nominal terminal value is discounted to present value. | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Inflation rate % | Real growth rate % | Nominal long-term growth rate applied % | Inflation rate % | Real growth rate % | Nominal long-term growth rate applied % | | UK Regional and Engineering Services | 2.3 | 0.8 | 3.1 | 2.3 | 0.5 | 2.8 | | Balfour Beatty Construction Group Inc | 2.2 | 0.7 | 2.9 | 2.0 | 0.8 | 2.8 | | Ref UK | 2.3 | 0.8 | 3.1 | 2.3 | 0.5 | 2.8 | | Balfour Beatty Investments US | 2.2 | 0.7 | 2.9 | 2.0 | 0.8 | 2.8 | | Other | 2.3 | 0.8 | 3.1 | 2.2 | 0.6 | 2.8 | #### Sensitivities The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the discount rate and the long-term growth rate, and for certain CGUs, changes to underlying cash projections. A reasonable possible change in key assumptions would not give rise to an impairment in any of the Group's CGUs. #### 15 Intangible assets – other | | Customer contracts £m | Customer relationships £m | Brand names £m | Infrastructure Investments Intangibles £m | Software and other £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | | At 1 January 2021 | 216 | 48 | 3 | 235 | 132 | 634 | | Currency translation differences | 2 | 1 | – | – | – | 3 | | Additions | – | – | – | 1 | 1 | 2 | | Removal of fully amortised intangible asset | – | – | – | – | (6) | (6) | | At 31 December 2021 | 218 | 49 | 3 | 236 | 127 | 633 | | Currency translation differences | 26 | 6 | – | – | 2 | 34 | | Additions | – | – | – | 1 | – | 1 | | **At 31 December 2022** | **244** | **55** | **3** | **237** | **129** | **668** | | **Accumulated amortisation** | | | | | | | | At 1 January 2021 | (158) | (40) | (3) | (4) | (117) | (322) | | Currency translation differences | (2) | (1) | – | – | – | (3) | | Charge for the year | (4) | (1) | – | (4) | (9) | (18) | | Removal of fully amortised intangible asset | – | – | – | – | 6 | 6 | | At 31 December 2021 | (164) | (42) | (3) | (8) | (125) | (337) | | Currency translation differences | (20) | (5) | – | – | (1) | (26) | | Charge for the year | (5) | (1) | – | (5) | (2) | (13) | | **At 31 December 2022** | **(189)** | **(48)** | **(3)** | **(13)** | **(123)** | **(376)** | | **Carrying amount** | | | | | | | | **At 31 December 2022** | **55** | **7** | **–** | **224** | **6** | **292** | | At 31 December 2021 | 54 | 7 | – | 228 | 7 | 296 | The Group recognises certain assets held as part of service concession arrangements as Infrastructure Investments intangible assets where the Group bears demand risk under IFRIC 12 Service Concession Arrangements. The Group has completed its IFRIC 12 assets at the University of Sussex, incurring a spend of £1m (2021: £1m) in the year. The Infrastructure Investments intangible assets are amortised on a straight-line basis over the life of the projects, which is 50 years. Intangible assets are amortised on a straight-line basis over their expected useful lives, which are one to four years for customer contracts, three to 10 years for customer relationships, three to seven years for software, and up to five years for brand names, except for customer contracts and relationships relating to Balfour Beatty Investments North America which are amortised on a basis matching the returns earned over the life of the underlying contracts and relationships of up to 50 years. Other intangible assets are amortised over periods up to 10 years. Financial statements Balfour Beatty plc Annual Report and Accounts 2022 205 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 16 Property, plant and equipment | | Land and buildings £m | Plant and equipment £m | Assets in the course of construction £m | Total £m | | --- | --- | --- | --- | --- | | **Cost or valuation** | | | | | | At 1 January 2021 | 65 | 261 | 6 | 332 | | Currency translation differences | – | 2 | – | 2 | | Additions | 2 | 31 | 2 | 35 | | Removal of fully depreciated assets/assets scrapped | – | (4) | – | (4) | | Disposals | (2) | (38) | – | (40) | | At 31 December 2021 | 65 | 252 | 8 | 325 | | Currency translation differences | 2 | 9 | – | 11 | | Transfers | – | 7 | (7) | – | | Additions | – | 31 | – | 31 | | Removal of fully depreciated assets/assets scrapped | (10) | (5) | – | (15) | | Disposals | – | (17) | – | (17) | | **At 31 December 2022** | **57** | **277** | **1** | **335** | | **Accumulated depreciation** | | | | | | At 1 January 2021 | (45) | (194) | – | (239) | | Charge for the year | (5) | (19) | – | (24) | | Impairment charge | (1) | (1) | – | (2) | | Removal of fully depreciated assets/assets scrapped | – | 4 | – | 4 | | Disposals | 2 | 32 | – | 34 | | At 31 December 2021 | (49) | (178) | – | (227) | | Currency translation differences | – | (5) | – | (5) | | Charge for the year | (4) | (23) | – | (27) | | Removal of fully depreciated assets/assets scrapped | 10 | 5 | – | 15 | | Disposals | – | 13 | – | 13 | | **At 31 December 2022** | **(43)** | **(188)** | **–** | **(231)** | | **Carrying amount** | | | | | | **At 31 December 2022** | **14** | **89** | **1** | **104** | | At 31 December 2021 | 16 | 74 | 8 | 98 | Except for land and assets in the course of construction, the costs of property, plant and equipment are depreciated on a straight-line basis over their expected useful lives. Buildings are depreciated at 2.5% per annum and plant and equipment is depreciated at 4% to 33% per annum. 206**Bolivar Realty plc**^{}[] Annual Report and Accounts 2022 ## 17 Right-of-use assets | | Land and buildings £m | Plasticised equipment £m | Motor vehicles £m | Total £m | | --- | --- | --- | --- | --- | | **Cost or valuation** | | | | | | At 1 January 2021 | 79 | 40 | 78 | 197 | | Additions | 16 | 18 | 27 | 61 | | Removal of fully depreciated assets/assets scrapped | (3) | (12) | (7) | (22) | | Disposals | (6) | (2) | (6) | (14) | | At 31 December 2021 | 88 | 44 | 92 | 222 | | Currency translation differences | 6 | – | – | 6 | | Additions | 19 | 13 | 24 | 56 | | Removal of fully depreciated assets/assets scrapped | (11) | (10) | (6) | (27) | | Disposals | (5) | (1) | (4) | (10) | | **At 31 December 2022** | **95** | **46** | **106** | **247** | | **Accumulated depreciation** | | | | | | At 1 January 2021 | (24) | (18) | (34) | (76) | | Charge for the year | (17) | (14) | (23) | (54) | | Removal of fully depreciated assets/assets scrapped | 3 | 12 | 7 | 22 | | Disposals | 4 | 1 | 6 | 11 | | At 31 December 2021 | (34) | (19) | (44) | (97) | | Currency translation differences | (2) | (1) | – | (3) | | Charge for the year | (18) | (11) | (25) | (54) | | Removal of fully depreciated assets/assets scrapped | 11 | 10 | 6 | 27 | | Disposals | 3 | 1 | 3 | 7 | | **At 31 December 2022** | **(48)** | **(28)** | **(65)** | **(120)** | | **Carrying amount** | | | | | | **At 31 December 2022** | **55** | **26** | **46** | **127** | | At 31 December 2021 | 52 | 25 | 48 | 125 | ## 18 Investment properties | | Cost £m | Accumulated depreciation £m | Carrying amount £m | | --- | --- | --- | --- | | At 1 January 2021 | 35 | (6) | 30 | | Depreciation charge for the year | – | (1) | (1) | | At 31 December 2021 | 35 | (6) | 29 | | Depreciation charge for the year | – | (2) | (2) | | **At 31 December 2022** | **35** | **(8)** | **27** | Investment properties are held by the Group to generate rental income and capital appreciation. The Group has chosen to account for its investment property assets under the cost method. The Group has non-recourse project specific financing amounting to £23m (2021: £26m), which is secured through a floating charge over the property. Once a property is ready for use, the Group ceases capitalisation of interest cost and commences depreciation on the property, on a straight-line basis over 25 years. The fair value of the Group's investment properties at 31 December 2022 approximates the carrying value. The Group generated £4m (2021: £3m) of rental income from its investment properties. Financial statements Balfour Realty plc Annual Report and Accounts 2022 207 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **19 Investments in joint ventures and associates** # **19.1 Movements** | | Net assets £m | Loans £m | Total £m | | --- | --- | --- | --- | | At 1 January 2021 | 396 | 158 | 554 | | Currency translation differences | (1) | – | (1) | | Income recognised | 57 | – | 57 | | Fair value revaluation of PPP financial assets (Note 32.1) | (6) | – | (6) | | Fair value revaluation of cash flow hedges (Note 32.1) | (6) | – | (6) | | Actuarial movements on retirement benefit assets/liabilities (Note 32.1) | 7 | – | 7 | | Tax on items taken directly to other comprehensive income (Note 32.1) | (3) | – | (3) | | Dividends | (68) | – | (68) | | Additions | 18 | – | 18 | | Disposal of interest in BC Children's and BC Women's Hospitals (Note 34.3.1) | (17) | – | (17) | | Disposal of interest in Aberdeen Western Peripheral Route (Note 34.3.4) | (3) | (18) | (21) | | Return of equity | (4) | – | (4) | | Loans repaid | – | (3) | (3) | | Reclassification between net assets and loans | 26 | (26) | – | | Impairment of loans to joint ventures and associates (Note 9) | – | (4) | (4) | | At 31 December 2021 | 396 | 107 | 583 | | Currency translation differences | **28** | – | **28** | | Income recognised | **105** | – | **105** | | Fair value revaluation of PPP financial assets (Note 32.1) | **(124)** | – | **(124)** | | Fair value revaluation of cash flow hedges (Note 32.1) | **29** | – | **29** | | Actuarial movements on retirement benefit assets/liabilities (Note 32.1) | **1** | – | **1** | | Tax on items taken directly to other comprehensive income (Note 32.1) | **25** | – | **25** | | Dividends | **(148)** | – | **(148)** | | Additions | **30** | – | **30** | | Return of equity | **(34)** | – | **(34)** | | Loans repaid | – | (1) | (1) | | Distribution in excess of earnings recognised directly in income statement | **2** | – | **2** | | Reclassify negative investment to provisions (Note 26) | **10** | – | **10** | | **At 31 December 2022** | **320** | **106** | **426** | \* Loans include subordinated debt receivable from joint ventures and associates within the Infrastructure Investments segment. The principal joint ventures and associates are shown in Note 41. The amount of the Group's share of borrowings of joint ventures and associates which was supported by the Group and the Company was £nil (2021: £nil). The non-recourse borrowings of joint venture and associate entities relating to infrastructure concessions projects are repayable over periods extending up to 2040. The non-recourse borrowings arise under facilities taken out by project-specific joint venture and associate concession companies. The borrowings of each concession company are secured by a combination of fixed and floating charges over that concession company's interests in its project's assets and revenues and the shares in the concession company held by its immediate parent company. A significant part of these loans has been swapped into fixed rate debt by the use of interest rate swaps. As disclosed in Note 41(1), the Group has committed to provide its share of further equity funding of joint ventures and associates in Infrastructure Investments' projects and military housing concessions. Further, in respect of a number of these investments the Group has committed not to dispose of its equity interest until construction is complete. As is customary in such projects, banking covenants restrict the payment of dividends and other distributions. 208**Refiner Realty plc**^{}[] Annual Report and Accounts 2022 ## 19 Investments in joint ventures and associates continued ### 19.2 Share of results and net assets of joint ventures and associates | Income statement | Construction Services 2022 £m | Support Services 2022 £m | Infrastructure Investments | | | Total 2022 £m | | --- | --- | --- | --- | --- | --- | --- | | | | | UK^{1} 2022 £m | North America 2022 £m | Total 2022 £m | | | **Revenue** | **1,073** | **1** | **99** | **129** | **228** | **1,302** | | Operating profit excluding gain on disposals of interests in investments | 24 | – | (3) | 21 | 18 | 42 | | Gain on disposals of interests in investments | – | – | – | 70 | 70 | 70 | | **Operating profit** | **24** | **–** | **(3)** | **91** | **88** | **112** | | Investment income | 3 | – | 72 | 13 | 85 | 88 | | Finance costs | (1) | – | (66) | (20) | (86) | (87) | | **Profit before taxation** | **26** | **–** | **3** | **84** | **87** | **113** | | Taxation | (6) | – | (2) | – | (2) | (8) | | **Profit after taxation** | **20** | **–** | **1** | **84** | **85** | **105** | | **Balance sheet** | | | | | | | | **Non-current assets** | | | | | | | | Intangible assets – goodwill | 33 | – | – | – | – | 33 | | – Infrastructure Investments intangible | – | – | 40 | – | 40 | 40 | | – other | – | – | 13 | – | 13 | 13 | | Property, plant and equipment | 33 | – | – | – | – | 33 | | Investment properties | – | – | – | 257 | 257 | 257 | | Investments in joint ventures and associates | 5 | – | – | – | – | 5 | | Money market funds | – | – | – | 26 | 26 | 26 | | PPP financial assets | – | – | 984 | 260 | 1,244 | 1,244 | | Military housing projects | – | – | – | 119 | 119 | 119 | | Other non-current assets | 106 | – | 27 | 13 | 40 | 146 | | **Current assets** | | | | | | | | Cash and cash equivalents | 385 | – | 150 | 26 | 176 | 561 | | Other current assets | 275 | – | 46 | 5 | 51 | 326 | | **Total assets** | **837** | **–** | **1,280** | **706** | **1,966** | **2,803** | | **Current liabilities** | | | | | | | | Borrowings – non-recourse | (89) | – | (37) | – | (37) | (126) | | Other current liabilities | (579) | – | (124) | (12) | (136) | (715) | | **Non-current liabilities** | | | | | | | | Borrowings – non-recourse | – | – | (885) | (502) | (1,387) | (1,387) | | Other non-current liabilities | (80) | – | (180) | (5) | (185) | (285) | | **Total liabilities** | **(748)** | **–** | **(1,226)** | **(519)** | **(1,745)** | **(2,493)** | | **Net assets** | **89** | **–** | **34** | **187** | **221** | **310** | | Reclassify negative investment to provisions (Note 26) | 10 | – | – | – | – | 10 | | Loans to joint ventures and associates | – | – | 106 | – | 106 | 106 | | **Total investment in joint ventures and associates** | **99** | **–** | **140** | **187** | **327** | **426** | $^{1}$ Including Ireland. The Group's investment in military housing joint ventures' and associates' projects is recognised at its remaining equity investment plus the value of the Group's accrued returns from the underlying projects. The military housing joint ventures and associates have total non-recourse net borrowings of £2,249m (2021: £2,136m). Note 41(e) details the Group's military housing projects. On certain Infrastructure Investments concessions where net fair value revaluations of PPP financial assets and cash flow hedges resulted in the Group's carrying value of these investments being negative, the Group has not recognised losses beyond the carrying value of its investments. This is because the Group has not committed to provide any further funding to these investments and the borrowings within these concessions are non-recourse to the Group. At 31 December 2022, the unrecognised cumulative net fair value charges to other comprehensive income amounted to £56m (2021: £21m). Financial statements Balfour Realty plc Annual Report and Accounts 2022 209 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **19 Investments in joint ventures and associates continued** # **19.2 Share of results and net assets of joint ventures and associates continued** | Income statement | Construction Services 2021 £m | Support Services 2021 £m | Infrastructure Investments | | | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | | | | UK 2021 £m | North America 2021 £m | Total 2021 £m | | | **Revenue** | 826 | 20 | 113 | 119 | 232 | 1,078 | | Operating profit excluding gain on disposals of interests in investments | 37 | 1 | – | 19 | 19 | 57 | | Gain on disposals of interests in investments | – | – | – | 9 | 9 | 9 | | **Operating profit** | 37 | 1 | – | 28 | 28 | 66 | | Investment income | 1 | – | 76 | 12 | 88 | 89 | | Finance costs | (1) | – | (73) | (17) | (90) | (91) | | **Profit before taxation** | 37 | 1 | 3 | 23 | 26 | 64 | | Taxation | (5) | – | (2) | – | (2) | (7) | | **Profit after taxation** | 32 | 1 | 1 | 23 | 24 | 57 | | **Balance sheet** | | | | | | | | **Non-current assets** | | | | | | | | Intangible assets – goodwill | 30 | – | – | – | – | 30 | | – Infrastructure Investments intangible | – | – | 41 | – | 41 | 41 | | – other | – | – | 13 | – | 13 | 13 | | Property, plant and equipment | 31 | – | – | – | – | 31 | | Investment properties | – | – | – | 265 | 265 | 265 | | Investments in joint ventures and associates | 3 | – | – | – | – | 3 | | Money market funds | – | – | – | 81 | 81 | 81 | | PPP financial assets | – | – | 1,123 | 172 | 1,295 | 1,295 | | Military housing projects | – | – | – | 106 | 106 | 106 | | Other non-current assets | 70 | – | 15 | 7 | 22 | 92 | | **Current assets** | | | | | | | | Cash and cash equivalents | 308 | – | 143 | 24 | 167 | 475 | | Other current assets | 223 | – | 56 | 2 | 58 | 281 | | **Total assets** | 665 | – | 1,391 | 657 | 2,048 | 2,713 | | **Current liabilities** | | | | | | | | Borrowings – non-recourse | (51) | – | (36) | – | (36) | (87) | | Other current liabilities | (467) | – | (120) | (10) | (130) | (597) | | **Non-current liabilities** | | | | | | | | Borrowings – non-recourse | – | – | (909) | (450) | (1,359) | (1,359) | | Other non-current liabilities | (54) | – | (213) | (7) | (220) | (274) | | **Total liabilities** | (572) | – | (1,278) | (467) | (1,745) | (2,317) | | **Net assets** | 93 | – | 113 | 190 | 303 | 396 | | Loans to joint ventures and associates | – | – | 107 | – | 107 | 107 | | **Total investment in joint ventures and associates** | 93 | – | 220 | 190 | 410 | 503 | \* Including Ireland # **19.3 Aggregate information of joint ventures and associates** | | Joint ventures 2021 £m | Associates 2022 £m | Total 2022 £m | | --- | --- | --- | --- | | The Group's share of profit from operations | 89 | 16 | 105 | | Aggregate carrying amount of the Group's interest | 300 | 126 | 426 | | | Joint ventures 2021 £m | Associates 2021 £m | Total 2021 £m | | The Group's share of profit from operations | 48 | 9 | 57 | | Aggregate carrying amount of the Group's interest | 390 | 113 | 503 | 210*Refiner Realty plc*^{}[] Annual Report and Accounts 2022 ## 19 Investments in joint ventures and associates continued ### 19.4 Details of material joint ventures | | Gamman China Ltd | | Connect Plus (NEB) Ltd | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Proportion of the Group's ownership interest in the joint venture** | **50%** | **50%** | **15%** | **15%** | | **Income statement** | | | | | | Revenue | 2,135 | 1,618 | 270 | 146 | | Underlying operating profit | 72 | 72 | 9 | 12 | | Investment income | 6 | 2 | 140 | 137 | | Finance costs | (3) | (2) | (101) | (104) | | Income tax charge | (12) | (13) | (9) | (16) | | Profit | 63 | 59 | 39 | 29 | | Total other comprehensive income/(loss) | 2 | 13 | (274) | (65) | | **Total comprehensive income/(loss) (100%)** | **65** | **72** | **(235)** | **(56)** | | **Group's share of total comprehensive income/(loss)** | **33** | **36** | **(35)** | **(8)** | | **Dividends received by the Group during the year** | **33** | **32** | **6** | **5** | | **Balance sheet** | | | | | | **Non-current assets** | **289** | **210** | **1,667** | **2,047** | | **Current assets** | | | | | | Cash and cash equivalents | 743 | 594 | 133 | 140 | | Other current assets | 541 | 416 | 65 | 60 | | | **1,284** | **1,010** | **198** | **200** | | **Current liabilities** | | | | | | Trade and other payables | (914) | (698) | (56) | (57) | | Provisions | (48) | (50) | – | – | | Borrowings – non-recourse | (179) | (103) | (19) | (19) | | Other current liabilities | (142) | (142) | (5) | (1) | | | **(1,283)** | **(994)** | **(80)** | **(77)** | | **Non-current liabilities** | | | | | | Trade and other payables | (94) | (95) | – | – | | Provisions | (28) | (25) | – | – | | Borrowings – non-recourse | – | – | (1,167) | (1,193) | | Other non-current liabilities (including shareholder loans) | (37) | (29) | (421) | (506) | | | **(159)** | **(108)** | **(1,588)** | **(1,699)** | | **Net assets (100%)** | **131** | **117** | **197** | **471** | | **Reconciliation of the above summarised financial information to the carrying amount of the interest in the above joint ventures recognised in the consolidated financial statements:** | | | | | | Net assets of joint venture (100%) | 131 | 117 | 197 | 471 | | Group's share of net assets | 66 | 59 | 30 | 71 | | Add: Group's interest in shareholder loans | – | – | 27 | 27 | | Goodwill | 33 | 30 | – | – | | **Carrying amount of the Group's interest in the joint venture** | **99** | **89** | **57** | **98** | Financial statements Balfour Realty plc Annual Report and Accounts 2021 211 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **19 Investments in joint ventures and associates continued** # **19.5 Cash flow from/(to) joint ventures and associates** | Cash flows from investing activities | Infrastructure Investments | | | | Infrastructure Investments | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | UK^{1} 2022 £m | North America 2022 £m | Other 2022 £m | Total 2022 £m | UK^{1} 2021 £m | North America 2021 £m | Other 2021 £m | Total 2021 £m | | Dividends from joint ventures and associates | 11 | 103^{1} | 34 | 148 | 5 | 25+ | 38 | 68 | | Subordinated debt interest received | 10 | – | – | 10 | 8 | – | – | 8 | | Investments in and loans to joint ventures and associates | (7) | (22) | – | (29) | 2 | (17) | – | (15) | | Equity | (8) | (22) | – | (30) | (1) | (17) | – | (18) | | Subordinated debt repaid | 1 | – | – | 1 | 3 | – | – | 3 | | Return of equity from joint ventures and associates | – | 34^{1} | – | 34 | – | 4+ | – | 4 | | Disposal of investments in joint ventures | – | – | 1 | 1 | 30 | 20 | 1 | 51 | | **Net cash flow from joint ventures and associates** | **14** | **115** | **35** | **164** | **45** | **32** | **39** | **116** | $^{1}$ Including Ireland $^{2}$ In 2022, dividends and return of equity from joint ventures and associates included £38m and £34m respectively of proceeds generated from the disposal of Infrastructure Investments assets, of which £13m, £58m, £6m, £13m and £14m respectively of proceeds generated from the disposal of Regent at Med Center, Aspire at Discovery Park, Preserve at Southwick, Preserve at Bartlett and Waterhouse Apartments. $^{3}$ In 2021, dividends and return of equity from joint ventures and associates included £8m and £6m respectively of proceeds generated from the disposal of Infrastructure Investments assets, of which £8m and £4m respectively of proceeds generated from the disposal of Riverchase Landing and Zephyr Ridge. # **19.6 Share of reserves of joint ventures and associates** | | Accumulated (less/posit) £m | Hedging reserve £m | PPP financial assets £m | Currency translation reserve £m | Total (Note 33.1) £m | | --- | --- | --- | --- | --- | --- | | At 1 January 2021 | (21) | (55) | 102 | 39 | 65 | | Currency translation differences | – | – | – | (1) | (1) | | Income recognised | 57 | – | – | – | 57 | | Fair value revaluation of PPP financial assets | – | – | (6) | – | (6) | | Fair value revaluation of cash flow hedges | – | (6) | – | – | (6) | | Actuarial movements on retirement benefit assets/liabilities | 7 | – | – | – | 7 | | Tax on items taken directly to other comprehensive income | (1) | 6 | (8) | – | (3) | | Dividends | (68) | – | – | – | (68) | | Reserve transfers relating to joint ventures and associates | 34 | – | – | – | 34 | | Recruiting of revaluation reserves to the income statement on disposal | – | 1 | (8) | – | (7) | | At 31 December 2021 | 8 | (54) | 80 | 38 | 72 | | Currency translation differences | – | – | – | 23 | 23 | | Income recognised | 105 | – | – | – | 105 | | Fair value revaluation of PPP financial assets | – | – | (124) | – | (124) | | Fair value revaluation of cash flow hedges | – | 29 | – | – | 29 | | Actuarial movements on retirement benefit assets/liabilities | 1 | – | – | – | 1 | | Tax on items taken directly to other comprehensive income | – | (5) | 30 | – | 25 | | Dividends | (148) | – | – | – | (148) | | Recruiting of revaluation reserves to the income statement on disposal | – | – | – | (3) | (3) | | **At 31 December 2022** | **(34)** | **(30)** | **(14)** | **58** | **(20)** | 212 Rother Realty plc Annual Report and Accounts 2022 ## 20 Investments ### 20.1 Group | | Corporate bonds £m | Investments in mutual funds £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January 2021 | 5 | 21 | – | 26 | | Currency translation differences | – | 1 | – | 1 | | Fair value gains | – | 3 | 9 | 12 | | Interest accrued | – | 1 | – | 1 | | Maturities | (3) | – | – | (3) | | Benefits paid | – | (2) | – | (2) | | At 31 December 2021 | 2 | 24 | 9 | 35 | | Currency translation differences | – | 2 | – | 2 | | Additions | – | – | 7 | 7 | | Fair value (losses)/gains | – | (5) | 6 | 1 | | Interest accrued | – | 1 | – | 1 | | Benefits paid | – | (2) | – | (2) | | Dividends | – | – | (4) | (4) | | **At 31 December 2022** | **2** | **20** | **18** | **49** | The corporate bonds are held by the Group's captive insurance company, Delphian Insurance Company Ltd, and comprise fixed rate bonds or treasury stock with an average yield to maturity of 2.88% (2021: 2.60%) and weighted average life of 0.53 years (2021: 1.3 years). The fair value of the bonds is £2m (2021: £2m), determined by the market price of the bonds at the reporting date. The maximum exposure to credit risk at 31 December 2022 is the carrying amount. These bonds have been pledged as security for letters of credit issued in respect of Delphian Insurance Company Ltd. The investments in mutual funds comprise holdings in a number of funds, based on employees' investment elections, in respect of the deferred compensation obligations of the Group as disclosed in Note 30.2. The fair value of these investments is £20m (2021: £24m), determined by the market price of the funds at the reporting date. Other investments relate to the Group's interest in two Limited Partnerships (LPs) incorporated in Bermuda. The principal activity of the two LPs is to receive carry interest from a fund. Carry interest refers