Balfour Beatty PLC 2024 Full Year Results

BALFOUR BEATTY PLC RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2024

12 March 2025

Continued strong performance delivering profitable growth

Further momentum into 2025 and 2026

Leo Quinn, Balfour Beatty Group Chief Executive, said: "The Group made further strong progress in 2024. We once again delivered managed profitable growth from our earnings-based businesses and healthy cash generation, while also increasing our high-quality order book.

"The Board continues to have confidence in Balfour Beatty's ongoing ability to deliver sustainable cash generation for significant shareholder returns, as evidenced by our announcement of increased dividends and share buybacks for 2025. Balfour Beatty is well positioned to continue its disciplined performance in the medium term, with strong order book visibility, attractive opportunities in our growth markets of UK energy, transport and defence, and US buildings, and our expert, highly engaged workforce positioning the Group for ongoing success."

Profitable growth from earnings-based businesses

· Underlying profit from operations (PFO) from earnings-based businesses up 7% to £252 million (2023: £236 million)

· Underlying profit before tax up 11%, including increased Investments disposals and net finance income

· Underlying EPS of 43.6p up 17% (2023: 37.3p)

· Non-underlying charge of £49 million (2023: £11m), including provision of costs relating to Building Safety Act

Diversified portfolio driving consistent earnings delivery, with PFO growth in each segment 

· Construction Services: PFO up 2% to £159 million (2023: £156 million)

· Support Services: PFO up 16% to £93 million (2023: £80 million) driven by strong revenue growth

· Infrastructure Investments: £1.3 billion Directors' valuation up 3% (2023: £1.2 billion)

Financial strength and sustainable cash generation supporting increased shareholder returns

· 9% increase in recommended full year dividend at 12.5 pence per share (2023: 11.5 pence per share)

· £125 million share buyback confirmed for 2025; 2025 total expected cash return of c.£188 million (2024: £161 million)

· Average net cash of £766 million (2023: £700 million)

Positive outlook with good short-term visibility and significant medium-to long-term potential

· Continued growth in earnings-based businesses underpinned by high-quality £18.4 billion order book (2023: £16.5 bn)

· Group capabilities aligned to significant future opportunities

· High and rising employee engagement underpinning progress in growing Group's capability

· Further profitable growth from earnings-based businesses expected for 2025 and 2026

Notes:

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 9)

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

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

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

Investor and analyst enquiries:

Jim Ryan

Tel. +44 (0)7858 368527

[email protected]

Media enquiries:

Antonia Walton

Tel. +44 (0)203 810 2345

[email protected]

Investor and analyst presentation:

A presentation to investors and analysts will be made at Deutsche Numis, 45 Gresham Street, London, EC2V 7BF at 09:00 (GMT) on 12 March 2025. There will be a live webcast of this on: www.balfourbeatty.com/webcast. The webcast will be recorded and subsequently available at Results, reports and presentations - Investors - Balfour Beatty plc.

2024 FULL YEAR RESULTS ANNOUNCEMENT

· GROUP CHIEF EXECUTIVE'S OVERVIEW

· RESULTS OVERVIEW

· DIVISIONAL REVIEWS

· MEASURING OUR FINANCIAL PERFORMANCE

GROUP CHIEF EXECUTIVE'S OVERVIEW

2024 profitable growth targets achieved

Balfour Beatty delivered another year of strong operational performance in 2024, which resulted in the Group growing earnings, average cash and order book. The key 2024 objective of growing the profit from earnings-based businesses (Construction Services and Support Services) was achieved, with underlying profit from operations (PFO) from those businesses increasing by 7% to £252 million (2023: £236 million), while the year-end order book increased by 12% to £18.4 billion (2023: £16.5 billion) following progress in Balfour Beatty's chosen growth markets. The Group's underlying profit for the year improved to £227 million (2023: £205 million) driven by the earnings-based businesses, increased gains on Investments disposals and higher net finance income. Non-underlying items after tax were a loss of £49 million (2023: £11 million) and included a charge in relation to the Group's obligations under the UK Building Safety Act (BSA).

In 2024, £161 million of cash was returned to shareholders (2023: £208 million) through a combination of dividends and share buybacks and average net cash increased to £766 million compared to £700 million in 2023.