to a performance fee payable once the performance of the fund exceeds agreed hurdles. During the year, the Group recognised a fair value gain in relation to its carry interest of £6m (2021: £9m). The fund has a maturity date of 2023 with an option to extend by two years. All gains will be realised by the final maturity date. Dividends of £4m (2021: £nil) were received in the year. Included in other investments is also £7m (2021: £nil) of cash held in term deposits that have a maturity date of more than three months. ### 20.2 Company | | 2022 £m | 2021 £m | | --- | --- | --- | | Investment in subsidiaries | 1,759 | 1,752 | | Provisions | (26) | (26) | | | **1,733** | **1,726** | The increase of investment in subsidiaries of £7m relates to new capital injected into the Company's existing subsidiaries. Including provisions recognised to date, the Directors have assessed the Company's investment in subsidiaries to be fully recoverable. ## 21 PPP financial assets | | Economic infrastructure £m | Social infrastructure £m | Total £m | | --- | --- | --- | --- | | At 1 January 2021 | 26 | 129 | 155 | | Income recognised in the income statement: | | | | | – interest income (Note 8) | 1 | 4 | 5 | | Losses recognised in the statement of comprehensive income: | | | | | – fair value movements | (2) | (1) | (3) | | Other movements: | | | | | – cash expenditure | 2 | 1 | 3 | | – cash received | (4) | (6) | (10) | | Disposal of Woodland View Hospital (Notes 34.3.4 and 34.3.7) | – | (55) | (55) | | Disposal of North West Fire & Rescue (Notes 34.3.3 and 34.3.7) | – | (65) | (65) | | At 31 December 2021 | 23 | 7 | 30 | | Income recognised in the income statement: | | | | | – interest income (Note 8) | 2 | – | 2 | | Losses recognised in the statement of comprehensive income: | | | | | – fair value movements | (3) | – | (3) | | Other movements: | | | | | – cash expenditure | 2 | – | 2 | | – cash received | (3) | (2) | (5) | | **At 31 December 2022** | **21** | **5** | **26** | Assets constructed by PPP subsidiary concession companies are classified as financial assets measured at fair value through OCI and are denominated in sterling. The maximum exposure to credit risk at the reporting date is the fair value of the PPP financial assets. There were no impairment provisions in 2022 or 2021. Balfour Realty plc Annual Report and Accounts 2022 213 Financial statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 22 Inventories | | 2022 £m | 2021 £m | | --- | --- | --- | | Raw materials and consumables | 81 | 74 | | Development and housing land and work in progress | 32 | 29 | | Finished goods and goods for resale | 1 | 1 | | | **114** | **104** | ## 23 Contract balances The timing of revenue recognition, billings and cash collection results in trade receivables (billed amounts), contract assets (unbilled amounts) and customer advances and deposits (contract liabilities) on the Group's balance sheet. For services in which revenue is earned over time, amounts are billed in accordance with contractual terms, either at periodic intervals or upon achievement of contractual milestones. The timing of revenue recognition is measured in accordance with the progress of delivery on a contract which could either be in advance or in arrears of billing, resulting in either a contract asset or a contract liability. ### 23.1 Contract assets | | £m | | --- | --- | | At 1 January 2021 | 288 | | Transfers from contract assets recognised at the beginning of the year to receivables | (257) | | Increase related to services provided in the year | 200 | | Reclassified from contract provisions (Note 26) | (7) | | Impairments on contract assets recognised at the beginning of the year | (10) | | At 31 December 2021 | 214 | | Currency translation differences | 6 | | Transfers from contract assets recognised at the beginning of the year to receivables | (196) | | Increase related to services provided in the year | 304 | | Reclassified from contract provisions (Note 26) | (1) | | Reclassified from contract liabilities (Note 23.2) | (21) | | Impairments on contract assets recognised at the beginning of the year | (6) | | **At 31 December 2022** | **300** | ### 23.2 Contract liabilities | | £m | | --- | --- | | At 1 January 2021 | (526) | | Currency translation differences | (4) | | Revenue recognised against contract liabilities at the beginning of the year | 477 | | Increase due to cash received, excluding amounts recognised as revenue during the year | (625) | | At 31 December 2021 | (678) | | Currency translation differences | (39) | | Revenue recognised against contract liabilities at the beginning of the year | 578 | | Increase due to cash received, excluding amounts recognised as revenue during the year | (547) | | Reclassified to contract assets (Note 23.1) | 21 | | **At 31 December 2022** | **(665)** | The amount of revenue recognised in the year from performance obligations satisfied (or partially satisfied) in previous periods amounted to £12m (2021: £48mi). 214**Bolivar Realty plc**^{}[] Annual Report and Accounts 2022 ## 24 Trade and other receivables | | Group 2022 £m | Group 2021 £m | Company 2022 £m | Company 2021 £m | | --- | --- | --- | --- | --- | | **Current** | | | | | | Trade receivables | 526 | 518 | – | – | | Less: provision for impairment of trade receivables | (3) | (3) | – | – | | | **523** | **515** | – | – | | Due from subsidiaries | – | – | 1,560 | 1,421 | | Due from joint ventures and associates | 16 | 15 | – | – | | Due from joint operation partners | 6 | 12 | – | – | | Contract fulfilment assets | 13 | 12 | – | – | | Contract retentions receivable | 194 | 215 | – | – | | Accrued income | 15 | 13 | – | – | | Prepayments | 56 | 42 | – | – | | Due on disposals | – | 1 | – | – | | Other receivables | 58 | 40 | – | 1 | | | **881** | **865** | **1,560** | **1,422** | | **Non-current** | | | | | | Due from joint ventures and associates | 86 | 73 | 1 | 1 | | Contract fulfilment assets | 31 | 32 | – | – | | Contract retentions receivable | 166 | 142 | – | – | | Other receivables | 3 | 2 | 1 | 1 | | | **286** | **249** | **2** | **2** | | **Total trade and other receivables** | **1,167** | **1,114** | **1,562** | **1,424** | | **Comprising** | | | | | | Financial assets (Note 40) | 1,111 | 1,072 | 1,562 | 1,424 | | Non-financial assets – prepayments | 58 | 42 | – | – | | | **1,167** | **1,114** | **1,562** | **1,424** | Based on prior experience, an assessment of the current economic environment and a review of the financial circumstances of individual customers, the Directors believe no further credit risk provision is required in respect of trade receivables. The Directors consider that the carrying values of current and non-current trade and other receivables approximate their fair values. ### Maturity profile of impaired trade receivables and trade receivables past due but not impaired | | Impaired | | Past due but not impaired | | | --- | --- | --- | --- | --- | | | Group 2022 £m | Group 2021 £m | Group 2022 £m | Group 2021 £m | | Up to three months | – | – | 37 | 20 | | Three to six months | – | – | 8 | 19 | | Six to nine months | 1 | – | 4 | 6 | | Nine to 12 months | – | – | 3 | 3 | | More than 12 months | 2 | 3 | 29 | 41 | | | **3** | **3** | **81** | **89** | At 31 December 2022, trade receivables of £81m (2021: £89m) were past due but not impaired. These relate to a number of individual customers where there is no reason to believe that the receivable is not recoverable. The Company had no provision for impairment of trade receivables and no trade receivables that were past due but not impaired in either year. Financial statements Balfour Realty plc Annual Report and Accounts 2022 215 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **25 Trade and other payables** | | Group 2022 £m | Group 2021 £m | Company 2022 £m | Company 2021 £m | | --- | --- | --- | --- | --- | | **Current** | | | | | | Trade and other payables^{1}^{2} | **605** | 546 | – | – | | Accruals | **741** | 611 | **6** | 5 | | Contract retentions payable^{3} | **175** | 202 | – | – | | VAT, payroll taxes and social security | **74** | 96 | – | – | | Due to subsidiaries | – | – | **2,046** | 1,953 | | Due on acquisitions | – | 3 | – | – | | | **1,595** | 1,458 | **2,052** | 1,958 | | **Non-current** | | | | | | Trade and other payables^{4} | – | 5 | – | – | | Accruals | **10** | 10 | – | – | | Contract retentions payable^{4} | **122** | 92 | – | – | | Due to joint ventures and associates | **9** | 10 | **3** | 3 | | | **141** | 117 | **3** | 3 | | **Total trade and other payables** | **1,736** | 1,575 | **2,055** | 1,961 | | **Comprising** | | | | | | Financial liabilities (Note 40) | **1,638** | 1,463 | **2,055** | 1,961 | | Non-financial liabilities: | | | | | | – accruals not at amortised cost | **24** | 16 | – | – | | – VAT, payroll taxes and social security | **74** | 96 | – | – | | | **1,736** | 1,575 | **2,055** | 1,961 | $^{1}$ 2021 figure includes the cost of settlement relating to the 2nd resolution. This was settled in full in January 2022. Refer to Note 10.2.3. $^{2}$ Re-presented to show contract retentions payable separately from trade and other payables. # **Maturity profile of the Group's non-current financial liabilities at 31 December** | | Accruals 2022 £m | Due to joint ventures and associates 2022 £m | Contract retentions payable 2022 £m | Total 2022 £m | | --- | --- | --- | --- | --- | | Due within one to two years | **4** | **1** | **70** | **75** | | Due within two to five years | **6** | **4** | **52** | **62** | | Due after more than five years | – | **4** | – | **4** | | | **10** | **9** | **122** | **141** | | | Trade and other payables 2021 £m | Accruals 2021 £m | Due to joint ventures and associates 2021 £m | Contract retentions payable 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | | Due within one to two years | 5 | 5 | – | 41 | 51 | | Due within two to five years | – | 5 | 4 | 51 | 60 | | Due after more than five years | – | – | 6 | – | 6 | | | 5 | 10 | 10 | 92 | 117 | The Directors consider that the carrying values of current and non-current trade and other payables and contract retentions payable approximate their fair values. The fair value of non-current trade and other payables and contract retentions payable has been determined by discounting future cash flows using yield curves and exchange rates prevailing at the reporting date. 216**Bolivar Realty plc**^{}[] Annual Report and Accounts 2022 ## 26 Provisions | | Contract provisions £m | Employee provisions £m | Other provisions £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January 2021 | 279 | 46 | 25 | 350 | | Currency translation differences | (1) | – | – | (1) | | Reclassified from accruals | 3 | – | – | 3 | | Charged/(credited) to the income statement: | | | | | | – additional provisions | 158 | 11 | 4 | 173 | | – unused amounts reversed | (35) | (8) | (4) | (47) | | Utilised during the year | (76) | (13) | (3) | (92) | | Reclassified to contract assets (Note 23) | (7) | – | – | (7) | | At 31 December 2021 | 321 | 36 | 22 | 379 | | Currency translation differences | 9 | – | 1 | 10 | | Reclassified from accruals | – | – | 1 | 1 | | Charged/(credited) to the income statement: | | | | | | – additional provisions | 134 | 6 | 2 | 142 | | – unused amounts reversed | (48) | (2) | – | (50) | | Utilised during the year | (90) | (7) | (3) | (90) | | Reclassified to contract assets (Note 23) | (1) | – | – | (1) | | Reclassified negative investment in Group's investments in joint ventures and associates (Note 19.2) | – | – | 10 | 10 | | **At 31 December 2022** | **335** | **33** | **33** | **401** | | | Contract provisions 2022 £m | Employee provisions 2022 £m | Other provisions 2022 £m | Total 2022 £m | Contract provisions 2021 £m | Employee provisions 2021 £m | Other provisions 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Due within one year | 174 | 7 | 23 | 204 | 160 | 7 | 7 | 174 | | Due within one to two years | 77 | 7 | 3 | 87 | 76 | 12 | 7 | 96 | | Due within two to five years | 53 | 10 | 4 | 67 | 64 | 8 | 4 | 76 | | Due after more than five years | 31 | 9 | 3 | 43 | 21 | 9 | 4 | 34 | | | **335** | **33** | **33** | **401** | **321** | **36** | **22** | **379** | Contract provisions include construction insurance liabilities, principally in the Group's self-insurance arrangements, loss provisions, and defect and warranty provisions on contracts, primarily construction contracts, that have reached practical completion. There is a latent defect period for which the provision is held, but where there are known identified issues then the provision may be required to cover rectification work over a more extended period. Employee provisions are principally liabilities relating to employers' liability insurance retained in the Group's self-insurance arrangements. Other provisions principally comprise: motor and other insurance liabilities in the Group's self-insurance arrangements; legal claims and costs, where provision is made for the Directors' best estimate of known legal claims, investigations and legal actions in progress; and environmental provisions. The Group takes actuarial advice when establishing the level of provisions in the Group's self-insurance arrangements and certain other categories of provision. Insurance-related provisions within these categories were £64m (2021: £56m) as follows: Contract provisions £44m (2021: £34m); Employee provisions £16m (2021: £18m); and Other, mainly motor, provisions £4m (2021: £4m). Financial statements Balfour Equity plc Annual Report and Accounts 2022 217 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 27 Cash and cash equivalents and borrowings 27.1 Group | | Current 2022 £m | Non-current 2022 £m | Total 2022 £m | Current 2021 £m | Non-current 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Unsecured borrowings at amortised cost | | | | | | | | – Bank overdrafts | – | – | – | (34) | – | (34) | | – US private placement (Note 27.2) | (173) | (172) | (345) | – | (192) | (192) | | | (173) | (172) | (345) | (34) | (192) | (226) | | Cash and deposits at amortised cost | 828 | – | 828 | 766 | – | 766 | | Term deposits at amortised cost | 332 | – | 332 | 250 | – | 250 | | Cash and cash equivalents (excluding infrastructure concessions) | 1,160 | – | 1,160 | 1,016 | – | 1,016 | | | 987 | (172) | 815 | 982 | (192) | 790 | | Non-recourse infrastructure concessions project finance loans at amortised cost with final maturity between 2023 and 2072 | (30) | (231) | (281) | (5) | (255) | (260) | | Infrastructure concessions cash and cash equivalents | 19 | – | 19 | 17 | – | 17 | | | (11) | (231) | (242) | 12 | (255) | (243) | | Net cash/(borrowings) | 976 | (403) | 573 | 994 | (447) | 547 | Bank overdrafts arise due to timings of the Group's BACS payment in the UK. In line with the Group's accounting policy, payments are recorded against cash and cash equivalents when BACS payments are initiated, rather than when they are settled which is typically two working days later. In the intervening period between initiation and settlement, as part of the Group's cash management strategy, cash would be placed in overnight money market deposits and would later be released to be utilised against these BACS payments when settlement occurs. As there is no legal right of offset between funds held with different counterparties, the overdrafts arising as a result of the initiation of the BACS payment are shown within borrowings on the Group's balance sheet. The loans relating to project finance arise under non-recourse facilities taken out by project-specific subsidiary companies. The loans of each company are secured by a combination of fixed and floating charges over that company's interests in its project's assets and revenues and the shares in the company held by its immediate parent company. A significant part of these loans has been swapped into fixed rate debt by the use of interest rate swaps. Term deposits are held on a short-term basis and are readily accessible to the Group at any time with insignificant break costs. Included in cash and cash equivalents is restricted cash of £3m (2021: £10m) held by the Group's self-insurance company, Delphian Insurance Company Ltd, which is subject to Isle of Man insurance solvency regulations. Cash and cash equivalents also include: £194m (2021: £249m) within construction project bank accounts which is used for project specific expenditure; £353m (2021: £261m) in relation to the Group's share of cash held by joint operations which is used for expenditure within the joint operation projects; and £19m (2021: £17m) relating to maintenance and other reserve accounts in the Infrastructure Investments subsidiaries. Maturity profile of the Group's borrowings at 31 December | | Non-recourse project finance 2022 £m | Other borrowings 2022 £m | Total 2022 £m | Non-recourse project finance 2021 £m | Other borrowings 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Due on demand or within one year | (30) | (173) | (203) | (5) | (34) | (39) | | Due within one to two years | (8) | – | (8) | (32) | (155) | (187) | | Due within two to five years | (25) | (70) | (95) | (23) | (37) | (60) | | Due after more than five years | (198) | (102) | (306) | (200) | – | (200) | | | (261) | (345) | (606) | (260) | (226) | (488) | The carrying values of the Group's borrowings are equal to the fair values at the reporting date. The fair values are determined by discounting future cash flows using yield curves and exchange rates prevailing at the reporting date. Undrawn Group committed borrowing facilities at 31 December in respect of which all conditions precedent were satisfied | | Non-recourse project finance 2022 £m | Other borrowings 2022 £m | Total 2022 £m | Non-recourse project finance 2021 £m | Other borrowings 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Expiring in one year or less | – | – | – | – | – | – | | Expiring in more than one year but not more than two years | – | 405 | 405 | – | – | – | | Expiring in more than two years | – | – | – | – | 375 | 375 | | | – | 405 | 405 | – | 375 | 375 | 218 Balfour Realty plc Annual Report and Accounts 2022 ## 27 Cash and cash equivalents and borrowings continued ### 27.1 Group continued In October 2021, the Group agreed to the conversion of its £375m revolving credit facility to a sustainability linked loan (SLL), extending the maturity to October 2024. Under the terms of the loan, the Group is incentivised to deliver annual measurable performance improvement in three key areas: carbon emissions, social value generation, and an independent Environmental, Social and Governance (ESG) rating score. This facility was undrawn at 31 December 2022. In December 2022 the Group entered into a new £30m bilateral revolving credit facility on terms similar to the Group's core £375m SLL. This new facility expires in December 2024 with an extension option for a further three years subject to certain specific provisions. This new facility was also undrawn at 31 December 2022. ### 27.2 US private placement In March 2013, the Group raised US$350m (£231m) of borrowings through a US private placement (USPP) of a series of notes with an average coupon of 4.94% per annum and an average maturity of 9.3 years. On 7 March 2018, the Group repaid the first tranche of these notes amounting to US$45m (£32.5m). On 5 March 2020, the Group repaid the second tranche of these notes amounting to US$46m (£36m). At 31 December 2022, US$259m (£215m) remain with an average coupon of 5.2% and a remaining average maturity of 0.6 years. In June 2022 the Group raised US$158m (£130m) of debt in the form of new USPP notes on terms and conditions materially the same as the existing USPP notes. The new debt comprises US$35m of notes maturing in June 2027 at a fixed coupon of 6.31%, US$80m of notes maturing in June 2029 at a fixed coupon of 6.39% and US$43m of notes maturing in June 2032 at a fixed coupon of 6.45% with an average coupon of 6.4% per annum and an average maturity of 7.4 years. Following the year end, the new funding was used towards the repayment of the US$209m of USPP notes which matured in March 2023. ### 27.3 Company | | Current 2022 £m | Non-current 2022 £m | Total 2022 £m | Current 2021 £m | Non-current 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Cash | 95 | – | 95 | 96 | – | 96 | | Term deposits | 329 | – | 329 | 249 | – | 249 | | Bank overdrafts | (45) | – | (45) | (17) | – | (17) | | US private placement (Note 27.2) | (173) | (172) | (345) | – | (192) | (192) | | **Net cash/(borrowings)** | **206** | **(172)** | **34** | **328** | **(192)** | **136** | ## 28 Lease liabilities ### 28.1 Movements | | Land and buildings £m | Plant and equipment £m | Motor vehicles £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January 2021 | 58 | 22 | 45 | 125 | | Additions | 16 | 18 | 27 | 61 | | Payments made for lease liabilities* | (20) | (15) | (24) | (59) | | Disposals | (2) | (1) | (1) | (4) | | Interest on lease liabilities | 3 | 1 | 2 | 6 | | At 31 December 2021 | 55 | 25 | 49 | 129 | | Currency translation differences | 4 | – | – | 4 | | Additions | 17 | 13 | 24 | 54 | | Payments made for lease liabilities* | (19) | (12) | (27) | (58) | | Disposals | (2) | – | (1) | (3) | | Interest on lease liabilities | 3 | 1 | 2 | 6 | | **At 31 December 2022** | **58** | **27** | **47** | **132** | * Payments made for lease liabilities include an interest element of £6m 2021: £6m ### 28.2 Maturity analysis – contractual undiscounted cash flows | | Land and buildings 2022 £m | Plant and equipment 2022 £m | Motor vehicles 2022 £m | Total 2022 £m | Land and buildings 2021 £m | Plant and equipment 2021 £m | Motor vehicles 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Due within one year | 16 | 9 | 24 | 49 | 14 | 9 | 21 | 44 | | Due within one to two years | 11 | 7 | 14 | 32 | 11 | 6 | 16 | 33 | | Due within two to five years | 20 | 10 | 11 | 41 | 20 | 10 | 14 | 44 | | Due after more than five years | 13 | 4 | – | 17 | 19 | 3 | – | 22 | | **Total undiscounted cash flows** | **60** | **30** | **49** | **139** | **64** | **28** | **51** | **143** | ### 28.3 Amounts recognised in the income statement | | 2022 £m | 2021 £m | | --- | --- | --- | | Interest on lease liabilities | 6 | 6 | | Expenses relating to short-term leases | 121 | 120 | Financial statements Balfour Realty plc Annual Report and Accounts 2022 219 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **29 Deferred tax** # **29.1 Group** Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis. # **Net deferred tax position at 31 December** | | Group 2022 £m | Group 2021 £m | | --- | --- | --- | | Deferred tax assets | 176 | 120 | | Deferred tax liabilities | (152) | (115) | | | **24** | **5** | # **Movement for the year in the net deferred tax position** | | Group £m | | --- | --- | | At 1 January 2021 | (24) | | Currency translation differences | (1) | | Credited to income statement | 52 | | Charged to other comprehensive income | (24) | | Research and development tax credits | 1 | | Disposal of North West Fire & Rescue (Notes 34.3.3 and 34.3.7) | 1 | | At 31 December 2021 | 5 | | Currency translation differences | (17) | | Credited to income statement | 17 | | Credited to other comprehensive income | 19 | | Credited to equity | 2 | | Research and development tax credits | (2) | | **At 31 December 2022** | **24** | The table below shows the deferred tax assets and liabilities before being offset where they relate to income taxes levied by the same tax authority. # **Net deferred tax position** | | Depreciation in excess of capital allowances £m | Retirement benefits £m | Unreleased mailing losses £m | Stolen-based payments £m | Provisions £m | Fair value adjustments £m | Derivatives £m | Other GAAP differences £m | Research and development credits £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2021 | 19 | (33) | 96 | 4 | 40 | (81) | 7 | (80) | 4 | (24) | | Currency translation differences | - | - | - | - | 1 | (1) | - | (1) | - | (1) | | Credited/(charged) to income statement | 16 | (13) | 54 | 1 | 9 | (9) | - | (6) | - | 52 | | Charged to other comprehensive income | - | (23) | - | - | - | (1) | - | - | - | (24) | | Research and development tax credits | - | - | - | - | - | - | - | - | 1 | 1 | | Disposal of North West Fire & Rescue (Notes 34.3.3 and 34.3.7) | - | - | - | - | - | 7 | (6) | - | - | 1 | | At 31 December 2021 | 35 | (69) | 150 | 5 | 50 | (85) | 1 | (87) | 5 | 5 | | Currency translation differences | (1) | - | 1 | - | 6 | (12) | - | (11) | - | (17) | | Transfers | - | - | - | - | - | (1) | - | 1 | - | - | | Credited/(charged) to income statement | (8) | (11) | 48 | - | (5) | (6) | - | (1) | - | 17 | | Credited/(charged) to other comprehensive income | - | 20 | - | - | - | - | (1) | - | - | 19 | | Credited to equity | - | - | - | 2 | - | - | - | - | - | 2 | | Research and development tax credits | - | - | - | - | - | - | - | - | (2) | (2) | | **At 31 December 2022** | **26** | **(60)** | **199** | **7** | **51** | **(104)** | **-** | **(98)** | **3** | **24** | 220*Reflivar Realty plc*^{}[] Annual Report and Accounts 2022 ## 29 Deferred tax continued ### 29.1 Group continued #### Net deferred tax position continued At the balance sheet date, the Group had unused trading tax losses of £1,193m (2021: £1,207m) available for offset against future profits, of which £835m (2021: £648m) arose in the UK, £8m (2021: £29m) in the US and £350m (2021: £332m) in other jurisdictions. A deferred tax asset has been recognised in respect of £794m (2021: £615m) of such losses, of which £789m (2021: £589m) have been recognised in the UK, £5m (2021: £27m) in the US, and £1m (2021: £1m) in other jurisdictions. In considering the amount of deferred tax asset to be recognised for UK tax losses, the potential use of those losses based on the latest current and forecast business performance was assessed, and losses were recognised where it is probable that they will be utilised. No deferred tax asset has been recognised in respect of the losses of £399m (2021: £592m) where it is considered that it is not probable that they will be utilised due to restrictions in use and unpredictability of future profitability. Of the Group's tax losses, £3m (2021: £10m) will expire within within 20 years after the year in which they arose, using losses incurred in earlier years before