Strong Group portfolio performance led by UK

Balfour Beatty's geographical, operational and contract diversity is a key strength of the Group, and has been an important factor in the consistency of its financial results in recent years. This was further demonstrated in 2024, as the Group delivered profitable growth in both of the earnings-based businesses. Construction Services underlying PFO increased to £159 million, as UK Construction PFO margin continued to improve with a further year of strong project delivery and Gammon recorded 14% revenue growth, while US Construction profitability reduced due to the cost of delays at a small number of civils projects. Support Services delivered strong growth, with revenue increasing by 20% and PFO margin remaining close to the top of its targeted range. Infrastructure Investments surpassed its disposal targets, which offset an increase in costs. The Directors' valuation of the Investments portfolio increased by 3% to £1.3 billion (2023: £1.2 billion), with two new projects added. The Group has forecast further growth in the medium term, driven by its focus on four key markets; UK energy, transport and defence and US buildings. 

High-quality order book providing foundations for 2025 and 2026

The Group's order book grew by 12% in 2024 to £18.4 billion (2023: £16.5 billion), and while orders remain significant across Balfour Beatty's focused geographic footprint of the UK, US and Hong Kong, the increase was largely driven by progress in two of the identified growth markets:

· In the UK, the strengthening and upgrading of the power transmission network is underway and the demand for engineering and construction expertise continues to outweigh supply. Balfour Beatty holds market-leading capabilities in this space and the order book for power transmission and distribution work has more than doubled in 2024;

· In the US, the combination of the Group's organic growth strategy and a more stable economy has resulted in the buildings business growing its order book by 26% (24% at constant exchange rate (CER)) during the year, with increased demand across most of its geographies and client sectors.

In a period of rising demand, the Group continues to be selective in the work it undertakes, using increased bid margin thresholds and utilisation of disciplined risk frameworks and contract governance to reduce risk and raise quality in the forward order book. As a result, the order book comprises a portfolio of projects that the Group believes has the appropriate contractual terms and conditions for the risk undertaken, with UK Construction being heavily weighted towards lower-risk target cost and cost plus incentivised fee contracts and US Construction being heavily weighted towards buildings projects, for which the Group ensures early issuing of subcontracts and insurance of the supply chain in order to protect its margin. 

Beyond the reported order book, Balfour Beatty has positions on several long-term frameworks, including Scottish and Southern Electricity Networks' (SSEN) c.£10 billion Accelerated Strategic Transmission Investment (ASTI) framework and two SCAPE Civil Engineering frameworks in the UK, which were extended for two further years in 2024. The Group's awarded but not contracted pipeline also grew in the year, due largely to the addition of SSEN's £690 million Skye 132kV reinforcement project and various US Buildings projects.

Looking ahead to further growth

The Group's outlook in each of its chosen markets is positive through the medium term. In the UK, multi-year investment in infrastructure is a priority and a necessity for the Government and will be crucial in achieving the country's growth and clean energy goals. The Government has also committed to leveraging private investment, upskilling the UK's workforce and delivering planning reform with the Planning and Infrastructure Bill. In the US, US Buildings' organic growth strategy and a more stable economy have contributed to the division's encouraging progress.

· UK energy: The essential long-term upgrade to the UK's energy infrastructure is well underway, driving improvement in energy security and facilitating the energy transition, with significant and timely investment in both generation and network infrastructure necessary to meet the Government's net zero targets. Balfour Beatty is heavily involved in projects such as the new Hinkley Point C nuclear power station and Net Zero Teesside and across the UK with its market-leading power transmission and distribution capability.

· US buildings: Balfour Beatty's buildings operations are focused primarily on specific, high growth regions, with construction spending in the Group's chosen states projected to grow 7% per year to 2029, ahead of the national average. There are encouraging trends in the division's specialist industries, with increased investment in government buildings, higher residential construction, and booming data centre demand. The Group has also seen encouraging results from its organic growth strategy, securing increased orders in sectors such as education, aviation and hospitality, as a result of further geographic diversification.

· UK defence: Government plans to strengthen national security and modernise defence infrastructure are bringing material opportunities to market, with these schemes increasingly requiring contractors with high-security experience and end-to-end capabilities. Balfour Beatty's capabilities and credentials, including its experiences in civil nuclear construction, are well matched to these requirements and in 2024 the Group was selected by Rolls-Royce as a construction partner for its Ministry of Defence and AUKUS expansion.

· UK transport: Investment in the UK transport network is an important component of the Government's growth plans and is essential to address ageing infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty's capabilities and market share in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the Group is well positioned to capitalise on transport opportunities when they arise, with growth expected in the medium term.