those incurred in later years. Other losses will be carried forward indefinitely. In addition to the losses referred to above, at 31 December 2022 the Group had UK capital losses available to carry forward of £1.4bn (2021: £1.4bn). No deferred tax assets have been recognised in respect of these losses as there are no capital profits forecast against which these losses can be utilised. The Group also had temporary differences relating to retirement benefits on which a deferred tax asset has not been recognised of £1m (2021: £22m). Deferred tax liabilities on fair value adjustments of £104m relate to temporary differences arising on goodwill and intangibles. Deferred tax liabilities on other GAAP differences of £98m relate to temporary differences on joint ventures. At the reporting date, undistributed reserves of non-UK subsidiaries, joint ventures and associates for which deferred tax liabilities have not been recognised were £665m (2021: £513m) in respect of subsidiaries and £45m (2021: £40m) in respect of joint ventures and associates. No liability has been recognised in respect of these differences because either no temporary difference arises or the timing of any distribution is under the Group's control and no distribution which gives rise to taxation is contemplated. ### 29.2 Company The table below shows the deferred tax assets and liabilities before being offset where they relate to income taxes levied by the same tax authority (2021: £1m). | | Unreleased trading losses £1m | Share-based payments £1m | Total deferred tax assets £1m | | --- | --- | --- | --- | | At 1 January 2021 | – | – | – | | Credited/charged to income statement | – | – | – | | At 31 December 2021 | – | – | – | | Credited to income statement | 1 | – | 1 | | Credited to equity | – | 1 | 1 | | **At 31 December 2022** | **1** | **1** | **2** | ## 30 Retirement benefit assets and liabilities ### 30.1 Introduction The Group, through trustees, operates a number of defined contribution and defined benefit pension schemes. Defined contribution schemes are those where the Group's obligation is limited to the amount that it contributes to the scheme and the scheme members bear the investment and actuarial risks. Defined benefit schemes are schemes other than defined contribution schemes where the Group's obligation is to provide specified benefits on retirement. IAS 19 Employee Benefits (IAS 19) prescribes the accounting for defined benefit schemes in the Group's financial statements. Obligations are calculated using the projected unit credit method and discounted to a net present value using the market yield on high-quality corporate bonds. The pension expense relating to current service cost is charged to contracts or overheads based on the function of scheme members and is included in cost of sales and net operating expenses. The net finance income arising from the expected interest income on plan assets and interest cost on scheme obligations is included in investment income. Actuarial gains and losses are reported in the statement of comprehensive income. The IAS 19 accounting valuations are set out in Note 30.2. A different calculation is used for the formal triennial funding valuations undertaken by the scheme trustees to determine the future Company contribution level necessary so that over time the scheme assets will meet the scheme obligations. The principal difference between the two methods is that under the funding basis the obligations are discounted using a rate of return reflecting the composition of the assets in the scheme, rather than the rate of return on high-quality corporate bonds as required by IAS 19 for the financial statements. Details of the latest formal triennial funding valuations are set out in Note 30.3. The assets of the schemes do not include any direct holdings of the Group's financial instruments, nor any property occupied by, or other assets of, the Group. Balfour Realty plc Annual Report and Accounts 2022 221 Report of 29 December NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 30 Retirement benefit assets and liabilities continued #### Principal schemes The Group's principal schemes are the Balfour Beatty Pension Fund (BBPF), which includes defined contribution and defined benefit sections, and the Balfour Beatty Shared Cost Section of the Railways Pension Scheme (RPS). The defined benefit sections of both schemes are funded and closed to new members with the exception of employees where employment has transferred to the Group under certain agreed arrangements. Pension benefits for defined benefit schemes are based on employees' pensionable service and their pensionable salary. The schemes operate under trust law and are managed and administered by trustees on behalf of the members in accordance with the terms of the trust deed and rules and relevant legislation. Defined benefit contributions are determined in consultation with the trustees, after taking actuarial advice. The trustees are responsible for establishing the investment strategy and ensuring that there are sufficient assets to meet the cost of current and future benefits. These schemes expose the Group to investment and actuarial risks where additional contributions may be required if assets are not sufficient to pay future pension benefits: - » investment risk: equity returns are a key determinant of investment return but the investment portfolio is also subject to a range of other risks typical of the investments held, for example, credit risk on corporate bond holdings; and - » actuarial risk: the ultimate cost of providing pension benefits is affected by inflation rates and members' life expectancy. The net present value of the obligations is affected by the market yield on high-quality corporate bonds used to discount the obligations. Changes in the principal actuarial assumptions based on market data, such as inflation and the discount rate, and experience, such as life expectancy, expose the Group to fluctuations in the net IAS 19 liability and the net finance cost. #### Balfour Beatty Pension Fund The investment strategy of the BBPF is to hold assets of appropriate liquidity and marketability to generate income and capital growth. The BBPF invests partly in a diversified range of assets including equities and hedge funds in anticipation that, over the longer term, they will grow in value faster than the obligations. The equities are in the form of pooled funds and are a combination of UK, other developed market and emerging market equities. The remaining BBPF assets are principally fixed and index-linked bonds and derivatives, providing protection against movements in inflation and interest rates and hence enhancing the resilience of the funding level of the scheme. The performance of the assets is measured against market indices. The BBPF's defined benefit section is exposed to a number of liability related risks, namely changes in gilt yields, inflation and the longevity of the scheme's members. With respect to interest rate and inflation risks, the trustee seeks to mitigate the majority of these risks through its liability hedging portfolio. This is a segregated portfolio of hedging assets which includes physical gifts, gilt repurchase agreements and interest rate and inflation swaps. The current objective of the portfolio is to hedge around 90% of the impact that changes in interest rates and inflation can have on the funding position. During the gilt yield crisis, the BBPF's Fiduciary Manager was closely monitoring the collateral being held within the liability hedging portfolio. As gilt yields rose, action was proactively taken to ensure that throughout the crisis, the scheme held sufficient collateral to support its liability hedging programme. The BBPF's Investment Committee was closely involved in overseeing the actions being taken to manage the hedging strategy. It agreed, as a precautionary measure, to slightly reduce the target level of hedging in order to improve the scheme's resilience in case of a further material increase in yields. In response to the increased volatility in gilt yields in Autumn 2022 the Company agreed a short-term liquidity facility with the BBPF of £100m which expired undrawn in December 2022. The Group operates a Scottish Limited Partnership (SLP) structure which holds the Group's 40% interest in the Birmingham Hospital PFI investment and the Group's 15% share of the Connect Plus (M2S) asset. The BBPF is a partner in the SLP and is entitled to a share of the income of the SLP. In accordance with IFRS 10 Consolidated Financial Statements, the SLP is deemed to be controlled by the Group, which retains the ability to substitute the investment in the Birmingham Hospital PFI investment and the Connect Plus (M2S) asset for other investments from time to time. Under IAS 19, the investment held by the BBPF in the SLP does not constitute a plan asset and therefore the pension surplus presented in these financial statements does not reflect the BBPF's interest in the SLP. Distributions from the SLP to the BBPF will be reflected in the Group's financial statements as pension contributions on a cash basis. In 2022, the BBPF received distributions of £2m from the SLP (2021: £2m). Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have reconfirmed their commitment 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 have agreed the principles of the 31 March 2022 formal valuation. Under these principles, Balfour Beatty will pay deficit contributions to the BBPF of £24m in 2023, £24m in 2024 and £6m in 2025. The Company and the trustees expect to take further steps over the coming months to reduce the investment risk in the scheme and the Company has agreed that additional amounts will become payable at £3m 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. As a result of an acceleration mechanism agreed previously between the Group and the trustees, the Group made deficit contributions to the BBPF of £35m in 2022. This agreement constitutes a minimum funding requirement (MFR) under IFRIC 14 IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Group has not recognised any liabilities in relation to this MFR as any surplus of deficit contributions to the BBPF would be recoverable by way of a refund and the Group has the unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the BBPF have been settled. 222 Balfour Beatty plc Annual Report and Accounts 2022 ## 30 Retirement benefit assets and liabilities continued ### 30.1 Introduction continued #### Railways Pension Scheme The RPS is a shared cost scheme. The legal responsibility of the Group in the RPS is approximately 60% of the scheme's assets and liabilities based on the relevant provisions of the trust deed and rules and trustee guidelines regarding future surplus apportionments and deficit financing. The assumed cost of providing future service benefits is split between the Group and the members in the ratio 60:40. Because of a declining population of active members, it has become less likely that the Group's costs of meeting any deficits would be capped in line with its strict legal obligation of 60% as members might only be able to afford to fund a small proportion of the scheme deficit. It has therefore been assumed that the Group will be responsible for 100% of any deficit and the balance sheet assets and obligations disclosed, therefore, are equal to 100% of the total scheme assets and obligations. The RPS invests in a range of pooled investment funds intended to generate a combination of capital growth and income and, as determined by the trustee, taking account of the characteristics of the obligations and the trustee's attitude to risk. The majority of the RPS's assets that are intended to generate additional returns, over the rate at which the obligations are expected to grow, are invested in a single pooled growth fund. This fund is invested in a wide range of asset classes and the fund manager RPMI has the discretion to vary the asset allocation to reflect its views on the relative attractiveness of different asset classes at any time. The remaining assets in the RPS are principally fixed and index-linked bonds. The formal triennial funding valuation of the RPS as at 31 December 2019 was completed in December 2021, with the Group agreeing to continue to make fixed deficit contributions of £6m per annum which should reduce the deficit to zero by 2025. This agreement constitutes a MFR under IFNC 14 IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Group has not recognised any liabilities in relation to this MFR as any surplus of deficit contributions to the RPS would be recoverable by way of a refund and the Group has the unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the RPS have been settled. #### Other schemes Other schemes comprise unfunded post-retirement benefit obligations in Europe, the majority of which are closed to new entrants, and deferred compensation schemes in North America, where an element of employees' compensation is deferred and invested in investments in mutual funds (as disclosed in Note 20.1) in a trust, the assets of which are for the ultimate benefit of the employees but are available to the Group's creditors in the event of insolvency. The Group also participates in The Plumbing & Mechanical Services Industry Pension Scheme (Plumbers Scheme), which is an industry-wide non-associated multi-employer defined benefit scheme. As the Plumbers Scheme does not segregate assets and liabilities between the different participating employers, the Group's only obligation to the Plumbers Scheme is to pay the contributions requested by the scheme trustees as they fall due. In accordance with IAS 19, this obligation has been accounted for on a defined contribution basis and the relevant employer contributions have been charged to the income statement. #### Membership of the principal schemes | | Balfour Beatty Pension Fund 2022 | | | Railways Pension Scheme 2022 | | | Balfour Beatty Pension Fund 2021 | | | Railways Pension Scheme 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Number of members | Defined benefit obligations £m | Average duration* Years | Number of members | Defined benefit obligations £m | Average duration* Years | Number of members | Defined benefit obligations £m | Average duration* Years | Number of members | Defined benefit obligations £m | Average duration* Years | | Defined benefit | | | | | | | | | | | | | | – active members | 1 | 1 | 12 | 92 | 33 | 16 | 1 | 2 | 16 | 103 | 53 | 20 | | – deferred pensioners | 9,261 | 952 | 18 | 1,006 | 97 | 16 | 9,712 | 1,824 | 21 | 1,066 | 149 | 19 | | – pensioners, widowards and dependents | 16,946 | 1,511 | 9 | 1,874 | 170 | 10 | 17,225 | 1,892 | 11 | 1,841 | 235 | 13 | | Defined contribution | 15,382 | - | - | - | - | - | 14,670 | - | - | - | - | - | | **Total** | **41,580** | **2,464** | **12** | **2,972** | **300** | **12** | **41,608** | **3,718** | **16** | **3,010** | **437** | **16** | * The significant increase in discount rate over the year, which has been driven by a corresponding rise in corporate bond yields over this period, has led to a reduction in average duration of the B&H's active RPS. #### 30.2 IAS 19 accounting valuations Principal actuarial assumptions for the IAS 19 accounting valuations of the Group's principal schemes | | Balfour Beatty Pension Fund 2022 % | Railways Pension Scheme 2022 % | Balfour Beatty Pension Fund 2021 % | Railways Pension Scheme 2021 % | | --- | --- | --- | --- | --- | | Discount rate | 4.95 | 4.95 | 1.90 | 1.90 | | Inflation rate – RPI | 3.35 | 3.35 | 3.40 | 3.40 | | – CPI | 2.75 | 2.90 | 2.80 | 3.00 | | Future increases in pensionable salary | 2.75 | 2.90 | 2.80 | 3.00 | | Rate of increase in pensions in payment (or such other rate as is guaranteed) | 3.10 | 2.95 | 3.10 | 3.05 | Financial statements Balfour Beatty plc Annual Report and Accounts 2020 223 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **30 Retirement benefit assets and liabilities continued** # **30.2 IAS 19 accounting valuations continued** On 23 November 2022, the BBPF entered into a £1.7bn longevity swap to hedge the liabilities of the majority of its pensioner population against unexpected increases in life expectancy. The swap will form part of the BBPF's investment portfolio and provide income in the event that pensions are paid out for longer than expected. The BBPF trustees chose Zurich Assurance Ltd to act as an insurance intermediary between the BBPF and SCOR SE as the reinsurer. The fair value of the swap has been included as part of the BBPF's fair value of plan assets. At 31 December 2022, the swap was valued at £ml fair value as it was considered to remain at fair market value for both parties over the limited period from 23 November 2022 to 31 December 2022. The mortality assumptions adopted for the BBPF and RPS for 2022 are unchanged from 2021, with the Group continuing to set future improvements in line with the Continuous Mortality Investigation (CMI) 2019 core projection model due to the uncertainty presented with COVID-19. The Group will update these assumptions following the completion of the BBPF's 31 March 2022 triennial valuation. # **BBPF life expectancies** | | 2022 Average life expectancy at 65 years of age | | 2021 Average life expectancy at 65 years of age | | | --- | --- | --- | --- | --- | | | Male | Female | Male | Female | | Members in receipt of a pension | 21.7 | 23.4 | 21.6 | 23.3 | | Members not yet in receipt of a pension (current age 50) | 22.6 | 24.3 | 22.5 | 24.3 | # **RPS life expectancies** | | 2022 Average life expectancy at 65 years of age | | 2021 Average life expectancy at 65 years of age | | | --- | --- | --- | --- | --- | | | Male | Female | Male | Female | | Members in receipt of a pension | 20.7 | 22.7 | 20.6 | 22.6 | | Members not yet in receipt of a pension (current age 50) | 21.6 | 23.7 | 21.6 | 23.6 | # **Amounts recognised in the income statement** The BBPF defined contribution employer contributions paid and charged to the income statement have been separately identified in the table below and the defined contribution section assets and liabilities amounting to £628m (2021: £668m) have been excluded from the tables on pages 225 to 226. Defined contribution charges for other schemes include contributions to multi-employer pension schemes. | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Other schemes 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Other schemes 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Group** | | | | | | | | | | Current service cost | (2) | (2) | (5) | (5) | (2) | (2) | (1) | (5) | | Defined contribution charge | (52) | – | (6) | (58) | (49) | – | (6) | (55) | | Included in employee costs (Note 7) | (54) | (2) | (7) | (63) | (51) | (2) | (7) | (60) | | Interest income | 75 | 7 | – | 62 | 57 | 5 | – | 62 | | Interest cost | (69) | (8) | – | (77) | (54) | (6) | (1) | (61) | | Net finance income/(cost) (Note 8) | 6 | (1) | – | 5 | 3 | (1) | (1) | 1 | | **Total charged to income statement** | **(48)** | **(3)** | **(7)** | **(58)** | **(48)** | **(3)** | **(8)** | **(59)** | # **Amounts recognised in the statement of comprehensive income** | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Other schemes 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Other schemes 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Actuarial movements on pension scheme obligations | 1,178 | 131 | 7 | 1,316 | 17 | (2) | (4) | 11 | | Actuarial movements on pension scheme assets | (1,314) | (54) | – | (1,368) | 53 | 34 | – | 87 | | **Total actuarial movements recognised in the statement of comprehensive income (Note 32.1)** | **(136)** | **77** | **7** | **(52)** | **70** | **32** | **(4)** | **98** | | Cumulative actuarial movements recognised in the statement of comprehensive income | (181) | 24 | (22) | (179) | (45) | (53) | (29) | (127) | The actual return on plan assets was a loss of £1,286m (2021: £149m gain). 224 Balfour Beatty plc Annual Report and Accounts 2022 ### 30 Retirement benefit assets and liabilities continued #### 30.2 IAS 19 accounting valuations continued ##### Amounts recognised in the Balance Sheet | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Other schemes' 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Other schemes' 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Present value of obligations | (2,464) | (300) | (39) | (2,803) | (3,718) | (437) | (48) | (4,201) | | Fair value of plan assets | 2,689 | 337 | – | 3,026 | 4,039 | 393 | – | 4,432 | | **Asset/liabilities in the balance sheet** | **225** | **37** | **(39)** | **223** | **321** | **(44)** | **(48)** | **231** | \* Investments in mutual funds of £20m (2021: £24m) are held to satisfy the Group's deferred compensation obligations (Note 30.1). The defined benefit obligations comprise £39m (2021: £46m) arising from wholly unfunded plans and £2,764m (2021: £4,155m) arising from plans that are wholly or partly funded. ##### Movement in the present value of obligations. | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Other schemes' 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Other schemes' 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January | (3,718) | (437) | (46) | (4,201) | (3,828) | (443) | (46) | (4,317) | | Currency translation differences | – | – | (3) | (3) | – | – | 2 | 2 | | Current service cost | (2) | (2) | (1) | (5) | (2) | (2) | (1) | (5) | | Interest cost | (89) | (8) | – | (77) | (54) | (6) | (1) | (81) | | Actuarial movements from reassessing the difference between RPI and CPI | – | 2 | – | 2 | (7) | (3) | – | (10) | | Other financial actuarial movements | 1,157 | 129 | 7 | 1,293 | 23 | 1 | (4) | 20 | | Experience gains | 21 | – | – | 21 | 1 | – | – | 1 | | Total actuarial movements | 1,178 | 131 | 7 | 1,316 | 17 | (2) | (4) | 11 | | Benefits paid | 167 | 16 | 4 | 167 | 149 | 16 | 4 | 169 | | **At 31 December** | **(2,464)** | **(300)** | **(39)** | **(2,803)** | **(3,718)** | **(437)** | **(48)** | **(4,201)** | ##### Movement in the fair value of plan assets | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | At 1 January | 4,039 | 393 | 4,432 | 4,043 | 393 | 4,406 | | Interest income | 75 | 7 | 82 | 57 | 5 | 62 | | Actuarial movements | (1,314) | (54) | (1,368) | 53 | 34 | 87 | | Contributions from employer | | | | | | | | – regular funding | 1 | 1 | 2 | 2 | 1 | 3 | | – ongoing deficit funding | 35 | 6 | 41 | 33 | 6 | 39 | | Benefits paid | (167) | (16) | (162) | (149) | (16) | (165) | | **At 31 December** | **2,689** | **337** | **3,026** | **4,039** | **393** | **4,432** | There was an extremely significant increase in corporate bond yields in 2022 that led to a corresponding increase in the IAS 19 discount rate (an increase from 1.8% as at 31 December 2021 to 4.95% as at 31 December 2022). The increase in discount rate led to a reduction in the present value of obligations of approximately 35%, when compared to those implied by the discount rate as at 31 December 2021, and was the primary driver of the financial actuarial movements in 2022. This movement was slightly offset by changes due to inflation. The changes in market conditions over the year have also led to a significant reduction in assets in 2022, with this change primarily being driven by the hedging strategy in place. Financial statements Balfour Beatty plc Annual Report and Accounts 2022 225 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **30 Retirement benefit assets and liabilities continued** # **30.2 IAS 19 accounting valuations continued** Fair value of the assets held by the schemes at 31 December | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Total 2022 £m | Balfour Beatty Pension Fund 2021 £m | Railways Pension Scheme 2021 £m | Total 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Return-seeking | 748 | 140 | 888 | 1,112 | 209 | 1,321 | | – Developed nation equities^{4} | 197 | – | 197 | 383 | – | 383 | | – Emerging market equities | 30 | – | 30 | 62 | – | 62 | | – Hedge funds^{4} | 395 | – | 395 | 392 | – | 392 | | – Return-seeking growth pooled funds | – | 140 | 140 | – | 209 | 209 | | – Other return-seeking assets^{4} | 126 | – | 126 | 275 | – | 275 | | Liability-matching bond-type assets | 1,423 | 197 | 1,620 | 2,280 | 184 | 2,484 | | – Corporate bonds | 298 | – | 298 | 488 | – | 488 | | – Fixed interest gifts^{4} | 665 | – | 665 | 640 | – | 640 | | – Index-linked gifts^{4} | 604 | – | 604 | 1,103 | – | 1,103 | | – Currency hedging | 28 | – | 28 | 2 | – | 2 | | – Liability-matching pooled funds | – | 197 | 197 | – | 184 | 184 | | – Interest and inflation rate swaps | (172) | – | (172) | 47 | – | 47 | | Property | 98 | – | 98 | 183 | – | 183 | | Secure income assets | 186 | – | 186 | 213 | – | 213 | | Protection strategies | – | – | – | – | – | – | | Cash and other | 234 | – | 234 | 251 | – | 251 | | **Total** | **2,689** | **337** | **3,026** | **4,039** | **393** | **4,432** | $^{4}$ The amounts represent 100% of the scheme's assets. $^{5}$ Of the assets above, £1,289m (2021: £1,743m) are assets that have quoted prices in active markets. The remaining assets that are neither quoted nor traded on an active market are stated at fair value estimates provided by the manager of the investment or fund. $^{6}$ £163m of these assets have been valued based on September 2022 valuations, adjusted for cash movements that have occurred in the last quarter of the year, due to December 2022 valuations not being available as at the reporting date. The Directors consider these values to be a fair approximation of these assets at 31 December 2022. $^{7}$ Level 2 assets include hedge funds, £67m of developed nation equities and £54m of other return-seeking assets. Fair value of these assets have been derived based on valuations received from investment managers. # **Estimated contributions expected to be paid to the Group's principal defined benefit schemes during 2023** | | Balfour Beatty Pension Fund 2022 £m | Railways Pension Scheme 2022 £m | Total 2022 £m | | --- | --- | --- | --- | | Regular funding | 2 | 1 | 3 | | Ongoing deficit funding^{4} | 23 | 6 | 29 | | Total contributions | 25 | 7 | 32 | | Estimated BBPF running costs to be funded from deficit contributions^{4} | (4) | – | (4) | | **Estimated total cash contributions** | **21** | **7** | **28** | $^{4}$ The running costs of the BBPF are funded from deficit contributions as per the BBPF schedule of contributions. $^{4}$ The ongoing deficit contributions presented above for the BBPF in 2023 are in line with the funding agreement agreed in 2023. The sensitivity analysis below has been determined based on reasonably possible changes in assumptions occurring at the end of the reporting period. In each case the relevant change in assumption occurs in isolation from potential changes in other assumptions. In practice more than one variable is likely to change at the same time. The sensitivities have been calculated using the projected unit credit method. 226 Balfour Beatty plc Annual Report and Accounts 2022 ### 30 Retirement benefit assets and liabilities continued #### 30.2 IAS 19 accounting valuations continued Sensitivity of the Group's retirement benefit obligations at 31 December 2022 to different actuarial assumptions | Assumptions | Sensitivity to increase in assumption | | | Sensitivity to decrease in assumption | | | | --- | --- | --- | --- | --- | --- | --- | | | Percentage points/years | (Decrease)/ increase in obligations % | (Decrease)/ increase in obligations £m | Percentage points/years | (Decrease)/ increase in obligations % | (Decrease)/ increase in obligations £m | | Discount rate | 0.1% | (1.2)% | (32.6) | (0.1)% | 1.2% | 33.3 | | Market expectation of RPI inflation | 0.1% | 0.0% | 20.8 | (0.1)% | (0.9)% | (23.5) | | Salary growth | 0.1% | 0.0% | 0.1 | (0.1)% | 0.0% | (0.1) | | Discount rate | 1.0% | (10.8)% | (299.4) | (1.0)% | 13.3% | 367.2 | | Market expectation of RPI inflation | 1.0% | 7.7% | 213.8 | (1.0)% | (7.5)% | (206.8) | | Salary growth | 1.0% | 0.0% | 0.8 | (1.0)% | 0.0% | (0.8) | | Life expectancy | 1 year | 3.9% | 108 | (1 year) | (4.0)% | (110) | Sensitivity of the Group's retirement benefit assets at 31 December 2022 to changes in market conditions | | Percentage points | (Decrease)/ increase in assets % | (Decrease)/ increase in assets £m | | --- | --- | --- | --- | | Increase in interest rates | 0.1% | (1.1)% | (32.1) | | Increase in market expectation of RPI inflation | 0.1% | 0.7% | 21.0 | | Increase in interest rates | 1.0% | (10.5)% | (317.9) | | Increase in market expectation of RPI inflation | 1.0% | 7.1% | 213.7 | The asset sensitivities only take into account the impact of the changes in market conditions on bond type assets. The value of the schemes' return-seeking assets is not directly correlated with movements in interest rates or RPI inflation. Whilst the BBPF has entered into the longevity hedge, the operational setup of the swap is still ongoing, therefore a sensitivity of the impact of changes in life expectancy on the value of the swap cannot be provided at this time. Year end historical information for the Group's retirement defined benefit schemes | | 2022 £m | 2021 £m | 2020 £m | 2019 £m | 2018 £m | | --- | --- | --- | --- | --- | --- | | Present value of obligations | (2,803) | (4,201) | (4,317) | (3,959) | (3,742) | | Fair value of assets | 3,026 | 4,432 | 4,406 | 4,092 | 3,796 | | Surplus | 223 | 231 | 89 | 133 | 54 | | Experience adjustment for obligations | 21 | 1 | 5 | (53) | (4) | | Experience adjustment for assets | (1,368) | 87 | 392 | 329 | (117) | | Total deficit funding | 41 | 39 | 15 | 30 | 27 | #### 30.3 Latest formal triennial funding valuations | | Balfour Beatty Pension Fund £m | Reisvay Pension Scheme £m | | --- | --- | --- | | Date of last formal triennial funding valuation | 31/03/2019 | 31/12/2019 | | **Scheme deficit** | | | | Market value of assets | 4,136 | 354 | | Present value of obligations | (4,228) | (390) | | Deficit in defined benefit scheme | (93) | (26) | | Funding level | 97.8% | 93.2% | #### 31 Share capital | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Million | £m | Million | £m | | Called-up share capital in issue | 588 | 294 | 690 | 345 | All issued ordinary shares are fully paid. Ordinary shares have a nominal value of £0.50 each and carry no right to fixed income but each share carries the right to one vote at general meetings of the Company. No ordinary shares were issued during the current or prior year. In 2022 the Company commenced the second phase of its share buyback programme, which completed on 15 December 2022. The Company purchased 52.0m (2021: 50.3m) shares for a total consideration of £150m (2021: £150m) and held these shares in treasury with no voting rights. The purchase of these shares, together with associated fees and stamp duty amounting to £1m (2021: £1m), utilised £151m (2021: £151m) of the Company's distributable profits. On 7 June 2022 and 20 December 2022, the Company cancelled the 50.3m treasury shares and 52.0m treasury shares purchased through the 2021 and 2022 phases of its share buyback programme respectively. These cancellations resulted in decreases in called-up share capital in issue totalling £51m (2021: £n5) and corresponding increases in the capital redemption reserve. Balfour Beatty plc Annual Report and Accounts 2022 227 Financial statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **32 Movements in equity** # **32.1 Group** | | Other reserves | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Called-up share capital 2022 £m | Share premium amount 2022 £m | Capital redemption reserve 2022 £m | Share of joint ventures and associates' reserves (Note 19.9) 2022 £m | Hedging reserves 2022 £m | PPP financial assets 2022 £m | Currency translation reserve 2022 £m | Other 2022 £m | Retained profits 2022 £m | Non-controlling interests 2022 £m | Total 2022 £m | | At 1 January 2022 | 345 | 176 | 1 | 72 | (5) | 4 | 100 | 45 | 631 | 7 | 1,376 | | Profit/(loss) for the year | - | - | - | 105 | - | - | - | - | 183 | (1) | 287 | | Currency translation differences | - | - | - | 23 | - | - | 32 | - | - | - | 55 | | Actuarial movements on retirement benefit assets/liabilities | - | - | - | 1 | - | - | - | - | (52) | - | (51) | | Fair value revaluations | - | - | - | - | - | - | - | - | - | - | - | | – PPP financial assets | - | - | - | (124) | - | (3) | - | - | - | - | (127) | | – cash flow hedges | - | - | - | 29 | 3 | - | - | - | - | - | 32 | | – investments in mutual funds measured at fair value through OCI | - | - | - | - | - | - | - | (5) | - | - | (5) | | Recycling of revaluation reserves to the income statement on disposal* | - | - | - | (3) | - | - | - | - | - | - | (3) | | Tax on items recognised in other comprehensive income | - | - | - | 25 | (2) | - | - | - | 21 | - | 44 | | Total comprehensive income/(loss) for the year | - | - | - | 56 | 1 | (3) | 32 | (5) | 152 | (1) | 232 | | Ordinary dividends | - | - | - | - | - | - | - | - | (58) | - | (58) | | Joint ventures' and associates' dividends | - | - | - | (148) | - | - | - | - | 148 | - | - | | Non-controlling interests' dividends | - | - | - | - | - | - | - | - | - | (1) | (1) | | Purchase of treasury shares | - | - | - | - | - | - | - | - | (151) | - | (151) | | Cancellation of ordinary shares | (51) | - | 51 | - | - | - | - | - | - | - | - | | Movements relating to share-based payments* | - | - | - | - | - | - | - | 1 | (16) | - | (15) | | **At 31 December 2022** | **294** | **176** | **52** | **(20)** | **(4)** | **1** | **132** | **41** | **706** | **5** | **1,383** | * Other reserves include £20m of special reserve. * Movements relating to share-based payments include £3m tax credit (2021, £n) recognised directly within retained profits. | | Other reserves | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Called-up share capital 2021 £m | Share premium amount 2021 £m | Capital redemption reserve 2021 £m | Share of joint ventures and associates' reserves (Note 19.9) 2021 £m | Hedging reserves 2021 £m | PPP financial assets 2021 £m | Currency translation reserve 2021 £m | Other 2021 £m | Retained profits 2021 £m | Non-controlling interests 2021 £m | Total 2021 £m | | At 1 January 2021 | 345 | 176 | 1 | 65 | (32) | 30 | 98 | 41 | 612 | 9 | 1,345 | | Profit/(loss) for the year | - | - | - | 57 | - | - | - | - | 83 | (1) | 139 | | Currency translation differences | - | - | - | (1) | - | - | 2 | - | - | - | 1 | | Actuarial movements on retirement benefit assets/liabilities | - | - | - | 7 | - | - | - | - | 98 | - | 105 | | Fair value revaluations | - | - | - | - | - | - | - | - | - | - | - | | – PPP financial assets | - | - | - | (6) | - | (3) | - | - | - | - | (9) | | – cash flow hedges | - | - | - | (6) | 8 | - | - | - | - | - | 2 | | – investments in mutual funds measured at fair value through OCI | - | - | - | - | - | - | - | 3 | - | - | 3 | | Recycling of revaluation reserves to the income statement on disposal* | - | - | - | (7) | 19 | (22) | - | - | - | - | (10) | | Tax on items recognised in other comprehensive income | - | - | - | (3) | - | (1) | - | (1) | (22) | - | (27) | | Total comprehensive income/(loss) for the year | - | - | - | 41 | 27 | (26) | 2 | 2 | 159 | (1) | 204 | | Ordinary dividends | - | - | - | - | - | - | - | - | (29) | - | (29) | | Joint ventures' and associates' dividends | - | - | - | (68) | - | - | - | - | 68 | - | - | | Non-controlling interests' dividends | - | - | - | - | - | - | - | - | - | (1) | (1) | | Purchase of treasury shares | - | - | - | - | - | - | - | - | (151) | - | (151) | | Movements relating to share-based payments | - | - | - | - | - | - | - | 2 | 6 | - | 8 | | Reserve transfers relating to joint ventures and associates | - | - | - | 34 | - | - | - | - | (34) | - | - | | **At 31 December 2021** | **345** | **176** | **1** | **72** | **(5)** | **4** | **100** | **45** | **631** | **7** | **1,376** | * Other reserves include £20m of special reserve. * Recycling of revaluation reserves to the income statement on disposal has no associated tax effect. **228** Bolivar Realty plc Annual Report and Accounts 2022 ## 32 Movements in equity continued ### 32.2 Company | | Collect up share capital £m | Share premium account £m | Capital redemption reserve £m | Other reserves | | Retained profits £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Special reserve £m | Other £m | | | | At 1 January 2021 | 345 | 176 | 1 | 22 | 101 | 771 | 1,416 | | Profit for the year | – | – | – | – | – | 80 | 80 | | Currency translation differences | – | – | – | – | – | 3 | 3 | | Total comprehensive profit for the year | – | – | – | – | – | 83 | 83 | | Ordinary dividends | – | – | – | – | – | (29) | (29) | | Purchase of treasury shares | – | – | – | – | – | (151) | (151) | | Movements relating to share-based payments | – | – | – | – | 5 | 2 | 7 | | At 31 December 2021 | 345 | 176 | 1 | 22 | 106 | 676 | 1,326 | | Profit for the year | – | – | – | – | – | 178 | 178 | | Currency translation differences | – | – | – | – | – | (3) | (3) | | Total comprehensive profit for the year | – | – | – | – | – | 175 | 175 | | Ordinary dividends | – | – | – | – | – | (58) | (58) | | Purchase of treasury shares | – | – | – | – | – | (151) | (151) | | Cancellation of ordinary shares | (51) | – | 51 | – | – | – | – | | Movements relating to share-based payments* | – | – | – | – | 8 | (24) | (16) | | **At 31 December 2022** | **294** | **176** | **52** | **22** | **114** | **618** | **1,276** | *Movements relating to share-based payments include £1m tax credit (2021: £n)) recognised directly within retained profits. As permitted under Section 408 of the Companies Act 2006, the Company has elected not to present its statement of comprehensive income (including the profit and loss account) for the year. Balfour Beatty plc reported a profit for the financial year ended 31 December 2022 of £178m (2021: £80m profit). During the year, £151m of the Company's distributable profits were utilised for the purchase of shares into treasury (2021: £151m) and 102.3m treasury shares were cancelled. See Note 31. The retained profits of Balfour Beatty plc are wholly distributable. By special resolution on 13 May 2004, confirmed by the court on 16 June 2004, the share premium account was reduced by £181m and the £4m capital redemption reserve was cancelled, effective on 25 June 2004, and a special reserve of £185m was created. This reserve becomes distributable to the extent of future increases in share capital and share premium account, of which £nil occurred in 2022 (2021: £nil). ### 32.3 Balfour Beatty Employee Share Ownership Trust The retained profits in the Group and the retained profits of the Company are stated net of investments in Balfour Beatty plc ordinary shares acquired by the Group's employee discretionary trust, the Balfour Beatty Employee Share Ownership Trust, to satisfy awards under the Performance Share Plan, the Deferred Bonus Plan and the Restricted Share Plan. In 2022, 9.9m (2021: nil) shares were purchased at a cost of £25m (2021: £nil). The market value of the 7.5m (2021: 1.2m) shares held by the trust at 31 December 2022 was £25.3m (2021: £3.1m). The carrying value of these shares is £19.8m (2021: £3.0m). Following confirmation of the performance criteria at the end of the performance period in the case of the Performance Share Plan, and at the end of the vesting period in the case of the Deferred Bonus Plan and the Restricted Share Plan, the appropriate number of shares will be unconditionally transferred to participants. In 2022, 1.7m shares were transferred to participants in relation to the April 2019 awards under the Performance Share Plan (2021: 0.9m shares were transferred to participants in relation to the March 2018 awards under the Performance Share Plan), 0.6m shares were transferred to participants in relation to awards under the Deferred Bonus Plan (2021: 0.8m shares) and 1.2m shares were transferred to participants in relation to awards under the Restricted Share Plan (2021: 1.0m). The trustees have waived the rights to dividends on shares held by the trust. Participants in the schemes receive an award of shares to represent the dividends which would have been payable on the shares since the date of grant. Other reserves in the Group and Company include £6.8m (2021: £6.2m) relating to unvested Performance Share Plan awards, £3.8m (2021: £3.8m) relating to unvested Restricted Share Plan awards and £2.7m (2021: £2.5m) relating to unvested Deferred Bonus Plan awards. Financial statements Balfour Beatty plc Annual Report and Accounts 2022 229 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **33 Notes to the statement of cash flows** # **33.1 Cash from/(used in) operations** | | Notes | Underlying Gross 2022 £m | Non- underlying Items 2022 £m | 2022 £m | 2021 £m | | --- | --- | --- | --- | --- | --- | | Profit from operations | | **279** | **(4)** | **275** | 97 | | Share of results of joint ventures and associates | 19 | **(105)** | – | **(105)** | (57) | | Depreciation of property, plant and equipment | 16 | **27** | – | **27** | 24 | | Depreciation of right-of-use assets | 17 | **54** | – | **54** | 54 | | Depreciation of investment properties | 18 | **2** | – | **2** | 1 | | Amortisation of other intangible assets | 15 | **7** | **6** | **13** | 18 | | Amortisation of contract fulfilment assets | | **15** | – | **15** | 12 | | Pension deficit payments, including regular funding | 38.2 | **(43)** | – | **(43)** | (42) | | Movements relating to equity-settled share-based payments | | **9** | – | **9** | 7 | | Gain on disposal of interests in investments | 34.3 | – | – | – | (26) | | Profit on disposal of property, plant and equipment | | **(4)** | – | **(4)** | (4) | | Other non-cash items | | **(4)** | – | **(4)** | 1 | | Operating cash flows before movements in working capital | | **237** | **2** | **239** | 85 | | Increased/decrease in operating working capital | | | | **(54)** | 268 | | Inventories | | | | **(8)** | 11 | | Contract assets | | | | **(78)** | 74 | | Trade and other receivables | | | | **34** | (34) | | Contract liabilities | | | | **(59)** | 147 | | Trade and other payables | | | | **57** | 43 | | Provisions | | | | **(2)** | 28 | | **Cash from operations** | | | | **185** | 354 | 1 Before non-underlying items (Notes 2, 10 and 10) # **33.2 Cash and cash equivalents** | | Group 2022 £m | Group 2021 £m | Company 2022 £m | Company 2021 £m | | --- | --- | --- | --- | --- | | Cash and deposits | **828** | 766 | **95** | 96 | | Term deposits | **332** | 250 | **329** | 249 | | Cash balances within infrastructure concessions | **19** | 17 | – | – | | Bank overdrafts | – | (34) | **(45)** | (17) | | | **1,179** | 999 | **379** | 328 | Cash and cash equivalents include cash in hand; deposits held at call with banks and other short-term highly liquid investments with original maturities of less than three months. # **33.3 Analysis of movements in borrowings** | | Infrastructure concessions non-recourse project finance £m | US private placement £m | Bank overdrafts £m | Total £m | | --- | --- | --- | --- | --- | | At 1 January 2021 | (339) | (189) | – | (528) | | Currency translation differences | – | (3) | – | (3) | | Proceeds of loans | (8) | – | (34) | (42) | | Repayments of loans | 6 | – | – | 6 | | Disposal of Woodland View Hospital (Notes 34.3.2 and 34.3.7) | 41 | – | – | 41 | | Disposal of North West Fire & Rescue (Notes 34.3.3 and 34.3.7) | 40 | – | – | 40 | | At 31 December 2021 | (260) | (192) | (34) | (486) | | Currency translation differences | – | **(23)** | – | **(23)** | | Proceeds of loans | **(8)** | **(130)** | – | **(130)** | | Repayments of loans | **7** | – | **34** | **41** | | **At 31 December 2022** | **(261)** | **(345)** | – | **(606)** | In June 2022 the Group raised US$158m (£130m) of debt in the form of new US private placement (USPP) notes on terms and conditions materially the same as the existing USPP notes. The new debt comprises US$35m of notes maturing in June 2027 at a fixed coupon of 6.31%, US$80m of notes maturing in June 2029 at a fixed coupon of 6.39% and US$43m of notes maturing in June 2032 at a fixed coupon of 6.45%. Following the year end, the new funding was used towards the repayment of the US$209m of USPP notes which matured in March 2023. 230**Reflivar Realty plc**^{}[] Annual Report and Accounts 2022 ## 34 Acquisitions and disposals ### 34.1 Current and prior year acquisitions There were no material acquisitions in 2022. Deferred consideration paid during 2022 in respect of acquisitions completed in earlier years was £3m (2021: £3m). This related to the Group's acquisition of Center Construction in 2007. ### 34.2 Current year disposals During the year, the Group disposed of several Infrastructure Investments assets as detailed below: The gain recognised from the disposal of assets that were held within joint venture entities of the Group is recognised within the Group's share of results of joint ventures and associates. | Notes | Disposal date | Entry/asset | Structure of sale | Percentage disposed % | Cash consideration £m | Net assets disposed £m | Amount required from reserves £m | Underlying gain £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 34.2.1 | 30 June 2022 | Regard at Med Center (formerly City Lake) | Asset sale | n/a | 12 | (5) | 1 | 8 | | 34.2.2 | 11 August 2022 | Aspire at Discovery Park | Asset sale | n/a | 50 | (12) | 2 | 40 | | 34.2.3 | 23 August 2022 | Preserve at Southwind | Asset sale | n/a | 4 | (1) | – | 3 | | 34.2.4 | 23 August 2022 | Preserve at Bartlett | Asset sale | n/a | 13 | (4) | – | 9 | | 34.2.5 | 2 November 2022 | Waterchase Apartments | Asset sale | n/a | 14 | (4) | – | 10 | | | | | | | **93** | **(26)** | **3** | **70** | \* Disposal of asset within a joint venture entity. 34.2.1 On 30 June 2022, the Group disposed of its Regard at Med Center multifamily property asset located in Houston, Texas, and received total cash consideration of £12m. The asset disposal resulted in an underlying gain of £8m being recognised in the Group's share of joint ventures and associates, including a gain of £1m in respect of foreign currency translation reserves recycled to the income statement on disposal. 34.2.2 On 11 August 2022, the Group disposed of its Aspire at Discovery Park on-campus accommodation at Purdue University in West Lafayette, Indiana, and received total cash consideration of £50m. The asset disposal resulted in an underlying gain of £40m being recognised in the Group's share of joint ventures and associates, including a gain of £2m in respect of foreign currency translation reserves recycled to the income statement on disposal. 34.2.3 On 23 August 2022, the Group disposed of its Preserve at Southwind multifamily property asset located in Memphis, Tennessee, and received total cash consideration of £4m. The asset disposal resulted in an underlying gain of £3m being recognised in the Group's share of joint ventures and associates. 34.2.4 On 23 August 2022, the Group disposed of its Preserve at Bartlett multifamily property asset located in Bartlett, Tennessee, and received total cash consideration of £13m. The asset disposal resulted in an underlying gain of £9m being recognised in the Group's share of joint ventures and associates. 34.2.5 On 2 November 2022, the Group disposed of its Waterchase Apartments multifamily property asset located in Largo, Florida, and received total cash consideration of £14m. The asset disposal resulted in an underlying gain of £10m being recognised in the Group's share of joint ventures and associates. In addition to the disposals above, the Group received a further £1m of deferred consideration in relation to the disposal of its Middle Eastern joint ventures in 2017. This deferred consideration was included in the Group's assessment of the gain on disposal recognised in 2017. ### 34.3 Prior year disposals During 2021, the Group disposed of several Infrastructure Investments assets as detailed below: The gain recognised from the disposal of assets that were held within joint venture entities of the Group is recognised within the Group's share of results of joint ventures and associates. | Notes | Disposal date | Entry/asset | Structure of sale | Percentage disposed % | Cash consideration £m | Net assets disposed £m | Amount required from reserves £m | Underlying gain £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 34.3.1 | 2 June 2021 | BC Children's and BC Women's Hospitals | Equity interest sale | 70% | 20 | (17) | 4 | 7 | | 34.3.2 | 6 July 2021 | Woodland View Hospital | Equity interest sale | 100% | 8 | (5) | – | 3 | | 34.3.3 | 6 July 2021 | North West Fire & Rescue | Equity interest sale | 100% | 11 | (9) | 3 | 5 | | 34.3.4 | 6 August 2021 | Aberdeen Western Peripheral Router | Equity interest sale | 33.3% | 29 | (21) | 3 | 11 | | 34.3.5 | 26 October 2021 | Riverchase Landing | Asset sale | n/a | 3 | (1) | – | 2 | | 34.3.6 | 12 November 2021 | Zephyr Ridge | Asset sale | n/a | 9 | (2) | – | 7 | | | | | | | **80** | **(55)** | **10** | **35** | | Add: Proceeds received in relation to deferred consideration on the sale of Consort Healthcare (File) Holdings Ltd | | | | | 1 | | | | | Disposal proceeds per the Directors' valuation | | | | | 81 | | | | \* Disposal of joint venture. \* Disposal of subsidiary. \* Disposal of asset within a joint venture entity. Financial statements Balfour Equity plc Annual Report and Accounts 2022 231 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **34 Acquisitions and disposals continued** # **34.3 Prior year disposals continued** **34.3.1** On 2 June 2021, the Group disposed of its entire 70% interest in Affinity Partnerships (the BC Children's and BC Women's Hospitals concession located in Vancouver, Canada) for a cash consideration of £20m. The disposal resulted in a net gain of £7m being recognised in underlying operating profit, including a gain of £4m in respect of PPP financial asset reserves recycled to the income statement on disposal. **34.3.2** On 6 July 2021, the Group disposed of its entire 100% interest in Woodland View Project Co Ltd for a cash consideration of £8m. The disposal resulted in a net gain of £3m being recognised in underlying operating profit, including a gain of £8m in respect of PPP financial asset reserves and a loss of £8m in respect of hedging reserves recycled to the income statement on disposal. The disposal included cash disposed of £2m. **34.3.3** On 6 July 2021, the Group disposed of its entire 100% interest in Balfour Beatty Fire and Rescue NW Ltd for a cash consideration of £11m. The disposal resulted in a net gain of £5m being recognised in underlying operating profit, including a gain of £14m in respect of PPP financial asset reserves and a loss of £11m in respect of hedging reserves recycled to the income statement on disposal. The disposal included cash disposed of £1m. **34.3.4** On 6 August 2021, the Group disposed of its entire 33.3% interest in Aberdeen Roads Holdings Ltd (Aberdeen Western Peripheral Route) for a cash consideration of £29m. The disposal resulted in a net gain of £11m being recognised in underlying operating profit, including a gain of £4m in respect of PPP financial asset reserves and a loss of £1m in respect of hedging reserves recycled to the income statement on disposal. **34.3.5** On 26 October 2021, the Group disposed of its Riverchase Landing multifamily property asset located in Hoover, Alabama, for a total cash consideration of £3m. The asset disposal resulted in an underlying gain of £2m being recognised in the Group's share of joint ventures and associates. **34.3.6** On 12 November 2021, the Group disposed of its Zephyr Ridge multifamily property asset located in Zephyrhills, Florida, for a total cash consideration of £9m. The asset disposal resulted in an underlying gain of £7m being recognised in the Group's share of joint ventures and associates. In addition to the disposals above, the Group received a further £1m of deferred consideration in relation to the disposal of its Middle Eastern joint ventures in 2017. This deferred consideration was included in the Group's assessment of the gain on disposal recognised in 2017. The Group also received £1m of deferred consideration in relation to the disposal of its entire 50% interest in Consort Healthcare (File) Holdings Ltd which took place in 2018. This deferred consideration was received as part of the earn-out agreement that was entered into with the buyer as part of the disposal and was included in the Group's assessment of the additional gain on disposal recognised in 2019. # **34.3.7 Subsidiaries net assets disposed** | Net assets disposed | Note | Woodland View Project Co Ltd £m | Balfour Beatty Fire and Rescue NW Ltd £m | Total £m | | --- | --- | --- | --- | --- | | PPP financial assets | 21 | 55 | 65 | 120 | | Borrowings – non-recourse | 33.3 | (41) | (40) | (81) | | Deferred tax | 29.1 | – | (1) | (1) | | Derivative financial instruments | | (10) | (14) | (24) | | Net working capital | | (1) | (2) | (3) | | Cash | | 2 | 1 | 3 | | | | 5 | 9 | 14 | | Cash consideration | | (8) | (11) | (19) | | Amounts recycled from reserves | | – | (3) | (3) | | **Gain on disposal** | | **(3)** | **(5)** | **(8)** | | **Net cash flow effect** | | | | | | Total consideration | | 8 | 11 | 19 | | Cash and cash equivalents disposed | | (2) | (1) | (3) | | **Net cash consideration** | | **6** | **10** | **16** | # **35 Share-based payments** The Company operates three equity-settled share-based payment arrangements, namely the Performance Share Plan (PSP), the Deferred Bonus Plan (DBP) and the Restricted Share Plan (RSP). The Group recognised total expenses relating to equity-settled share-based payment transactions of £9m (2021: £7m). Refer to the Remuneration report for details of the PSP and DBP schemes. The Company also operates three cash-settled share-based payment arrangements, namely the Shadow PSP (SPSP), the Shadow RSP (SRSP) and the Shadow Deferred Bonus Plan (SDBP). These share-based payment arrangements mirror the conditions of the equity-settled PSP, RSP and DBP plans, the only difference being they are settled in cash. The Group recognised total expenses relating to cash-settled share-based payment transactions of £11m (2021: £5m). 