In the shorter term, PFO growth across 2025 and 2026 in Balfour Beatty's Construction Services division is expected to be weighted towards further margin improvement, rather than higher volumes. Growth in the Support Services division is expected to be largely driven by the expansion of work in the power transmission and distribution sector, which is not reliant on Government funding or the ongoing comprehensive spending review.

Capability is key

The combination of a strong order book and broad market opportunities is supportive for Balfour Beatty's growth aspirations, but as demand rises, challenges surrounding capability and workforce naturally rise too. As such, attracting and recruiting new talent and retaining its existing experts are increasingly important areas of focus and investment for the Group, as it looks to closely match the rising trajectory of work with a growing, and appropriately skilled, workforce.

The annual employee engagement survey is an essential tool for the Group to assess its own performance and the progress made in the year. In 2024, the survey results were particularly strong, with overall employee engagement at 84% (2023: 81%), which is 11 percentage points above the industry average. This is the seventh successive year of improvement in Balfour Beatty's employee engagement scores.

Balfour Beatty's people strategy focuses on the four strategic pillars of Attract, Retain, Grow and Thrive. To attract new talent at all levels of experience, the Group leverages its inclusive culture, the breadth of its capabilities and its portfolio of nationally critical infrastructure projects as a powerful part of its employer proposition. In 2024, this contributed to an increase in new starters in the UK, including over 500 in the Power Transmission and Distribution business alone. To retain its talent, Balfour Beatty focuses on providing an inclusive environment where its people feel valued and can be productive, and progress was made in the year with the Group's voluntary attrition rates in the UK improving to 10% (2023: 12%). This supportive culture also offers employees the opportunity to develop their skills and competencies, while building their careers, with the Group's focus on employee wellbeing supporting them to thrive. At year end, 7.3% of the UK workforce were apprentices, graduates and sponsored students in 'earn and learn' positions, exceeding both The 5% Club's base target and overall average.

Strong progress in pursuit of Zero Harm

Health, safety and wellbeing (HS&W) continues to be the top priority for Balfour Beatty. Given the nature of the work undertaken by the Group, Balfour Beatty has a duty of care to all of those working on its projects and the public to deliver an industry-leading HS&W programme, which is present on site and reinforced each day. In 2024, the Group's key metrics, which exclude international joint ventures, improved further and achieved record levels, with the Lost Time Incident Rate reducing from 0.11 to 0.09, the three-day Lost Time Injury Rate falling from 0.08 to 0.07 and observations increasing to over 470,000 (2023: 400,000), due in part to the US business almost doubling its number of observations raised throughout the year.

The Group remains determined to keep raising the bar and taking the next step on the journey to Zero Harm, with further utilisation of technology a key enabler to this. Balfour Beatty's introduction of digital permits and checklists, while enabling AI solutions, has contributed to the Group leading the industry in safety performance, while improving productivity and assurance. In 2024, the roll out of human form recognition cameras continued at pace. These award-winning multi-camera systems, installed on mobile plant, detect the human form and proactively communicate this detection visually and audibly to the plant operator. Insights from the data collected, combined with advancements in AI, will allow for teams to plan work more safely and effectively in the future. AI is also being used to more thoroughly analyse the vast amount of safety data collected across Balfour Beatty, which will allow the Group to be more predictive in the identification of safety trends and events.

Launch of evolved Sustainability Strategy

In June, Balfour Beatty launched its evolved Sustainability Strategy, extending its focus to six areas which encompass climate change, nature positive, resource efficiency, supply chain integrity, community engagement and employee diversity, equity, and inclusion. As part of the evolved strategy, the Company has brought forward its UK based target to create £3 billion of social value by 2025 (previously 2030) as well as initiating new net zero targets as its understanding of the scale of the challenge has evolved. Following a process to stress test its targets with the Science Based Targets initiative (SBTi), the Group has revised its net zero target for Scope 1 and 2 emissions to 2045, and Scope 3 to 2050, both originally set for 2040. The targets, which are both stretching and realistic, have been validated by the SBTi and are underpinned by an industry-leading, fully transparent UK carbon reduction plan.

In 2024, the Group delivered £991 million (2023: £936 million) of social value, including spend with local suppliers and local businesses, and volunteering. The Group also achieved a small decrease in absolute carbon emissions and a 13% intensity reduction in Scope 1 and 2 greenhouse gas (GHG) emissions.