232 Balfour Beatty plc Annual Report and Accounts 2022 ### 35 Share-based payments continued #### Movements in share plans ##### Equity-settled share-based payment awards | 2022 number of awards | PSP conditional awards | DBP conditional awards | RSP conditional awards | | --- | --- | --- | --- | | Outstanding at 1 January | 9,333,341 | 1,979,385 | 3,747,665 | | Granted during the year | 3,624,249 | 947,192 | 1,309,184 | | Awards in lieu of dividends | – | 77,559 | 176,869 | | Forfeited during the year | (1,612,041) | (82,787) | (443,791) | | Exercised during the year | (1,728,704) | (819,434) | (1,184,801) | | **Outstanding at 31 December** | **9,616,845** | **2,301,915** | **3,600,926** | | **Exercisable at 31 December** | – | – | – | | **Weighted average remaining contractual life (years)** | **1.3** | **1.3** | **1.6** | | **Weighted average share price at the date of exercise for awards exercised in the year** | **262.2** | **256.6** | **242.2** | | 2021 number of awards | PSP conditional awards | DBP conditional awards | RSP conditional awards | | --- | --- | --- | --- | | Outstanding at 1 January | 9,558,963 | 2,309,364 | 3,541,092 | | Granted during the year | 3,007,343 | 419,895 | 1,552,832 | | Awards in lieu of dividends | – | 33,175 | 57,799 | | Forfeited during the year | (2,331,778) | (24,789) | (369,349) | | Exercised during the year | (900,787) | (748,260) | (1,034,709) | | **Outstanding at 31 December** | **9,333,341** | **1,979,385** | **3,747,665** | | **Exercisable at 31 December** | – | – | – | | **Weighted average remaining contractual life (years)** | **1.2** | **1.2** | **1.5** | | **Weighted average share price at the date of exercise for awards exercised in the year** | **301.0** | **298.6** | **291.6** | The principal assumptions, including expected volatility determined from the historical weekly share price movements over the three-year period immediately preceding the award date, used by the consultants in the stochastic model for the 33.3% of the PSP awards granted in 2022 subject to market conditions, were: | Award date | Name of award | Number of awards | Closing share price on award date Pence | Expected volatility of shares % | Expected term of awards Years | Risk-free interest rate % | Calculated fair value of an award Pence | | --- | --- | --- | --- | --- | --- | --- | --- | | 1 April 2022 | PSP award | 3,624,249 | 256.8 | 33.09% | 3.0 | 1.40 | 183.0 | For the 66.7% of the PSP awards granted in 2022 subject to non-market conditions and for the DBP and RSP awards granted in 2022, the fair value of the awards is the closing share price on the date of grant. ##### Cash-settled share-based payment awards | 2022 number of awards | SPSP conditional awards | SDBP conditional awards | SPSP conditional awards | | --- | --- | --- | --- | | Outstanding at 1 January | 8,538,863 | 1,255,815 | 1,480,557 | | Granted during the year | 2,750,733 | 605,746 | 499,350 | | Awards in lieu of dividends | – | 53,384 | 35,299 | | Forfeited during the year | (1,314,076) | – | (216,919) | | Exercised during the year | (1,591,987) | (316,009) | (451,462) | | **Outstanding at 31 December** | **8,383,533** | **1,598,936** | **1,346,825** | | **Exercisable at 31 December** | – | – | – | | **Weighted average remaining contractual life (years)** | **1.1** | **1.2** | **1.6** | | **Weighted average share price at the date of exercise for awards exercised in the year** | **263.0** | **259.5** | **260.6** | As at 31 December 2022, the Group's liability in respect of outstanding cash-settled share-based payment awards amounted to £21m (2021: £13m). The liability has been recorded within accruals. | 2021 number of awards | SPSP conditional awards | SDBP conditional awards | SPSP conditional awards | | --- | --- | --- | --- | | Outstanding at 1 January | 8,876,597 | 1,067,030 | 1,348,282 | | Granted during the year | 2,195,666 | 307,707 | 426,377 | | Awards in lieu of dividends | – | 15,171 | 16,861 | | Forfeited during the year | (1,724,113) | (52,950) | (20,373) | | Exercised during the year | (609,289) | (81,143) | (290,590) | | **Outstanding at 31 December** | **8,538,863** | **1,255,815** | **1,480,557** | | **Exercisable at 31 December** | – | – | – | | **Weighted average remaining contractual life (years)** | **1.1** | **1.2** | **1.4** | | **Weighted average share price at the date of exercise for awards exercised in the year** | **301.5** | **298.0** | **320.2** | Balfour Realty plc Annual Report and Accounts 2022 233 Report of statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **36 Commitments** Capital expenditure authorised and contracted for which has not been provided for in the financial statements amounted to £5m (2021: £nil) in the Group and £nil (2021: £nil) in the Company. The Group has committed to provide its share of further equity funding and subordinated debt in Infrastructure Investments projects which have reached financial close. Refer to Note 41(8). # **37 Contingent liabilities** The Company and certain subsidiary undertakings have, in the normal course of business, given guarantees and entered into counter-indemnities in respect of bonds relating to the Group's own contracts and given guarantees in respect of their share of certain contractual obligations of joint ventures and associates and certain retirement benefit liabilities of the Balfour Beatty Pension Fund and the Railways Pension Scheme. Guarantees are treated as contingent liabilities until such time as it becomes probable payment will be required under the terms of the guarantee. Provision has been made for the Directors' best estimate of known legal claims, investigations and legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice, that the action is unlikely to succeed, or that the Group cannot make a sufficiently reliable estimate of the potential obligation. # **38 Related party transactions** # **Joint ventures and associates** The Group has contracted with, provided services to, and received management fees from, certain joint ventures and associates amounting to £447m (2021: £325m). These transactions occurred in the normal course of business at market rates and terms. In addition, the Group procured equipment and labour on behalf of certain joint ventures and associates which were recharged at cost with no mark-up. The amounts due from or to joint ventures and associates at the reporting date are disclosed in Notes 24 and 25 respectively. # **Transactions with non-Group members** The Group also entered into transactions and had amounts outstanding with related parties which are not members of the Group as set out below. Each company was a related party as it was controlled, jointly controlled or under significant influence by a Director of Balfour Beatty plc. | | 2022 £m | 2021 £m | | --- | --- | --- | | **HMC Architects** | | | | Purchase of services | 3 | 2 | | Amount owed to related parties | 1 | - | | **Severfield plc** | | | | Purchase of goods and services | 1 | - | | **Site Assist Software Limited** | | | | Purchase of services | 1 | - | All transactions with these related parties were conducted on normal commercial terms, equivalent to those conducted with external parties. No guarantees have been given or received. No expense has been recognised in the year for bad or doubtful debts in respect of amounts owed by related parties. # **Compensation of key management personnel of the Company** | | 2022 £m | 2021 £m | | --- | --- | --- | | Short-term benefits | 3.273 | 3.000 | | Share-based payments | 1.634 | 1.750 | | | 4.907 | 4.750 | Key management personnel comprise the executive Directors who are directly responsible for the Group's activities and the non-executive Directors. The compensation included above is in respect of the period of the year during which the individuals were Directors. Further details of Directors' emoluments, post-employment benefits and interests are set out in the Remuneration report on pages 142 to 167. # **39 Events after the reporting date** On 3 March 2023, the Group repaid the third tranche of its 2013 US private placement notes amounting to US$209m (£173m). US$50m of these notes remain outstanding and will mature in March 2025. In the period from 1 January 2023 to 13 March 2023 (the latest practicable date prior to the date of this annual report and accounts), the Company purchased 12.7m ordinary shares, which are held in treasury with no voting rights, for a total consideration of £48m (including stamp duty and fees). There were no other material post balance sheet events arising after the reporting date. 234 Balfour Beatty plc Annual Report and Accounts 2022 ## 40 Financial instruments ### Capital risk management The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The components of capital are as follows: equity attributable to equity holders of the Company comprising issued ordinary share capital, reserves and retained earnings as disclosed in Notes 31 and 32; US private placement as disclosed in Note 27; and cash and cash equivalents and borrowings as disclosed in Note 27. The Group maintains or adjusts its capital structure through the payment of dividends to equity holders, issue of new shares and buyback of existing shares, and drawdown of new borrowings and repayment of existing borrowings. The policy of the Group is to ensure an appropriate balance between cash, borrowings (other than the non-recourse borrowings of companies engaged in Infrastructure Investments project), working capital and the value in the Infrastructure Investments investment portfolio. The overall capital risk management strategy of the Group remains unchanged from 2021. In 2022 the Company commenced the second phase of its share buyback programme, which completed on 15 December 2022. The Company purchased 52.0m (2021: 50.3m) shares for a total consideration of £150m (2021: £150m) and held these in treasury with no voting rights. The purchase of these shares, together with associated fees and stamp duty amounting to £1m (2021: £1m), utilised £151m (2021: £151m) of the Company's distributable profits. On 7 June 2022 and 20 December 2022, the Company cancelled the 50.3m treasury shares and 52.0m treasury shares purchased through the 2021 and 2022 phases of its share buyback programme respectively. These cancellations resulted in decreases in called-up share capital in issue totalling £51m (2021: £n) and corresponding increases in the capital redemption reserve. ### Categories of financial instruments | | Loans and receivables at amortised cost, cash and deposits 2022 £m | Financial liabilities at amortised cost 2022 £m | Financial assets at fair value through 2022 2022 £m | Financial assets at amortised cost 2022 £m | Financial assets at fair value through 1Q4, 2022 £m | Derivatives 2022 £m | Loans and receivables at amortised cost, cash and deposits 2021 £m | Financial liabilities at amortised cost 2021 £m | Financial assets at fair value through 2022 2021 £m | Financial assets at amortised cost 2021 £m | Financial assets at fair value through 1Q4, 2021 £m | Derivatives 2021 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | | | | | | | Fixed rate bonds and treasury stock | - | - | - | 2 | - | - | - | - | - | 2 | - | - | | Mutual funds | - | - | 20 | - | - | - | - | - | 24 | - | - | - | | Other investment assets | - | - | - | 7 | 11 | - | - | - | - | - | 9 | - | | PPP financial assets | - | - | 28 | - | - | - | - | - | 30 | - | - | - | | Cash and deposits | 1,179 | - | - | - | - | - | 1,033 | - | - | - | - | - | | Trade and other receivables | 1,111 | - | - | - | - | - | 1,072 | - | - | - | - | - | | Derivatives | - | - | - | - | - | 1 | - | - | - | - | - | - | | **Total** | **2,290** | **-** | **46** | **9** | **11** | **1** | **2,105** | **-** | **54** | **2** | **9** | **-** | | **Financial liabilities** | | | | | | | | | | | | | | Bank overdrafts | - | - | - | - | - | - | (34) | - | - | - | - | - | | Trade and other payables | - | (1,638) | - | - | - | - | - | (1,463) | - | - | - | - | | Unsecured borrowings | - | (345) | - | - | - | - | - | (192) | - | - | - | - | | Infrastructure concessions non-recourse term loans | - | (261) | - | - | - | - | - | (260) | - | - | - | - | | Derivatives | - | - | - | - | - | (1) | - | - | - | - | - | (4) | | **Total** | **-** | **(2,244)** | **-** | **-** | **-** | **(1)** | **(34)** | **(1,915)** | **-** | **-** | **-** | **(4)** | | **Net** | **2,290** | **(2,244)** | **46** | **9** | **11** | **-** | **2,071** | **(1,915)** | **54** | **2** | **9** | **(4)** | | Current year comprehensive income/loss excluding share of joint ventures and associates | 35 | (30) | (6) | - | 6 | 3 | 33 | (29) | (17) | - | 9 | 27 | Financial statements Balfour Equity plc Annual Report and Accounts 2022 235 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 40 Financial instruments continued # Derivatives | | Financial assets/(liabilities) | | | Financial liabilities/(assets) | | | | --- | --- | --- | --- | --- | --- | --- | | | Current 2022 £m | Non-current 2022 £m | Total 2022 £m | Current 2021 £m | Non-current 2021 £m | Total 2021 £m | | **Fuel hedges** | | | | | | | | Hold for trading at fair value through income statement | 1 | – | 1 | – | – | – | | **Interest rate swaps** | | | | | | | | Designated as cash flow hedges | – | (1) | (1) | (1) | (3) | (4) | | | 1 | (1) | – | (1) | (3) | (4) | # Non-derivative financial liabilities gross maturity The following table details the remaining contractual maturity for the Group's non-derivative financial liabilities. The table reflects the undiscounted contractual maturities of the financial liabilities including interest that will accrue on those liabilities except where the Group is entitled to and intends to repay the liability before its maturity. The discount column represents the possible future cash flows included in the maturity analysis, such as future interest, that are not included in the carrying value of the financial liability. # Maturity profile of the Group's non-derivative financial liabilities at 31 December | | Non-recourse project finance 2022 £m | Other itemearings 2022 £m | Other financial liabilities 2022 £m | Total non- derivative financial liabilities 2022 £m | Discount 2022 £m | Carrying value 2022 £m | | --- | --- | --- | --- | --- | --- | --- | | Due on demand or within one year | (32) | (173) | (1,503) | (1,708) | 2 | (1,706) | | Due within one to two years | (8) | – | (88) | (76) | – | (76) | | Due within two to five years | (26) | (70) | (62) | (158) | 1 | (157) | | Due after more than five years | (385) | (102) | (5) | (492) | 187 | (305) | | | (451) | (345) | (1,638) | (2,434) | 190 | (2,244) | | Discount | 190 | – | – | 190 | – | – | | **Carrying value** | **(261)** | **(345)** | **(1,638)** | **(2,244)** | | | | | Non-recourse project finance 2021 £m | Other itemearings 2021 £m | Other financial liabilities 2021 £m | Total non- derivative financial liabilities 2021 £m | Discount 2021 £m | Carrying value 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Due on demand or within one year | (6) | – | (1,354) | (1,360) | 1 | (1,359) | | Due within one to two years | (33) | (155) | (44) | (232) | 1 | (231) | | Due within two to five years | (24) | (37) | (59) | (120) | 1 | (119) | | Due after more than five years | (393) | – | (6) | (399) | 193 | (298) | | | (458) | (192) | (1,463) | (2,111) | 196 | (1,915) | | Discount | 196 | – | – | 196 | – | – | | **Carrying value** | **(260)** | **(192)** | **(1,463)** | **(1,915)** | | | # Derivative financial liabilities gross maturity The following table details the Group's expected maturity for its derivative financial liabilities. The table reflects the undiscounted net cash inflows/outflows on the derivative instruments that settle on a net basis (interest rate swaps) and undiscounted gross inflows/outflows for those derivatives that are settled on a gross basis (foreign exchange contracts). When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates, using the yield curves at the reporting date. # Maturity profile of the Group's derivative financial liabilities at 31 December | | Payable 2022 £m | Receivable 2022 £m | Net payable 2022 £m | Payable 2021 £m | Receivable 2021 £m | Net payable 2021 £m | | --- | --- | --- | --- | --- | --- | --- | | Due on demand or within one year | (11) | 11 | – | (26) | 25 | (1) | | Due within one to two years | (5) | 5 | – | (2) | 1 | (1) | | Due within two to five years | – | – | – | (6) | 4 | (2) | | Due after more than five years | – | – | – | (1) | – | (1) | | **Total** | **(16)** | **16** | **–** | **(35)** | **30** | **(5)** | 236**Bolivar Realty plc**^{}[] Annual Report and Accounts 2022 ## 40 Financial instruments continued ### Financial risk factors The Group's activities expose it to a variety of financial risks: market risk; credit risk; and liquidity risk. The Group's financial risk management strategy seeks to minimise the potential adverse effect of these risks on the Group's financial performance. Financial risk management is carried out centrally by Group Treasury under policies approved by the Board. Group Treasury liaises with the Group's business units to identify, evaluate and hedge financial risks. The Board provides written principles for overall financial risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is monitored through the Group's internal audit and risk management procedures. The Group uses derivative financial instruments to hedge certain risk exposures. The Group does not trade in financial instruments, including derivative financial instruments, for speculative purposes. #### (a) Market risk The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: - forward foreign exchange contracts to hedge the exchange rate risk arising on trading activities transacted in a currency that is not the functional currency of the business unit; and There has been no material change to the Group's exposure to market risks and there has been no change in how the Group manages those risks since 2021. #### (i) Foreign currency risk management The Group operates internationally and is exposed to foreign exchange risk arising from exposure to various currencies, primarily to US dollars, euros and Hong Kong dollars. Foreign exchange risk arises from future trading transactions, assets and liabilities and net investments in foreign operations. Group policy requires business units to manage their transactional foreign exchange risk against their functional currency. Whenever a current or future foreign currency exposure is identified with sufficient reliability, Group Treasury enters into forward contracts on behalf of business units to cover 100% of foreign exchange risk above materiality levels determined by the Chief Financial Officer. As at 31 December 2022, the notional principal amounts of foreign exchange contracts in respect of foreign currency transactions where hedge accounting is not applied was £16m (2021: £31m) receivable and £16m (2021: £31m) payable with related cash flows expected to occur within three years (2021: three years). The foreign exchange gains or losses resulting from fair valuing these unhedged foreign exchange contracts will affect the income statement throughout the same periods. The Group has not designated any forward exchange contracts as cash flow hedges in 2021 and 2022. The Group's investments in foreign operations are exposed to foreign currency translation risks. The Group does not enter into forward foreign exchange or other derivative contracts to hedge foreign currency denominated net assets. In June 2022 the Group raised US$158m of debt in the form of new US private placement (USPP) notes on terms and conditions materially the same as the existing USPP notes raised in 2013, of which US$259m remained outstanding at 31 December 2022. The USPP notes are designated as a net investment hedge against changes in the value of the Group's US net assets due to exchange movements. The Group reassessed the US$417m hedge at 31 December 2022 and concluded that the hedge continued to be effective. Exchange movements in the year totalled £23m (2021: £3m). A 5% increase/decrease in the US dollar to sterling exchange rate would lead to a £16m decrease (2021: £9m)/£18m increase (2021: £10m) in the carrying amount of the liability on the Group's balance sheet, with the movement recognised in other comprehensive income. The hedging policy is reviewed periodically. At the reporting date there had been no change to the hedging policy since 2021. #### (ii) Interest rate risk management Interest rate risk arises in the Group's non-recourse project companies which borrow funds at both floating and fixed interest rates and hold financial assets measured at fair value through OCI. Floating rate borrowings expose the Group to cash flow interest rate risk. The Group's policy to manage this risk is to swap floating rate interest to fixed rate, using interest rate swap contracts. In an interest rate swap, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. The net effect of a movement in interest rates on income would be immaterial. The fair value of interest rate swaps is determined by discounting the future cash flows using the yield curve at the reporting date. During 2022 and 2021, the Group's non-recourse project subsidiaries' borrowings at variable rates of interest were denominated in sterling. The notional principal amounts of the subsidiaries' interest rate swaps outstanding at 31 December 2022 totalled £17m (2021: £17m) with maturities that match the maturity of the underlying borrowings of 9 years. At 31 December 2022, the fixed interest rate was 5.1% (2021: 5.1%) and the principal floating rates are LIBOR plus a fixed margin. In 2022, the Group replaced LIBOR with SONIA plus a credit adjustment spread. No material impact arose from this transition. A 50 basis point increase/decrease in the interest rate on floating rate borrowings for interest rate swaps would lead to a £nil increase (2021: £1m)/£nil decrease (2021: £1m) in amounts taken directly to other comprehensive income by the Group in relation to the Group's exposure to interest rates on the PPP financial assets and cash flow hedges of its Infrastructure Investments subsidiaries. Interest rate risk also arises on the Group's cash and cash equivalents, term deposits and other borrowings. The majority of the debt of the Group is held at fixed interest rates. A 50 basis point increase/decrease in the interest rate of each currency in which these financial instruments are held would lead to a £6m decrease (2021: £5m)/£6m increase (2021: £5m) in the Group's net finance cost. Financial statements Balfour Realty plc Annual Report and Accounts 2022 237 ### NOTES TO THE FINANCIAL STATEMENTS CONTINUED Balfour Beatty plc Annual Report and Accounts 2022238 40 Financial instruments continued Financial risk factors continued (a) Market risk continued (iii) Price risk management The Group’s principal price risk exposure arises in its Infrastructure Investments concessions. At the commencement of the concession, an element of the unitary payment by the customer is indexed to offset the effect of inflation on the concession’s costs. The Group is exposed to price risk to the extent that inflation differs from the index used. (b) Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations, resulting in financial loss. Credit risk arises from cash and deposits, derivative financial instruments, loans provided to joint ventures and associates and credit exposures to customers, including outstanding receivables and committed transactions. The Group has a policy of assessing the creditworthiness of potential customers before entering into transactions set by the Board for the Group. For cash and deposits and derivative financial instruments, the Group has a policy of only using counterparties that are independently rated with a minimum long-term credit rating of BBB+ and at 31 December 2022 and 31 December 2021, this criterion was met. The credit rating of a financial institution will determine the amount and duration for which funds may be deposited under individual risk limits set by the Board for the Group and subsidiary companies. Management monitors the utilisation of these credit limits regularly. For trade and other receivables, credit evaluation is performed on the financial condition of accounts receivable using independent ratings where available or by assessment of the customer’s credit quality based on its financial position, past experience and other factors. The Group’s most significant customers are public or regulated industry entities which generally have high credit ratings or are of a high credit quality due to the nature of the customer. As such, the Group does not expect material credit losses to occur on balances owed to the Group by its public or regulated customers. This is in line with the Group’s experience in the past of recovering balances owed by these customers. The Group is exposed to credit risk on loans provided to joint ventures and associates and accrued interest on those loans, as the repayment of these amounts is contingent on the performance of the underlying concession or operation. In the Infrastructure Investments segment the concessions are typically financed by a combination of non-recourse external borrowings and subordinated loans provided by the joint venture partners. The Group assesses any expected credit losses on its loans provided to joint ventures and associates by comparing the carrying value of the relevant investment in joint venture or associate balance (which includes the loans provided and any accrued interest) to future cash flows expected to be received from the joint venture or associate, discounted where appropriate. The maximum exposure to credit risk in respect of the above at the reporting date is the carrying value of financial assets recorded in the financial statements, net of any allowance for losses. There has been no material change to the Group’s exposure to credit risks and there has been no change in how the Group manages those risks since 2021. (c) Liquidity risk The Group manages liquidity risk by maintaining adequate cash balances and banking facilities, continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Details of undrawn committed borrowing facilities are set out in Note 27.1. The maturity profile of the Group’s financial liabilities is set out on page 236. There has been no material change to the Group’s exposure to liquidity risks and there has been no change in how the Group manages those risks since 2021. Fair value estimation The Group holds certain financial instruments on the balance sheet at their fair values. The following hierarchy classifies each class of financial asset or liability in accordance with the valuation technique applied in determining its fair value. There have been no transfers between these categories during 2022 or 2021. Level 1 – The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities. The Group holds investments in mutual funds measured at fair value through OCI which are traded in active markets and valued at the closing market price at the reporting date. Level 2 – The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows utilising yield curves at the reporting date and taking into account own credit risk. Own credit risk for Infrastructure Investments’ swaps is not material and is calculated using the following credit valuation adjustment (CVA) calculation: loss given default multiplied by exposure multiplied by probability of default. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the reporting date and yield curves derived from quoted interest rates matching the maturities of the foreign exchange contracts. Own credit risk for the other derivative liabilities is not material and is calculated by applying a relevant credit default swap (CDS) rate obtained from a third party. Level 3 – The fair value is based on unobservable inputs. The fair value of the Group’s PPP financial assets is determined in the construction phase by applying an attributable profit margin by reference to the construction margin on non-PPP projects reflecting the construction risks retained by the construction contractor, and fair value of construction services performed. In the operational phase it is determined by discounting the future cash flows allocated to the financial asset at a discount rate which is based on long-term gilt rates adjusted for the risk levels associated with the assets, with market-related movements in fair value recognised in other comprehensive income and other movements recognised in the income statement. Amounts originally recognised in other comprehensive income are transferred to the income statement upon disposal of the asset. A change in the discount rate would have a significant effect on the value of the asset and a 50 basis point increase/decrease, which represents management’s assessment of a reasonably possible change in the risk-adjusted discount rate, would lead to a £1m decrease (2021: £1m)/£1m increase (2021: £1m) in the fair value of the assets taken through equity. Refer to Note 21 for a reconciliation of the movement from the opening balance to the closing balance. ## 40 Financial instruments continued ### Financial risk factors continued #### (c) Liquidity risk continued Fair value estimation continued For PPP financial assets held in joint ventures and associates, a change in the discount rate by a 50 basis point increase/decrease, which represents management's assessment of a reasonably possible change in the risk-adjusted discount rate, would lead to a £28m decrease (2021: £40m)/£29m increase (2021: £43m) in the fair value of the assets taken through equity within the share of joint ventures' and associates' reserves. | Financial instruments at fair value | 2022 | | | | 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | Investments in mutual fund financial assets | 20 | – | – | 20 | 24 | – | – | 24 | | PPP financial assets | – | – | 20 | 20 | – | – | 30 | 30 | | Other investment assets | – | – | 11 | 11 | – | – | 9 | 9 | | Financial assets – fuel hedges | – | 1 | – | 1 | – | – | – | – | | **Total assets measured at fair value** | **20** | **1** | **37** | **58** | **24** | **–** | **39** | **63** | | Financial liabilities – infrastructure concessions interest rate swaps | – | (1) | – | (1) | – | (4) | – | (4) | | **Total liabilities measured at fair value** | **–** | **(1)** | **–** | **(1)** | **–** | **(4)** | **–** | **(4)** | ## 41 Principal subsidiaries, joint ventures and associates ### (a) Principal subsidiaries | | Country of incorporation or registration | | --- | --- | | **Construction and support services** | | | Baffour Beatty Group Ltd. | | | Baffour Beatty-Construction Group Inc | US | | Baffour Beatty Infrastructure Inc | US | | **Infrastructure Investments** | | | Baffour Beatty Communities LLC | US | | Baffour Beatty Infrastructure Investments Ltd* | | | Baffour Beatty Investments Inc | US | | Baffour Beatty Campus Solutions LLC | US | | Baffour Beatty Investments, LP | Canada | | Baffour Beatty Communities, LP | Canada | | **Other** | | | Baffour Beatty Holdings Inc. | US | ### (b) Principal joint ventures and associates | | Country of incorporation or registration | Ownership interest % | | --- | --- | --- | | **Construction and support services** | | | | Gemmon China Ltd | Hong Kong | 50.0 | | **Infrastructure Investments (Note 41)** | | | | Connect Plus (M25) Ltd | | 15.0 | ### (c) Principal joint operations The Group carries out a number of its larger contracts in joint arrangements with other contractors so as to share resources and risk. The principal joint projects in progress during the year are shown below. | | Country of incorporation or registration | Ownership interest % | | --- | --- | --- | | M25 Maintenance | | 52.5 | | M4 Junction 3-12 | | 60.0 | | H52 – Area North | | 50.0 | | Central Rail Systems Alliance | | 80.0 | | Old Oak Common | | 42.0 | | Skanska/Baffour Beatty | US | 50.0 | | Dracoll/Baffour Beatty | US | 35.0 | | Greenline Extension | US | 25.0 | | LAX Integrated Express Solutions | US | 30.0 | | LBJ East | US | 45.0 | #### Notes (c) Subsidiaries, joint ventures and associates whose results did not, in the opinion of the Directors, materially affect the results or net assets of the Group are not shown. (c) Unless otherwise stated, 100% of the equity capital is owned and companies are registered in England and Wales and the principal operations of each company are conducted in the country of incorporation. * Indicates held directly by Baffour Beatty plc. A full list of the Group's related undertakings is included in Note 43. Baffour Beatty plc Annual Report and Accounts 2022 239 Financial statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **41 Principal subsidiaries, joint ventures and associates continued** # **(d) Balfour Beatty Investments UK** # **Roads** Balfour Beatty is a promoter, developer and investor in 12 road and street lighting projects to construct new roads, to upgrade and maintain existing roads and to replace and maintain street lighting. The principal contract is the project agreement with the governmental highway authority. All assets transfer to the customer at the end of the concession. | Concession company (i) | Project | Total debt and equity funding £m | Shareholding | Method of accounting | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | --- | | Connect M1-A1 Ltd | 30km road | 290 | 20% | JV | March 1996 | 30 | 1999 | | Connect A50 Ltd | 57km road | 42 | 25% | JV | May 1996 | 30 | 1998 | | Connect A30/A35 Ltd | 102km road | 127 | 20% | JV | July 1996 | 30 | 2000 | | Connect M77/GSQ plc (ii) | 25km road | 167 | 85% | JV | May 2003 | 32 | 2005 | | Connect Roads Sunderland Ltd | Streetlighting | 27 | 20% | JV | August 2003 | 25 | 2008 | | Connect Roads South Tyneside Ltd | Streetlighting | 28 | 20% | JV | December 2005 | 25 | 2010 | | Connect Roads Derby Ltd | Streetlighting | 36 | 100% | Subsidiary | April 2007 | 25 | 2012 | | Connect Plus (M25) Ltd | J16 – J23, J27 – J30 and A1/M1 Hatfield Tunnel | 1,309 | 15% | JV | May 2009 | 30 | 2012 | | Connect CNDR Ltd | Carlisle Northern Development Route | 176 | 25% | JV | July 2009 | 30 | 2012 | | Connect Roads Coventry Ltd | Streetlighting | 56 | 20% | JV | August 2010 | 25 | 2015 | | Connect Roads Cambridgeshire Ltd | Streetlighting | 51 | 20% | JV | April 2011 | 25 | 2016 | | Connect Roads Northamptonshire Ltd | Streetlighting | 64 | 20% | JV | August 2011 | 25 | 2016 | # **Notes** (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Connect M77/GSQ plc which is registered, and conducts their principal operations, in Scotland. (ii) Due to the shareholders' agreement between Balfour Beatty and the other shareholder requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of this company, the Directors consider that the Group does not control this company and it has been accounted for as a joint venture. # **Healthcare** Balfour Beatty is a promoter, developer and investor in two healthcare projects to build hospital accommodation and to provide certain non-medical facilities management services over the concession period. The principal contract for Birmingham is the project agreement between the concession company and the NHS Trust and for the Irish primary care centres, the project agreement is with the Irish Government. All assets transfer to the customer at the end of the concession. | Concession company (i) | Project | Total debt and equity funding £m | Shareholding | Method of accounting | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | --- | | Consort Healthcare (Birmingham) Ltd | Teaching hospital and mental health hospital | 553 | 40% | JV | June 2006 | 40 | 2011 | | Healthcare Centres PPP Ltd | Primary health care centres | 158 | 40% | JV | May 2016 | 26 | 2019 | # **Note** (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Healthcare Centres PPP Ltd which is registered, and conducts its principal operations, in Ireland. # **Student accommodation** Balfour Beatty is a promoter, developer and investor in four student accommodation projects. On Holyrood, Sussex and Aberystwyth, the principal agreement is between the concession company and the university and the assets transfer to the customer at the end of the concession. On Glasgow Residences the building is owned outright by Balfour Beatty and rooms are let to individual students. | Concession company (i) | Project | Total debt and equity funding £m | Shareholding | Method of accounting | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | --- | | Holyrood Student Accommodation SPV Ltd | Edinburgh | 82 | 20% | JV | July 2013 | 50 | 2016 | | Aberystwyth Student Accommodation Ltd | Aberystwyth | 51 | 100% | Subsidiary | July 2013 | 35 | 2015 | | Glasgow Residences (Kennedy Street) LLP | Glasgow | 40 | 100% | Subsidiary | April 2016 | n/a | 2017 | | East Slope Residences Student Accommodation LLP | Sussex | 218 | 80% | Subsidiary | March 2017 | 50 | 2020 | # **Note** (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Holyrood Student Accommodation SPV Ltd and Glasgow Residences (Kennedy Street) LLP which are registered, and conduct their principal operations, in Scotland. 240 Balfour Beatty plc Annual Report and Accounts 2022 ## 41 Principal subsidiaries, joint ventures and associates continued ### (d) Balfour Beatty Investments UK continued #### Other concessions Pewensey Coastal Defence Ltd (PCDL) has a 25-year contract with the Environment Agency to maintain a shingle bank sea defence in East Sussex. UBB Waste (Gloucestershire) Ltd has a contract with the local authority to design, build and operate a sustainable waste treatment facility. Thanet involves the operation of transmission assets for the 300MW offshore wind farm project located off the Kent coast. Gwynt y Môr involves the operation of transmission assets for the 578MW offshore wind farm in the Irish Sea. Humber involves the operation of transmission assets for the 219MW offshore wind farm in the North Sea. Thanet, Gwynt y Môr and Humber operate and maintain the transmission assets under the terms of perpetual licences granted by Ofgem which contain the right to be paid a revenue stream over a 20-year period on an availability basis. Welland Bio Power involves the design, construction, financing, operation and maintenance of a 10.4MW waste wood gasifier located at Pebble Hall Farm, Thredingworth. The East Wick and Sweetwater development is a London Legacy Development Corporation project, being carried out in phases, which will result in the creation of two communities, East Wick and Sweetwater, at the Queen Elizabeth Olympic Park in London. With the exception of the Welland Bio Power plant and the Eastwick and Sweetwater project, all assets transfer to the customer at the end of the relevant concession. | Concession company (1) | Project | Total debt and equity funding £m | Shareholding | Method of accounting | Financial issue | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | --- | | Pewensey Coastal Defence Ltd | Sea defences | 3 | 25% | JV | July 2000 | 25 | n/a | | East Wick and Sweetwater Projects (Phase 1) Ltd | Property development | 99 | 50% | JV | January 2019 | 3 | 2021 | | UBB Waste (Gloucestershire) Ltd | Waste processing plant | 223 | 49.5% | Associate | January 2016 | 25 | 2019 | | Thanet OFTO Ltd | Offshore transmission | 197 | 20% | JV | December 2014 | 20 | n/a | | Gwynt y Môr OFTO plc ltd | Offshore transmission | 256 | 60% | JV | February 2015 | 20 | n/a | | Welland Bio Power Ltd | Waste wood gasifier | 17 | 29.2% | JV | March 2015 | n/a | 2018 | | Humber Gateway OFTO Ltd | Offshore transmission | 187 | 20% | JV | September 2016 | 20 | n/a | #### Notes (1) Registered in England and Wales and the principal operations of each company are in England and Wales. (2) Due to the shareholder's agreement between Balfour Beatty and the other shareholders requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of the company, the Directors consider that the Group does not control the company and it has been accounted for as a joint venture. ### (e) Balfour Beatty Investments North America #### Military housing Summary Balfour Beatty through its subsidiary Balfour Beatty Communities LLC is a manager, developer, and investor in a number of US military privatisation projects associated with a total of 55 US Government military bases which includes 55 military family housing communities and one unaccompanied personnel housing community that are expected to contain approximately 43,000 housing units once development, construction and renovation are complete. The projects comprise 11 military family housing privatisation projects with the United States Department of the Army (Army), seven projects with the United States Department of the Air Force (Air Force) and two projects with the United States Department of the Navy (Navy). In addition, there is one unaccompanied personnel housing (UPH) project with the Army at Fort Stewart. **Contractual arrangements** The first phase of the project, known as the initial development period, covers the period of initial construction or renovation of military housing on a base, typically lasting three to eight years. With respect to Army and Navy projects, the Government becomes a member or partner of the project entity (Project LLC); the Air Force is not a named partner or member in Balfour Beatty Communities' Project LLCs, however it contributes a commitment to provide a Government direct loan to the Project LLC and has similar rights to share in distributions and cash flows of the Project LLC. On each project, the Project LLC enters into a ground lease with the Government, which provides the Project LLC with a leasehold interest in the land and title to the improvements on the land for a period of 50 years. Each of these military housing privatisation projects includes agreements covering the management, renovation, and development of existing housing units, as well as the development, construction, renovation and management of new units during the term of the project, which, in the case of the Army, could potentially extend for up to an additional 25 years. The 50-year duration of each project calls for continuous renovation, rehabilitation, demolition and reconstruction of housing units. At the end of the ground lease term the Project LLC's leasehold interest terminates and all project improvements on the land generally transfer to the Government. **Preferred returns** The projects will typically receive, to the extent that adequate funds are available, an annual minimum preferred return. On most existing projects, this annual minimum preferred return ranges from 9% to 12% of Balfour Beatty Communities' initial equity contribution to the project. Balfour Beatty plc Annual Report and Accounts 2020 Balfour Beatty plc Annual Report and Accounts 2020 241 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **41 Principal subsidiaries, joint ventures and associates continued** Military housing continued # **(a) Balfour Beatty Investments North America continued** Allocation of remaining operating cash flow Operating cash flow remaining after the annual minimum preferred return is paid is shared between Balfour Beatty Communities and the reinvestment account held by the project for the benefit of the Government. On most of the existing projects, the total amount that Balfour Beatty Communities is entitled to receive (inclusive of the preferred return) is generally capped at an annual modified rate of return, or cash-on-cash return, on its initial equity contribution to the project. Historically, these caps have ranged between approximately 9% to 18% depending on the particular project and the type of return (annual modified rates of return or cash-on-cash). However, in some of the more recent projects, there are either no annual caps or lower projected annual rates of return. The total capped return generally will include the annual minimum preferred return. The reinvestment account is an account established for the benefit of the military, but funds may be withdrawn for construction, development and renovation costs during the remaining life of a privatisation project upon approval by the applicable military service. Return of equity Generally, at the end of a project term, any monies remaining in the reinvestment account are distributed to Balfour Beatty Communities and the Army, Navy or Air Force, in a predetermined order of priority. Typically these distributions will have the effect of providing the parties with sufficient funds to provide a minimum annual return over the life of the project and a complete return of the initial capital contribution. After payment of the minimum annual return and the return of a party's initial contribution, all remaining funds will typically be distributed to the applicable military service. | Military concession company (i) | Projects | Total project funding US$m. | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | | **Military family housing** | | | | | | | Fort Carson Family Housing LLC | Army base | 176 | November 2003 | 46 | 2004 | | – Fort Carson expansion | | 130 | November 2006 | 43 | 2010 | | – Fort Carson GTA expansion | | 99 | April 2010 | 39 | 2013 | | – Fort Carson GTA II expansion | | 68 | June 2015 | 34 | 2018 | | Stewart Hunter Housing LLC | Two Army bases | 374 | November 2003 | 50 | 2012 | | Fort Hamilton Housing LLC | Army base | 61 | June 2004 | 50 | 2009 | | Fort Detroit/Walter Reed Army Medical Center Housing LLC | Two Army bases | 112 | July 2004 | 50 | 2008 | | Northeast Housing LLC | Seven Navy bases | 496 | November 2004 | 50 | 2010 | | Fort Eustis/Fort Story Housing LLC | Two Army bases | 175 | March 2005 | 50 | 2011 | | – Fort Eustis expansion | | 8 | July 2010 | 45 | 2011 | | – Fort Eustis – Marseilles Village | | 26 | March 2013 | 42 | 2015 | | Fort Bliss/White Sands Missile Range Housing LP | Two Army bases | 427 | July 2005 | 50 | 2011 | | – Fort Bliss expansion | | 46 | December 2009 | 46 | 2011 | | – Fort Bliss GTA expansion phase I | | 156 | July 2011 | 44 | 2014 | | – Fort Bliss GTA expansion phase II | | 146 | November 2012 | 43 | 2016 | | Fort Gordon Housing LLC | Army base | 109 | May 2006 | 50 | 2012 | | Carlisle/Poultry Family Housing LP | Two Army bases | 84 | July 2006 | 50 | 2011 | | – Carlisle Heritage Heights phase II | | 21 | October 2012 | 44 | 2014 | | AETC Housing LP | Four Air Force bases | 359 | February 2007 | 50 | 2012 | | Southeast Housing LLC | 11 Navy bases | 558 | November 2007 | 50 | 2013 | | Vandenberg Housing LP | Air Force base | 155 | November 2007 | 50 | 2012 | | Leonard Wood Family Communities LLC | Army base | 231 | Acquired June 2008 | 47 | 2014 | | AMC West Housing LP | Three Air Force bases | 428 | July 2008 | 50 | 2015 | | West Point Housing LLC | Army base | 220 | August 2008 | 50 | 2016 | | Fort Jackson Housing LLC | Army base | 181 | October 2008 | 50 | 2013 | | Lackland Family Housing LLC | Air Force base | 105 | Acquired December 2008 | 50 | 2013 | | Western Group Housing LP | Four Air Force bases | 328 | March 2012 | 50 | 2017 | | Northern Group Housing LLC | Six Air Force bases | 427 | August 2013 | 50 | 2019 | | ACC Group Housing LLC | Two Air Force bases | 56 | June 2014 | 50 | 2018 | | **Military unaccompanied personnel housing** | | | | | | | Stewart Hunter Housing LLC | | 36 | January 2008 | 50 | 2010 | # **Notes:** (i) Registered in the US and the principal operations of each project are conducted in the US. The Group evaluated each of its interests in the military housing projects to determine if the entities should be consolidated. This analysis included, but was not limited to, identifying the activities that most significantly impact an entity's economic performance, which party or parties control those activities and the risks associated with these entities. Decision-making power over key facets of the contracts was evaluated when determining which party or parties had control over the activities that most significantly impacted a project's economics. Based on this review, the Directors consider that the Group does not have the power to direct these activities and does not have control and therefore the Group does not consolidate the military housing projects and accounts for these projects as investments in associates. 242 Balfour Beatty plc Annual Report and Accounts 2022 ## 41 Principal subsidiaries, joint ventures and associates continued ### (a) Balfour Beatty Investments North America continued #### Aviation **Summary** Balfour Beatty is a developer, operator and investor in an automated people mover at Los Angeles International Airport. The people mover will be a 2.25-mile above ground airport transport system. **Contractual arrangements** The principal contract is the project agreement between the concession partnership and the airport authority. All assets transfer to the authority at the end of the concession. | Concession company | Project | Total project funding US$m | Shareholding | Method of accounting | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | --- | | LAX Integrated Express Solutions LLC (i) | LINXS | 2,649 | 27% | JV | June 2018 | 30 | 2024 | #### Note (i) Registered in the US and the principal operations of the project are conducted in the US. #### Residential investments **Summary** Balfour Beatty is a developer, operator and investor in nine multifamily residential projects. **Contractual arrangements** Balfour Beatty has formed joint ventures to acquire residential apartment buildings for nine multifamily residential projects. For all residential projects, the joint ventures entered into agreements with Balfour Beatty Communities LLC to perform the operations and renovation work. | Residential investments (i) | Total project funding US$m | Shareholding | Method of accounting | Financial close | Renovation completion | | --- | --- | --- | --- | --- | --- | | Carolina Cove (Wilmington) Owner LLC (North Carolina) | 48 | 50% | JV | December 2017 | 2023 | | Lewington (Ridgeland) Owner, LLC (Jackson, Mississippi) | 27 | 50% | JV | August 2018 | 2025 | | Landings (Jacksonville) Owner, LLC (Florida) | 48 | 50% | JV | August 2019 | 2025 | | Retreat at Schillinger (Mobile) Owner, LLC (Alabama) | 33 | 50% | JV | December 2019 | 2026 | | Paces Brook (Columbia) Owner, LLC (South Carolina) | 27 | 50% | JV | December 2019 | 2026 | | Cherral Pointe (Little Rock) Owner, LLC (Arkansas) | 34 | 50% | JV | October 2020 | 2027 | | Muretti (Homewood) Owner, LLC (Alabama) | 33 | 50% | JV | December 2020 | 2027 | | San Mateo (Kissimmee) Owner, LLC (Florida) | 81 | 50% | JV | August 2021 | 2027 | | View SA LLC (San Antonio, Texas)(ii) | 76 | 87% | JV | June 2022 | 2029 | #### Notes (i) Registered in the US and the principal operations of each project are conducted in the US. (ii) Due to the shareholders'/partnership agreement between Balfour Beatty and the other shareholders'/partner requiring proximity of agreement in respect of significant matters related to the financial and operating policies of this undertaking, the Directors consider that the Group does not control this undertaking and it has been accounted for as a joint venture. Financial statements Balfour Beatty plc Annual Report and Accounts 2022 243 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **41 Principal subsidiaries, joint ventures and associates continued** # **(a) Balfour Beatty Investments North America continued** # **Student accommodation** Summary Balfour Beatty is also a developer and owner of five student accommodation projects. Contractual arrangements The principal contracts in the student accommodation projects are the ground leases, development leases and operating agreements with the state universities setting out the obligations for the construction, operation and maintenance of the student accommodation including lifecycle replacement during the concession period. | Concession company (i) | Total project funding US$m | Shareholding | Method of accounting | Financial close | Duration years | Construction completion | | --- | --- | --- | --- | --- | --- | --- | | Northside Campus Partners LP (Texas Dallas) | 54 | 10% | JV | March 2015 | 61 | 2016 | | Northside Campus Partners 2, LP (Texas Dallas) | 67 | 10% | JV | February 2017 | 61 | 2018 | | Northside Campus Partners 3, LP (Texas Dallas) (ii) | 36 | 70% | JV | June 2019 | 61 | 2020 | | Northside Campus Partners 4, LP (Texas Dallas) (ii) | 70 | 65% | JV | December 2019 | 61 | 2021 | | Swiftsure Housing Partners, LLC (Vanderbilt) | 153 | 23% | JV | April 2021 | 45 | 2023 | # **Notes** (i) Registered in the US and the principal operations of each project are conducted in the US. (ii) Due to the shareholders' partnership agreement between Balfour Beatty and the other shareholders' partner requiring university of agreement in respect of significant matters related to the financial and operating policies of this undertaking, the Directors consider that the Group does not control the undertaking and it has been accounted for as a joint venture. # **(f) Balfour Beatty Investments UK and North America** Total future committed equity and debt funding for Infrastructure Investments' project companies | Concessions | 2023 £m | 2024 £m | 2025 £m | 2026 University £m | Total £m | | --- | --- | --- | --- | --- | --- | | **UK** | | | | | | | Student accommodation | – | – | – | 50 | 50 | | Other concessions | 5 | – | – | – | 5 | | | 5 | – | – | 50 | 55 | | **North America** | | | | | | | Aviation | – | 23 | – | – | 23 | | Multifamily housing | 2 | – | – | – | 2 | | Student accommodation | 3 | – | – | – | 3 | | | 5 | 23 | – | – | 28 | | | 10 | 23 | – | 50 | 83 | | Projects at financial close | 5 | 23 | – | – | 28 | | Projects at preferred bidder stage | 5 | – | – | 50 | 55 | | **Total** | **10** | **23** | **–** | **50** | **83** | # **42 Audit exemptions taken for subsidiaries** The following subsidiaries are exempt from the requirements under the Companies Act 2006 relating to the audit of individual financial statements by virtue of Section 479A of the Act: | | Company registration number | | --- | --- | | Education Investments Holdings Ltd | 6883458 | | Consort Healthcare Infrastructure Investments Ltd | 6859623 | 244 Balfour Beatty plc Annual Report and Accounts 2022 Financial statements Balfour Beatty plc Annual Report and Accounts 2022 245 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates and joint ventures, including the principal activity, the country of incorporation and the effective percentage of equity owned as at 31 December 2022 is disclosed below. Unless otherwise stated, all interests are in the ordinary share capital or shares of common stock in the entity and are held indirectly by the Company, and all entities operate principally in their country of incorporation. All subsidiaries had a reporting period ended 31 December 2022 and are wholly owned and consolidated into the Group’s results, except where indicated. Subsidiary undertakings incorporated in the United Kingdom Entity Principal activity Q14 Quorum Business Park, Benton Lane, Newcastle upon Tyne NE12 8BU Aberystwyth Student Accommodation Ltd Infrastructure Concession Balfour Beatty Infrastructure InvestmentsLtd Ltd (i) Investment Holding Company Balfour Beatty Infrastructure Partners Member Ltd Investment Holding Company Balfour Beatty Infrastructure Projects Investments Ltd Investment Holding Company Balfour Beatty Investments Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty OFTO Holdings Ltd Investment Holding Company Balfour Beatty Rail Corporate Services Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty WorkSmart Ltd Agent of Balfour Beatty Group Ltd BBI Holdings Australia Ltd Investment Holding Company BBPF LLP (iii) Investment Partnership Connect Roads Derby Holdings Ltd Investment Holding Company Connect Roads Derby Ltd Infrastructure Concession Connect Roads Infrastructure Investments Ltd Investment Holding Company Consort Healthcare Infrastructure Investments Ltd Investment Holding Company East Slope Residencies Facilities Management Ltd Infrastructure Concession East Slope Residencies Holdings Ltd Investment Holding Company East Slope Residencies Partner Ltd Infrastructure Concession East Slope Residencies plc (ii) Infrastructure Concession East Slope Residencies Student Accommodation LLP (ii) (iii) Infrastructure Concession Education Investments Holdings Ltd Investment Holding Company Initial GP1 Ltd Investment Holding Company Manchester Residences (New Cross) Ltd Infrastructure Concession South Cambridgeshire Investments Holdings Ltd Investment Holding Company West Stratford Developments Ltd (iv) Investment Holding Company 5 Churchill Place, Canary Wharf, London E14 5HU Avatar Ltd Dormant Balfour Beatty Build Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Building Ltd Agent of Balfour Beatty Group Ltd Entity Principal activity Balfour Beatty CE Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Civil Engineering (SW) Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Civil Engineering Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Civils Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Const Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Construction (SW) Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Construction International Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Construction Northern Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Engineering Services (HY) Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Group Employment Ltd Employer For UK Workforce Balfour Beatty Group Ltd Construction & Support Services Balfour Beatty Homes Ltd Agent of Manring Homes Ltd Balfour Beatty International Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Investment Holdings Ltd (i) Investment Holding Company Balfour Beatty Management Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Nominees Ltd Nominee Company Balfour Beatty Overseas Investments Ltd Investment Holding Company Balfour Beatty Overseas Ltd Investment Holding Company Balfour Beatty Property Ltd (i) Agent of Balfour Beatty plc Balfour Beatty Rail Infrastructure Services Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Rail Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Rail Projects Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Rail Technologies Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Rail Track Systems Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Refurbishment Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Regional Construction Ltd Agent of Balfour Beatty Group Ltd Balfour Beatty Utility Solutions Ltd Agent of Balfour Beatty Group Ltd Balfour Kilpatrick Ltd Dormant BB Indonesia Ltd Support Services Balvac Ltd Agent of Balfour Beatty Group Ltd Bical Construction Ltd Agent of Balfour Beatty Group Ltd Bignell & Associates Ltd Agent of Balfour Beatty Group Ltd Birse Group Ltd Investment Holding Company Birse Metro Ltd Dormant Bnoms Ltd (i) Nominee Company NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued** # **Subsidiary undertakings incorporated in the United Kingdom** | Entity | Principal activity | | --- | --- | | BPH Equipment Ltd | Agent of Balfour Beatty Group Ltd | | Cowlin Group Ltd | Dormant | | Devonshire House Dormant Three Limited | Dormant | | Guinea Investments Ltd | Investment Holding Company | | Haden Building Services Ltd | Dormant | | Haden Young Ltd^{(1)} | Dormant | | Hall & Tawse Western Ltd | Dormant | | Laser Rail Ltd | Agent of Balfour Beatty Group Ltd | | Louisdale Electric Ltd | Dormant | | Meeting Homes Ltd^{(2)} | Property Investment | | Multibull (Construction & Interiors) Ltd | Agent of Balfour Beatty Group Ltd | | Office Projects (Interiors) Ltd | Agent of Balfour Beatty Group Ltd | | Omnicom Engineering Ltd | Dormant | | Rayneaway Construction Ltd | Agent of Balfour Beatty Group Ltd | | Strata Construction Ltd | Dormant | | **Hereford Steel Works, Holmer Road, Hereford HR4 9SW** | | | Partner Brothers Ltd | Agent of Balfour Beatty Group Ltd | | **Kings Business Park, Kings Drive, Prescot, Merseyside L34 1PJ** | | | Balfour Beatty Pension Trust Ltd^{(3)} | Pension Fund Trustee | | **C/O Mc Griggers LLP, Arnott House, 12-16 Bridge Street, Belfast BT1 1LS, Northern Ireland** | | | Balfour Kilpatrick Northern Ireland Ltd | Dormant | | **The Curve Building, Axis Business Park, Hurricane Way, Langley, Berkshire SL3 8AG** | | | Balfour Beatty Ground Engineering Ltd | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Infrastructure Services Ltd | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Living Places Ltd | Agent of Balfour Beatty Group Ltd | | Sunderland Streetlighting Ltd | Agent of Balfour Beatty Group Ltd | | Testing and Analysis Ltd | Agent of Balfour Beatty Group Ltd | | **Maxim 7, Maxim Office Park, Parklands Avenue, Eurocentral, Holytown ML1 4WQ** | | | Balfour Beatty Construction Ltd | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Construction Scottish & Southern Ltd | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Kilpatrick Limited | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Rail Residuary Ltd | Agent of Balfour Beatty Group Ltd | | Balfour Beatty Regional Civil Engineering Ltd | Agent of Balfour Beatty Group Ltd | | BBPFS LP^{(4)} | Investment Partnership | | Glasgow Residences (Kennedy Street) Holdings Ltd | Investment Holding Company | | Glasgow Residences (Kennedy Street) LLP^{(5)} | Infrastructure Concession | | Glasgow Residences (Kennedy Street) SPV Ltd | Infrastructure Concession | | Hall & Tawse Ltd | Dormant | | Initial Founder Partner GP1 Ltd | Investment Holding Company | | Entity | Principal activity | | --- | --- | | **Midmill Business Park, Tumulus Way, Kintore, Aberdeenshire AB51 0TG** | | | Balfour Beatty Engineering Services (CL) Ltd | Agent of Balfour Beatty Group Ltd | | **C/O Mazars, Tower Bridge House, St Katharine's Way, London E1W 1DD** | | | Balfour Beatty Power Construction Ltd | Dormant | | Birse Construction Ltd | Investment Holding Company – In Liquidation | | Edgar Allen Engineering Ltd | Dormant – In Liquidation | | Marseill Maintenance Limited | Dormant – In Liquidation | | Marseill plc | Investment Holding Company – In Liquidation | | **West Service Road, Rayneaway, Derby DE21 7BG** | | | Balfour Beatty Plant & Fleet Services Ltd | Agent of Balfour Beatty Group Ltd | | **C/O Mazars LLP, 100 Queen Street, Glasgow G1 3DN Scotland** | | | Balfour Beatty Engineering Services (LEL) Ltd | Dormant – In Liquidation | | **Lumina Building, 40 Ainslie Road, Hillington Park, Glasgow G52 4RU** | | | Shaw-Petrie Limited | Dormant | | **42-44 Clarendon Road, Watford, Hertfordshire WD17 1DR** | | | Barlow & Young, Limited | Dormant | | Haden International Ltd | Dormant | | **Fourth Floor, 130 Wilton Road, London SW1V 1LQ** | | | 00168345 Ltd | Dormant | | 01168171 Ltd | Dormant | | BICC Dormant One Limited | Dormant | | Devonshire House Dormant One Limited | Dormant | | **Third Floor Devonshire House, Mayfair Place, London W1X 5FH** | | | BICC Thermolreat Limited | Dormant | Notes: (1) Held directly by Balfour Beatty plc. (2) 80% owned. (3) Partnership interests held. (4) 31 Month year-end. # **Subsidiary undertakings incorporated outside the United Kingdom** | Entity | Principal activity | | --- | --- | | **Australia** | | | **Allens Corporate Services Pty Limited, Level 33, 101 Collins Street, Melbourne, Victoria, 3000** | | | Balfour Beatty Australian Limited Partnership^{(1)} | Holding company | | **Allens, Level 5, Deutsche Bank Place, 126-130 Phillip Street NSW 2000, Australia** | | | Balfour Beatty Australia Pty Ltd | Construction & Support Services | | **Bahamas** | | | **The Alexander Corporate Group Limited, One Millars Court, P.O. Box N-7117, Nassau** | | | Balfour Beatty Bahamas Ltd | Dormant | | **Canada** | | | **Borden Ladner Gervais LLP, 22 Adelaide Street West, Suite 3400, Toronto, ON, M5H 4E3** | | | BB Group Canada Inc | Investment Holding Company | 246 Balfour Beatty plc Annual Report and Accounts 2022 Financial statements Balfour Beatty plc Annual Report and Accounts 2022 247 Entity Principal activity Taylor McCaffrey LLP, 900-400 St. Mary Avenue, Winnipeg, MB, R3C 4K5 Balfour Beatty Communities GP, Inc Infrastructure Investment Balfour Beatty Communities, LP (ii) Infrastructure Investment Balfour Beatty Construction, LP (ii) Construction Services Balfour Beatty Construction GP, Inc Construction Services Balfour Beatty Investments GP, Inc Infrastructure Investment Balfour Beatty Investments, LP (ii) Infrastructure Investment BB NIH GP, Inc Infrastructure Investment Germany Garmischer Strasse 35, 81373 Munich Balfour Beatty Rail GmbH Construction Services, Dormant BICC Holdings GmbH Investment Holding Company, Dormant Schreck-Mieves GmbH Dormant Hong Kong 5/F, Manulife Place348 Kwun Tong Road Kowloon Hong Kong Balfour Beatty Hong Kong Ltd Construction & Support Services India 6th Floor, N-1 Balsa Block, Manyata Embassy Business Park, Nagavara, Rachenahalli Village, Bangalore – 560045, India Balfour Beatty Infrastructure India Pvt. Ltd Engineering Design Consultancy Ireland City Junction Business Park, Northern Cross, Malahide Road, Dublin 17 Balfour Beatty Ireland Ltd Support Services Isle of Man Tower House, Loch Promenade, Douglas IM1 2LZ, Isle of Man Delphian Insurance Company Ltd (i) Insurance Company Jersey 12 Castle Street, St. Helier, Jersey Balfour Beatty Employees Trustees Ltd (i) Employee Trust Malaysia 12th Floor, Menara symphony, No 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, 46200 Petaling Jaya, Selangor Balfour Beatty Rail Design International Sdn Bhd Support Services Netherlands Rapenburgerstraat 177/B, 1011 VM Amsterdam Balfour Beatty Netherlands B.V. Investment Holding Company Romania 23 General Ernest Brosteanu Street, 1st District, 010527, Bucharest S.C. Balfour Beatty Rail S.R.L. Dormant - In Liquidation Sri Lanka Phase 3 Investment Promotion Zone, Katunayake, Colombo, Western Province Balfour Beatty Ceylon (Private) Ltd Support Services Thailand 9 Soi Santisuk, Sithisarn Road, Huay Kwang, Bangkok Asia Trade Development Co Ltd Dormant Balfour Beatty Construction (Thailand) Co Ltd Dormant Balfour Beatty Holdings (Thailand) Co Ltd Dormant Balfour Beatty Thai Ltd Dormant Linwood Co Ltd Dormant United States 1011 Centre Road, Suite 310, Wilmington DE 19805 Balfour Beatty Holdings Inc Investment Holding Company Balfour Beatty LLC Investment Holding Company Entity Principal activity 300 Galleria Parkway, Suite 2050, Atlanta, GA 30339 National Engineering & Contracting Company Construction Services Balfour Beatty Infrastructure, Inc Construction Services Corporation Service Company, 1127 Broadway Street NE, Suite 310, Salem OR 97301 Balfour Beatty Rock Springs, LLC Construction Services Corporation Service Company, 1703 Laurel Street, Columbia, SC 29201 National Casualty and Assurance, Inc Insurance Company Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808 Balfour Beatty Campus Solutions, LLC Infrastructure Holding Company Balfour Beatty Communities, LLC Infrastructure Investment Balfour Beatty Construction D.C., LLC Construction Services Balfour Beatty Construction, LLC Construction Services Balfour Beatty Equipment, LLC Construction Services Balfour Beatty Investments, Inc Investment Company Balfour Beatty Management Inc Business Services Balfour Beatty/Benham Military Communities LLC (v) Infrastructure Investment Balfour Beatty/PHELPS Military Communities LLC (iv) Infrastructure Investment Balfour Beatty Military Housing Development LLC Infrastructure Investment Balfour Beatty Military Housing Investments LLC Investment Holding Company Balfour Beatty Military Housing Management LLC Infrastructure Investment Balfour Beatty – Worthgroup, LLC Construction Services BBC AF Housing Construction LLC Infrastructure Investment BBC AF Management/Development LLC Infrastructure Investment BBC Independent Member I, Inc Infrastructure Investment BBC Independent Member II, Inc Infrastructure Investment BBC Military Housing – ACC Group, LLC Infrastructure Investment BBC Military Housing – AETC General Partner LLC (iii) Infrastructure Investment BBC Military Housing – AETC Limited Partner LLC (iii) Infrastructure Investment BBC Military Housing – AMC General Partner LLC Infrastructure Investment BBC Military Housing – AMC Limited Partner LLC Infrastructure Investment BBC Military Housing – Bliss/WSMR General Partner LLC Infrastructure Investment BBC Military Housing – Bliss/WSMR Limited Partner LLC Infrastructure Investment BBC Military Housing – Carlisle/ Picatinny General Partner LLC Infrastructure Investment BBC Military Housing – Carlisle/ Picatinny Limited Partner LLC Infrastructure Investment BBC Military Housing – FDWR LLC (v) Infrastructure Investment BBC Military Housing – Fort Carson LLC Infrastructure Investment BBC Military Housing – Fort Gordon LLC Infrastructure Investment BBC Military Housing – Fort Hamilton LLC Infrastructure Investment BBC Military Housing – Fort Jackson LLC Infrastructure Investment BBC Military Housing – Hampton Roads LLC Infrastructure Investment BBC Military Housing – Lackland LLC Infrastructure Investment BBC Military Housing – Leonard Wood LLC Infrastructure Investment BBC Military Housing – Navy Northeast LLC (v) Infrastructure Investment BBC Military Housing – Navy Southeast LLC Infrastructure Investment 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued Subsidiary undertakings incorporated outside the United Kingdom continued ### NOTES TO THE FINANCIAL STATEMENTS CONTINUED Balfour Beatty plc Annual Report and Accounts 2022248 Entity Principal activity BBC Military Housing – Northern Group, LLC Infrastructure Investment BBC Military Housing – Stewart Hunter LLC Infrastructure Investment BBC Military Housing – Vandenberg General Partner LLC (v) Infrastructure Investment BBC Military Housing – Vandenberg Limited Partner LLC (v) Infrastructure Investment BBC Military Housing – West Point LLC Infrastructure Investment BBC Military Housing – Western General Partner, LLC Infrastructure Investment BBC Military Housing – Western Limited Partner, LLC Infrastructure Investment BBC Multifamily Holdings, LLC Infrastructure Investment BBCS – Northside Campus LLC Infrastructure Investment BBCS Development, LLC Infrastructure Investment BICC Cables Corporation Business Services Corporation Service Company, 300 Deschutes Way SW, Suite 304, Tumwater WA 98501 Howard S. Wright Construction Co Construction Services HSW, Inc Construction Services CSC – Nevada, C/O CSC Services of Nevada, Inc., 502 East John Street Carson City, Nevada 89706 Balfour Beatty-Golden Construction Company Construction Services Balfour Beatty Construction Company, Inc Construction Services Balfour Beatty Construction Group, Inc Construction Services Notes (i) Held directly by Balfour Beatty plc. (ii) Partnership interests held. (iii) 80% interest held. (iv) 89% interest held. (v) 90% interest held. Joint ventures incorporated in the United Kingdom Entity % held by the Group Principal activity Q14 Quorum Business Park, Benton Lane, Newcastle Upon Tyne, England, England, NE12 8BU BBDE Orbital Holdings, LLP (iii) (v) 37.5 Investment Holding Company Connect A30/A35 Holdings Ltd (iv) 20 Investment Holding Company Connect A30/A35 Ltd (iv) 20 Infrastructure Concession Connect A50 Ltd (iv) 25 Infrastructure Concession Connect CNDR Holdings Ltd (iv) 25 Investment Holding Company Connect CNDR Intermediate Ltd (iv) 25 Infrastructure Concession Connect CNDR Ltd (iv) 25 Infrastructure Concession Connect M1-A1 Holdings Ltd (i) (iv) 20 Investment Holding Company Connect M1-A1 Ltd (iv) 20 Infrastructure Concession Connect M77/GSO Holdings Ltd (ii) (iv) 85 Investment Holding Company Connect M77/GSO plc (ii) (iv) 85 Infrastructure Concession Connect Roads Cambridgeshire Holdings Ltd 20 Investment Holding Company Connect Roads Cambridgeshire Intermediate Ltd 20 Infrastructure Concession Entity % held by the Group Principal activity Connect Roads Cambridgeshire Ltd 20 Infrastructure Concession Connect Roads Coventry Holdings Ltd 20 Investment Holding Company Connect Roads Coventry Intermediate Ltd 20 Infrastructure Concession Connect Roads Coventry Ltd 20 Infrastructure Concession Connect Roads Ltd (iv) 25 Investment Holding Company Connect Roads Northamptonshire Holdings Ltd 20 Investment Holding Company Connect Roads Northamptonshire Intermediate Ltd 20 Infrastructure Concession Connect Roads Northamptonshire Ltd 20 Infrastructure Concession Connect Roads South Tyneside Holdings Ltd 20 Investment Holding Company Connect Roads South Tyneside Ltd 20 Infrastructure Concession Connect Roads Sunderland Holdings Ltd 20 Investment Holding Company Connect Roads Sunderland Ltd 20 Infrastructure Concession East Wick and Sweetwater Projects (Holdings) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 1) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 2) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 3) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 4) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 5) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 7A) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Projects (Phase 7) Ltd (iv) 50 Infrastructure Concession East Wick and Sweetwater Finance (Holdings) Ltd (iv) 50 Investment Holding Company East Wick and Sweetwater Projects (Finance) Ltd (iv) 50 Infrastructure Concession Gwynt y Mor OFTO Holdings Ltd (ii) (iv) 60 Investment Holding Company Gwynt y Mor OFTO Intermediate Ltd (ii) (iv) 60 Infrastructure Concession Gwynt y Mor OFTO plc (ii) (iv) 60 Infrastructure Concession Humber Gateway OFTO Holdings Ltd (iv) 20 Investment Holding Company Humber Gateway OFTO Intermediate Ltd (iv) 20 Infrastructure Concession Humber Gateway OFTO Ltd (iv) 20 Infrastructure Concession South Cambridgeshire Projects LLP (v) 50 Infrastructure Concession Thanet OFTO Holdco Ltd (iv) 20 Investment Holding Company Thanet OFTO Intermediate Ltd (iv) 20 Infrastructure Concession Thanet OFTO Ltd (iv) 20 Infrastructure Concession 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued Subsidiary undertakings incorporated outside the United Kingdom continued #### 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued Joint ventures incorporated in the United Kingdom continued | Entity | % held by the Group | Principal activity | | --- | --- | --- | | **Blythe House, Blythe Park, Cresswell, Stoke on Trent, Staffordshire ST11 9RD** | | | | Tyoleby Bio Power Ltd | 37.5 | Investment Holding Company | | **Connect Plus House, St Albans Road, South Mimms, Hertfordshire EN6 2NP** | | | | Connect Plus (M25) Holdings Ltd | 15 | Investment Holding Company | | Connect Plus (M25) Intermediate Ltd | 15 | Infrastructure Concession | | Connect Plus (M25) Issuer plc | 15 | Infrastructure Concession | | Connect Plus (M25) Ltd | 15 | Infrastructure Concession | | **Maxim 7, Maxim Office Park, Parklands Avenue, Eurocentral, Holytown ML1 4WQ** | | | | Holytwood Holdings Ltd | 20 | Investment Holding Company | | Holytwood Student Accommodation Holdings Ltd | 20 | Infrastructure Concession | | Holytwood Student Accommodation Intermediate Ltd | 20 | Infrastructure Concession | | Holytwood Student Accommodation plc | 20 | Infrastructure Concession | | Holytwood Student Accommodation SPV Ltd | 20 | Infrastructure Concession | | **Westminster House, Crompton Way, Segensworth West, Fareham, Hampshire PO15 5SS** | | | | Peversey Coastal Defence Ltd | 25 | Infrastructure Concession | | **C/O Parlo Ltd, 18 Riverway Business Village, Navigation Way, Preston PR2 2YP** | | | | Consort Healthcare (Birmingham) Funding plc | 40 | Infrastructure Concession | | Consort Healthcare (Birmingham) Holdings Ltd | 40 | Investment Holding Company | | Consort Healthcare (Birmingham) Intermediate Ltd | 40 | Infrastructure Concession | | Consort Healthcare (Birmingham) Ltd | 40 | Infrastructure Concession | | **9 Amberside House Wood Lane, Paradise Industrial Estate, Hemel Hempstead, Hertfordshire, England HP2 4TP** | | | | Pebblehall Bio Power Ltd | 29.2 | Investment Holding Company | | Welland Bio Power Ltd | 29.2 | Infrastructure Concession | Joint ventures incorporated outside the United Kingdom | Entity | % held by the Group | Principal activity | | --- | --- | --- | | **Bermuda** | | | | **Conyers Dill & Pearman Limited, Clarendon House, 2 Church Street, Hamilton HM 11** | | | | CP Bay Carry A LP | 20 | Infrastructure Concession | | CP Bay Carry B LP | 20 | Infrastructure Concession | | **British Virgin Islands** | | | | **Vistra Corporate Services Centre, Wickhams Cay II Road Town, Tortola VG1110** | | | | Gamman Asia Ltd | 50 | Management Company | | Gamman Construction Holdings Ltd | 50 | Investment Holding Company | | **Canada** | | | | **Taylor McCaffrey LLP, 900-400 St. Mary Avenue, Winnipeg, MB, R3C 4K5** | | | | CWH Facilities Management LP | 50 | Infrastructure Investment | | CWH FM GP Inc | 50 | Infrastructure Investment | | CWH Design – Build GP | 50 | Construction Services | | **China** | | | | **Hong Kong Avenida da Praia Grande, n°429, 25° andar D, em Macau** | | | | BBE&M (Macau) Ltd | 50 | Electrical and Mechanical Contracting | | Gamman Building Construction (Macau) Ltd | 50 | Building Construction | | **No. 457, Shatian Section, Ganggang Avenue, Shatian Town, Dongguan City, Guangdong Province** | | | | Dongguan Pristine Metal Works Ltd | 50 | Manufacturing Services | | **25th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong** | | | | Sanfield-Gamman Construction JV Company Ltd | 25 | Construction Services | | **22/F, Tower 1, The Quayside, 77 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong** | | | | AsiaBuild Ltd | 50 | Dormant | | Balfour Beatty E&M Ltd | 50 | Dormant | | Digital G Ltd | 50 | Technology and Innovation | Notes (i) Held directly by Balfour Beatty plc. (ii) Due to the shareholders' agreement between Balfour Beatty and the other shareholders requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of the company, the Directors consider that the Group does not control the company and it has been accounted as a joint venture. (iii) The Group owned a 31.5% partnership interest in BBDE Orbital Holdings LLP at 31 December 2022. Connect Plus (M25) Holdings Ltd and its subsidiaries are 40% owned by BBDE Orbital Holdings LLP. (iv) 31 March year end. (v) Partnership interests held. Balfour Beatty plc Annual Report and Accounts 2022 249 Balfour Beatty plc Balfour Beatty plc Annual Report and Accounts 2022250 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Entity % held by the Group Principal activity Entasis Ltd 50 General Contractor Gammon Building Construction Ltd 50 Building Construction Gammon Capital Ltd 50 Dormant Gammon Capital Management Ltd 50 Dormant Gammon China Ltd 50 Investment Holding Company Gammon Concrete Services Ltd 50 Dormant Gammon Construction (China) Ltd 50 Building Construction Gammon Construction (Vietnam) Holdings Ltd 50 Construction and Project Management Gammon Construction Consultants (Shenzhen) Ltd 50 Support Services Gammon Construction Ltd (iii) 50 Engineering and Construction Gammon E&M Ltd 50 Engineering Services Gammon Engineering & Construction Company Ltd 50 Engineering and Construction Gammon Engineering Ltd 50 Dormant Gammon Finance Ltd 50 Finance and Investment Gammon Interiors Ltd 50 Dormant Gammon Management Services Ltd 50 Construction Management Services Gammon Plant Ltd 50 Plant and Equipment Hire and Maintenance Gold Tactics Investment Ltd 50 Dormant Into G Ltd 50 Interior Fit-Out and Contracting Lambeth Associates Ltd 50 Management and Consultancy Services Pristine Metal Works Ltd 50 Investment Holding Company Ireland 3 Dublin Landings, North Wall Quay, Dublin 1, D01 C4E0 Balfour Beatty CLG Ltd 50 Support Services C/O Pario SPV Management Limited, Suite 54, Morrison Chambers, 32 Nassau St, Dublin 2, D02 AP29 Healthcare Centres PPP Holdings Ltd 40 Investment Holding Company Healthcare Centres PPP Ltd 40 Infrastructure Concession Malaysia c/Level 33, Menara 1MK. Kompleks 1 Mont’ Kiara, 1 Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur Balfour Beatty Rail Sdn Bhd (ii) 70 Construction Services – In Liquidation Unit B-9-7, Level 9, Capital 2, Oasis Square, No.2 Jalan PJU 1A/7A, Ara Damansara, 47301 Petaling Jaya, Selangor, Malaysia Gammon Sdn Bhd 50 Dormant Pesaka Gammon Construction Sdn Bhd 15 Dormant Philippines G/F Makati Stock Exchange, Ayala Avenue, Makati City, Metro Manila, Philippines Gammon Philippines, Inc. 20 General Construction MG Construction Ventures Holdings, Inc. 16.65 Property Investment Entity % held by the Group Principal activity Singapore 239 Alexandra Road, 159930 Digital G (Singapore) Pte. Ltd 50 Equipment Services Gammon Construction and Engineering Pte. Ltd 50 Construction Services Gammon Construction Holdings (S) Pte. Ltd 50 Investment Holding Company Gammon Pte. Ltd 50 Engineering and Construction Lambeth Associates Design & Consultancy Pte Ltd 50 Management and Consultancy Services Thailand 21st Floor, Times Square Building, 246 Sukhumvit Road, Klongtoey Sub-District, Klongtoey District, Bangkok 10110, Thailand Gammon (Thailand) Ltd 24.5 Dormant 23rd Floor, Times Square Building, 246 Sukhumvit Road, Klongtoey Sub-District, Klongtoey District, Bangkok 10110, Thailand Gammon Construction (Thailand) Ltd 24.5 Dormant Thai Gammon Ltd 24.5 Dormant United States Corporation Service Company 1201 Hays Street, Tallahassee FL 32301 C-BB Management, LLC 50 Infrastructure Investment C-BBC Development, LLC 50 Infrastructure Investment Corporation Service Company, d/b/a CSC-Lawyers, Incorporating Service Company, 211 E. 7th Street, Suite 620, Austin TX 78701-3218 Northside Campus Partners, LP (iv) 10 Infrastructure Concession Northside Campus Partners 2,LP (iv) 10 Infrastructure Investment Northside Campus Partners 3, LP (i)(iv) 70 Infrastructure Concession Northside Campus Partners 4, LP (i)(iv) 65 Infrastructure Concession Northside Campus General Partner, LLC 50 Infrastructure Concession Corporation Service Company, 251 Little Falls Drive, Wilmington DE19808 BBC – ApexOne Carolina Cove, LLC 50 Infrastructure Investment BBC – ApexOne Chenal Pointe, LLC 50 Infrastructure Investment 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued Joint ventures incorporated outside the United Kingdom continued Financial statements Balfour Beatty plc Annual Report and Accounts 2022 251 Entity % held by the Group Principal activity BBC – ApexOne City Lake, LLC 50 Infrastructure Investment BBC – ApexOne Landings, LLC 50 Infrastructure Investment BBC – ApexOne Lexington, LLC 50 Infrastructure Investment BBC – ApexOne Moretti, LLC 50 Infrastructure Investment BBC – ApexOne Paces Brook, LLC 50 Infrastructure Investment BBC – ApexOne Retreat, LLC 50 Infrastructure Investment BBC – ApexOne Riverchase Landing, LLC 50 Infrastructure Investment BBC – ApexOne San Mateo, LLC 50 Infrastructure Investment BBC – ApexOne Southwind, LLC 50 Infrastructure Investment BBC – ApexOne Waterchase, LLC 50 Infrastructure Investment BBC – ApexOne Wolfchase, LLC 50 Infrastructure Investment BBC – ApexOne Zephyr Ridge, LLC 50 Infrastructure Investment BBC Army Integrated, LLC 10 Infrastructure Investment Carolina Cove (Wilmington) Owner, LLC 50 Infrastructure Investment Chenal Pointe (Little Rock) Owner, LLC 50 Infrastructure Investment City Lake (Houston) Owner, LLC 50 Infrastructure Investment LAX Integrated Express Solutions Holdco, LLC 27 Infrastructure Concession LAX Integrated Express Solutions, LLC 27 Infrastructure Concession Landings (Jacksonville) Owner, LLC 50 Infrastructure Investment Lexington (Ridgeland) Owner, LLC 50 Infrastructure Investment Moretti (Homewood) Owner, LLC 50 Infrastructure Investment Northside Campus Limited Partner, LLC 10 Infrastructure Concession Paces Brook (Columbia) Owner, LLC 50 Infrastructure Investment Retreat at Schillinger (Mobile) Owner, LLC 50 Infrastructure Investment Riverchase Landing (Hoover) Owner, LLC 7.5 Infrastructure Investment San Mateo (Kissimmee) Owner, LLC 50 Infrastructure Investment Southwind (Memphis) Owner, LLC 20 Infrastructure Investment Southwind (Memphis) Holdings, LLC 20 Infrastructure Investment Swiftsure Housing Partners, LLC 23 Infrastructure Concession T-BBA Riverchase Holdings, LLC 7.5 Infrastructure Investment View SA Holding Company LP (i)(iv) 87 Infrastructure Investment Entity % held by the Group Principal activity View SA LLC (i) 87 Infrastructure Investment Waterchase (Largo) Owner, LLC 50 Infrastructure Investment Wolfchase (Bartlett) Owner, LLC 50 Infrastructure Investment Zephyr Ridge (Zephyrhills) Owner, LLC 50 Infrastructure Investment Registered Agent Solutions, Inc. 9 E Loockerman Street, Suite 311 Dover DE 19901 United Campus Partners, LLC 50 Infrastructure Investment Vietnam 5th Floor, Gemadept Tower, 2Bis–4–6 Le Thanh Ton Street, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam Gammon Construction Vietnam Co. Ltd 50 Building Construction and Management Services Notes (i) Due to the shareholders’ agreement between Balfour Beatty and the other shareholders requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of the company, the Directors consider that the Group does not control the company and it has been accounted for as a joint venture. (ii) The Group holds a 70% interest in Balfour Beatty Rail Sdn Bhd, which holds a 60% interest in Balfour Beatty Ansaldo Systems JV Sdn Bhd. Due to the shareholders’ agreement between Balfour Beatty and the other shareholders requiring unanimity of agreement in respect of significant matters related to the financial and operating policie s of these companies, the Directors consider that the Group does not control these companies and they have been accounted for as joint ventures. (iii) Preference shares and/or deferred shares also held. (iv) Partnership interest held. 43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued Joint ventures incorporated outside the United Kingdom continued NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **43 Details of related undertakings of Balfour Beatty plc as at 31 December 2022 continued** Associated undertakings incorporated in and outside the United Kingdom | Entity | % held by the Group | Principal activity | | --- | --- | --- | | **United Kingdom** | | | | **AsWord House, Grenadier Road, Exeter EX1 3LH** | | | | UBB Waste (Eseer) Ltd | 30 | Unimproved | | UBB Waste (Gloucestershire) Holdings Ltd | 49.5 | Infrastructure Concession | | UBB Waste (Gloucestershire) Intermediate Ltd | 49.5 | Investment Holding Company | | UBB Waste (Gloucestershire) Ltd | 49.5 | Infrastructure Concession | | **United States** | | | | **Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808** | | | | ACC Group Housing, LLC ^{(a)} | 100 | Infrastructure Concession | | AETC Housing LP ^{(b)(c)} | | Infrastructure Concession | | AMC West Housing LP ^{(b)(c)} | 100 | Infrastructure Concession | | Balfour Beatty-Walsh Housing, LLC | 67 | Infrastructure Concession | | Carlisle/Picatinny Family Housing LP ^{(d)} | 10 | Infrastructure Concession | | FOWR Parent LLC | 10 | Infrastructure Concession | | Fort Bliss/White Sands Missile Range Housing LP ^{(d)} | 10 | Infrastructure Concession | | Fort Carson Family Housing LLC | 10 | Infrastructure Concession | | Fort Detrick/Walter Reed Army Medical Center Housing LLC | 100 | Infrastructure Concession | | Fort Eustis/Fort Story Housing LLC | 10 | Infrastructure Concession | | Fort Gordon Housing LLC | 10 | Infrastructure Concession | | Fort Hamilton Housing LLC | 10 | Infrastructure Concession | | Fort Jackson Housing LLC | 10 | Infrastructure Concession | | Lackland Family Housing, LLC ^{(d)} | 100 | Infrastructure Concession | | Leonard Wood Family Communities, LLC | 10 | Infrastructure Concession | | Northeast Housing LLC | 10 | Infrastructure Concession | | Northern Group Housing, LLC ^{(d)} | 100 | Infrastructure Concession | | Southeast Housing LLC | 100 | Infrastructure Concession | | Stewart Hunter Housing LLC | 10 | Infrastructure Concession | | | | LIQUIDATED | | Vandenberg Housing LP ^{(b)(c)} | 90 | Infrastructure Concession | | Western Group Housing, LP ^{(b)(c)} | 100 | Infrastructure Concession | | West Point Housing LLC | 10 | Infrastructure Concession | Notes (a) The Group evaluated each of its interests in the military housing projects to determine if the associated entities should be consolidated. This analysis included, but was not limited to, identifying the activities that most significantly impact an entity's economic performance, which party or parties control those activities and the risks associated with these entities. Decision-making power over any facets of the contracts were evaluated when determining which party or parties had control over the activities that most significantly impact a project's economics. Based on this review, the Directors consider that the Group does not have the power to direct these activities and does not control or jointly control them and therefore the entities have been accounted for as associated undertakings. (b) Partnership interests held. 252 Balfour Beatty plc Annual Report and Accounts 2022 # **UNAUDITED GROUP FIVE-YEAR SUMMARY** | | 2022 £m | 2021 £m | 2020 £m | 2019 £m | 2018 £m | | --- | --- | --- | --- | --- | --- | | **Income** | | | | | | | Revenue including share of joint ventures and associates | **8,931** | 8,263 | 8,593 | 8,411 | 7,814 | | Share of revenue of joint ventures and associates | **(1,302)** | (1,078) | (1,273) | (1,098) | (1,180) | | Group revenue | **7,629** | 7,185 | 7,320 | 7,313 | 6,634 | | Underlying profit from operations | **279** | 107 | 51 | 221 | 205 | | Underlying net finance income/(costs) | **12** | (10) | (15) | (21) | (24) | | Underlying profit before taxation | **291** | 187 | 36 | 200 | 181 | | Amortisation of acquired intangible assets | **(6)** | (5) | (6) | (6) | (8) | | Other non-underlying items | **2** | (95) | 18 | (56) | (50) | | Profit before taxation | **287** | 87 | 48 | 138 | 123 | | Taxation | **-** | 52 | (18) | (5) | 12 | | Profit for the year | **287** | 139 | 30 | 133 | 135 | | Profit for the year attributable to equity holders | **288** | 140 | 30 | 130 | 135 | | (Loss)/profit for the year attributable to non-controlling interests | **(1)** | (1) | - | 3 | - | | Profit for the year | **287** | 139 | 30 | 133 | 135 | | **Capital employed** | | | | | | | Equity holders' equity | **1,378** | 1,369 | 1,336 | 1,368 | 1,231 | | Liability component of preference shares | **-** | - | - | 110 | 106 | | Net non-recourse borrowings – infrastructure concessions | **242** | 243 | 317 | 302 | 309 | | Net cash – other | **(815)** | (790) | (581) | (512) | (337) | | | **805** | 822 | 1,072 | 1,268 | 1,309 | | | **2022 Pence** | **2021 Pence** | **2020 Pence** | **2019 Pence** | **2018 Pence** | | **Statistics** | | | | | | | Underlying earnings per ordinary share* | **47.5** | 29.7 | 3.7 | 26.7 | 26.3 | | Basic earnings per ordinary share | **46.9** | 21.3 | 4.4 | 19.0 | 19.7 | | Diluted earnings per ordinary share | **46.3** | 21.1 | 4.4 | 18.8 | 19.5 | | Proposed dividends per ordinary share | **10.5** | 9.0 | 1.5 | 2.1 | 4.8 | | Underlying profit from operations before net finance income/(costs) including share of joint ventures and associates as a percentage of revenue including share of joint ventures and associates | **3.1%** | 2.4% | 0.6% | 2.6% | 2.6% | # **Note** * Underlying earnings per ordinary share have been disclosed to give a clearer understanding of the Group's underlying trading performance. Base: Alternative Balfour Realty plc Annual Report and Accounts 2022 253 ### SHAREHOLDER INFORMATION ### 2023 Financial calendar 12 May Annual General Meeting 5 July* Final 2022 dividend payable 16 August* 2023 half year results announcement 4 December* Interim 2023 dividend payable 14 December* Trading update * Dates are subject to change ### Registrar Dividends and dividend reinvestment plan Balfour Beatty’s share register is maintained by Equiniti, the Company’s Dividends may be paid directly into your bank or building society Registrar. All administrative enquiries relating to shareholdings and account through the Bankers Automated Clearing System (BACS). requests to receive corporate documents by email should, in the first Equiniti can provide a dividend mandate form. A Dividend instance, be directed to Equiniti, clearly stating your registered address Reinvestment Plan (DRIP) is offered which allows holders of shares to and, if available, your shareholder reference number. reinvest their cash dividends in the Company’s shares through a specially arranged share dealing service. Full details of the DRIP and Please write to: its charges, together with mandate forms, are available at: www. Equiniti, Aspect House, Spencer Road, Lancing Business Park, Lancing, shareview.co.uk. West Sussex BN99 6DA ### Telephone: +44 (0) 371 384 2703. Calls are charged at the standard International payment service geographic rate and will vary by provider. Calls outside the United Kingdom Shareholders outside the UK may elect to receive dividends directly are charged at the applicable international rate. Lines are open between into their overseas bank account, or by currency draft, instead of by 8.30am to 5.30pm, Monday to Friday excluding public holidays in England sterling cheque. For further information, contact the Company’s and Wales. Registrars, Equiniti using the contact details above. You can visit www.shareview.co.uk to manage your shareholding, and ### Electronic shareholder communications access shares related services and share plans online. The Company’s website www.balfourbeatty. com provides a range of information about the Company, our people and businesses and our ### Share certificates policies on corporate governance, sustainability and health and safety. In order to sell or transfer your shares, you must ensure that you have The website should be regarded as your first point of reference for a valid share certificate. This must be in the name of Balfour Beatty information on any of these matters. The share price can also be plc. If you lose or misplace your share certificate, you can contact found there. You can create a Shareview account, through which you Equiniti customer support centre and request a replacement will be able to access the full range of online shareholder services, certificate. Equiniti will then issue a letter of indemnity to you which including the ability to: view your holdings and indicative share price you will need to sign and return for a new certificate to be produced. and valuation; view movements on your holdings and your dividend There is a fee charged for this service which includes an payment history; register a dividend mandate to have your dividends administration charge and a counter signature fee (the counter paid directly into your bank account; change your registered address; signature fee can vary depending on the value of the shareholding). sign up to receive e-communications to access the online proxy voting facility; and download and print shareholder forms. Shareview is easy to use. Please visit www.shareview.co.uk Balfour Beatty plc Annual Report and Accounts 2022254 ### Unsolicited telephone calls If you receive any unsolicited investment advice: In the past, some of our shareholders have received unsolicited » Always ensure the firm is authorised by the Financial Conduct telephone calls or correspondence concerning investment matters Authority (FCA), is on the FCA Register and is allowed to provide from organisations or persons claiming or implying that they have financial advice before handing over your money. You can check if some connection with the Company. We advise our shareholders a firm is on the FCA’s Register via https://register.fca.org.uk/. to be wary of any unsolicited telephone calls, advice or correspondence concerning investment matters from » Ask the caller for their name and telephone number and inform organisations or persons claiming or implying that they have some them you will call them back. Then check their identity to ensure connection with the Company. These are typically from overseas- that they are from the firm they say they are from by calling the based “brokers” who target UK shareholders offering to sell them firm using the contact number listed on the FCA Register. If there what often turn out to be worthless or high-risk shares in UK or are no contact details on the FCA Register or you are told that overseas investments. Shareholders are advised to be very wary they are out of date, or if you have any other doubts, call the FCA of any unsolicited advice, offers to buy shares at a discount or Consumer Helpline on 0800 111 6768. offers of free annual and/or other reports on the Company. » If you are approached about a share scam, please visit the FCA’s ScamSmart website at www.fca.org.uk/scamsmart where you can access information about the various types of scam, including share and boiler room fraud, see the FCA’s Warning List and reports on firms about whom consumers have expressed concerns. Alternatively, you can call the FCA Consumer Helpline (see above). If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or be eligible to receive payment under the Financial Services Compensation Scheme if things go wrong. » You should also report any approach to Action Fraud, which is the UK’s national fraud reporting centre, at www.actionfraud.police.uk, or by calling 0300 123 2040. ### American Depository Receipts (ADRs) Telephone: An American Depository Receipt (ADR) is a negotiable instrument Toll free within the United States at: 1-800-990-1135 or locally at issued by a depositary bank that evidences ownership of shares in a 651-306-4383. corporation organised outside the US. Each ADR represents a specific JP Morgan representatives are available from 7.00am to 7.00pm number of underlying shares in the non-US company, on deposit with Central Time, Monday to Friday. a custodian in the applicable home market. In writing: Other information ADRs are generally treated as US domestic securities. They are quoted and traded in US Dollars and are subject to the trading and Mail settlement procedures of the market in which they trade. JP Morgan Shareholder Services P.O Box 64504 St. Paul, Minnesota 55164-0504 ### Balfour Beatty’s ADR programme details Symbol: BAFYY Overnight Mail ADR: Ordinary Share Ratio: 1:2 JP Morgan Chase Bank N.A. 1110 Centre Pointe Curve, Suite 101 CUSIP: 05845R306 Mendota Heights MN 55120-4100 ADR ISIN: US05845R3066 Contact Online Underlying ISIN: GB0000961622 jpmorgan.adr@eq-us.com Depositary Bank: JP Morgan Chase Bank N.A. Country: United Kingdom Balfour Beatty’s ADR Depositary Bank is JP Morgan Chase N.A. For all ADR-related enquiries, investors can contact JP Morgan via telephone, in writing or email as follows: Balfour Beatty plc Annual Report and Accounts 2022 255 SHAREHOLDER INFORMATION CONTINUED # **Gifting shares to your family or to charity** To transfer shares to another member of your family as a gift, please ask the Registrar for a Balfour Beatty gift transfer form. Alternatively, if you only have a small number of shares whose value makes it uneconomic to sell them, you may wish to consider donating them to the share donation charity ShareGift registered charity no. 1052696, whose work Balfour Beatty supports. Any shares you donate to ShareGift will be aggregated and sold when possible, and the proceeds will be donated to a wide range of other UK charities. Since ShareGift was launched, over £43m has been given to more than 3,000 charities. The relevant share transfer form may be obtained from the Registrar. For more information visit www.sharegift.org. # **Share dealing services** In addition to share dealing services provided by UK banks and brokers, Equiniti provide a telephone and online share dealing service for UK resident shareholders. To use this service, telephone 023456 037637 from within the UK. Calls are charged at the standard geographic rate and will vary by provider. Lines are open Monday to Friday 8.00 am to 4.30 pm, UK time, excluding public holidays in England and Wales. Alternatively, you can log on to www.equiniti.com. Equiniti Limited is authorised and regulated by the Financial Conduct Authority. # **London Stock Exchange Codes** The London Stock Exchange Daily Official List (SEDOL) code is: 0096162. The London Stock Exchange ticker code is: BBY. # **Capital gains tax (CGT)** For CGT purposes the market value on 31 March 1982 of Balfour Beatty plc's ordinary shares of 50p each was 267.6p per share. This has been adjusted for the 1 for 5 rights issue in June 1992, the 2 for 11 rights issue in September 1996 and the 3 for 7 rights issue in October 2009 and assumes that all rights have been taken up. # **Consolidated tax vouchers** Balfour Beatty issues a consolidated tax voucher annually to all shareholders who have their dividends paid direct to their bank accounts. If you would prefer to receive a tax voucher at each dividend payment date rather than annually, please contact the Registrar. A copy of the consolidated tax voucher may be downloaded from the Share Portal at www.shareview.co.uk. # **Enquiries** Enquiries relating to Balfour Beatty's results, business and financial position should be made in writing to the Corporate Communications Department at the address shown below or by email to info@balfourbeatty.com. Balfour Beatty plc Registered Office: 5 Churchill Place, Canary Wharf, London E14 5HU. Registered in England and Wales, registered number 395826 # **Forward-looking statements** This report, including information included or incorporated by reference in it, may include statements that are or may be 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", "projects", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or compatible terminology. These statements are made by Balfour Beatty in good faith based on the information available to it at the date of this report and reflect the beliefs and expectations of Balfour Beatty. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in UK and US Government policies, spending and procurement methodologies, failure in Balfour Beatty's health, safety or environmental policies and those factors set out under Principal Risks on pages 89 to 96 of this report. 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. Find out more about our investor relations at: www.balfourbeatty.com/investors 256 Balfour Beatty plc Annual Report and Accounts 2022 ### MORE INFORMATION ### Online annual report Follow us on For a summary of our Annual Report and Accounts 2022 visit: ar22.balfourbeatty.com Twitter twitter.com/balfourbeatty LinkedIn linkedin.com/company/balfour-beatty-plc Facebook facebook.com/balfourbeatty YouTube youtube.com/BalfourBeattyPlc Instagram instagram.com/balfourbeatty SCAN TO VIEW THE ONLINE SUMMARY REPORT ### Investor website For more information about investor relations visit: balfourbeatty.com/investors Balfour Beatty plc’s commitment to environmental issues is reflected in this Annual Report, which ® hasbeen printed on Symbol Matt Plus, an FSC certified material. This document was printed by ParkCommunications using its environmental print technology, which minimises the impact of printing onthe environment. Vegetable-based inks have been used and 99% of dry waste is diverted from landfill. ® The printer is a CarbonNeutral company. Both the printer and the paper mill are registered to ISO 14001. SCAN TO VIEW THE WEBSITE ### Balfour Beatty plc Annual Report and Accounts 2022 Balfour Beatty 5 Churchill Place Canary Wharf London E14 5HU Telephone: +44(0) 20 7216 6800 www.balfourbeatty.com Balfour Beatty is a registered trademark of Balfour Beatty plc