Increased dividends and share buybacks in 2025

The Group's capital allocation framework has been in place since 2021, facilitating the delivery of attractive shareholder returns, while ensuring the appropriate balance between investment in the business, and a strong capital position. Given the Group's encouraging position, including its large order book, strong balance sheet and the depth of opportunities in its chosen markets, Balfour Beatty is confident of continuing to deliver significant future shareholder returns. As such, the Board is today recommending a final dividend of 8.7 pence per share (2023: 8.0 pence), giving a total recommended dividend for the year of 12.5 pence per share (2023: 11.5 pence). Additionally, the Company intends to repurchase £125 million of shares during the 2025 phase of its multi-year share buyback programme, bringing the cumulative return to shareholders since the introduction in 2021 of the multi-year capital allocation framework to over £940 million.

The total cash return to shareholders in 2025 (including the final 2024 dividend and 2025 interim dividend) is therefore expected to be c.£188 million (2024: £161 million).

Outlook

The Board expects an increase in PFO from its earnings-based businesses in 2025, with further growth in 2026.

Infrastructure Investments is expected to continue to deliver attractive end-to-end returns from its recurring income, by divesting assets and making new investments in line with the Group's capital allocation framework. For 2025, gains on investment disposals are expected in the range of £20 - £30 million.

The Board expects net finance income of around £25 million for 2025 and for the effective tax rates in each of the three geographies to remain close to statutory rates, albeit with cash tax payments in the UK remaining below statutory levels in the medium term as losses are utilised. Average net cash in 2025 is expected to be roughly £800 million, with capital expenditure between £35 and £40 million and working capital remaining broadly flat.

The Group's long-term outlook remains positive, with the growth forecast in 2025 and 2026 being driven by strong visibility from its high-quality order book, alongside the further opportunities in the energy, transport and defence sectors in the UK and the Group's chosen buildings sectors in the US. This gives 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.

RESULTS OVERVIEW

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

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

Group financial summary

Balfour Beatty's underlying results in 2024 show good progress at a Group level. Revenue increased by 4% (6% at CER) to £10,015 million (2023: £9,595 million) driven by increases in Gammon and Support Services. Statutory revenue, which excludes joint ventures and associates, was £8,234 million (2023: £7,993 million).

The underlying profit from operations for the year increased to £248 million (2023: £228 million) driven by an increase in PFO from the earnings-based businesses and higher gains on investment disposals, partially offset by an underlying pre-disposal loss in Infrastructure Investments. Statutory profit from operations was £173 million (2023: £211 million). 

Net finance income of £41 million (2023: £33 million) improved as a result of higher interest rates and impairment write backs of subordinated debt. Underlying pre-tax profit was £289 million (2023: £261 million). The taxation charge on underlying profits increased to £62 million (2023: £56 million). This resulted in underlying profit after tax of £227 million (2023: £205 million). Total statutory profit after tax for the year was £178 million (2023: £194 million), as a result of the net effect of non-underlying items.

Underlying basic earnings per share were 43.6 pence (2023: 37.3 pence), which, along with a non-underlying loss per share of 9.4 pence (2023: 2.0 pence), gave a total basic earnings per share of 34.2 pence (2023: 35.3 pence). This included the benefit from the basic weighted average number of ordinary shares reducing to 521 million (2023: 558 million) as a result of the Group's share buyback programme.

Non-underlying items

The Board believes non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. Non-underlying items after taxation were a net charge of £49 million for the year (2023: £11 million). This included four significant items.

Firstly, a charge of £83 million has been recognised in relation to the Group's obligations under the UK Building Safety Act (BSA). The BSA, which was introduced in 2022, extends the limitation for claims under the Defective Premises Act 1972 from 6 years to 30 years for dwellings completed before 28 June 2022. Since the introduction of the BSA, the Group has conducted investigations and due diligence on claims received to establish whether an obligation exists and if costs can be reliably estimated. Previously, the charge relating to this provision has been recognised within the Group's underlying results as the amounts recognised did not result in a distortion of the Group's underlying results. In 2024, following developments in the legal landscape of the BSA and progression of the Group's investigations, the Group has reassessed its provision for BSA claims resulting in an increase in the provision of £83 million. The provision does not include potential recoveries from third parties and the resulting cash outflow is expected over a number of years. This increase has been recognised in non-underlying due to its size and the nature of the cost, which has arisen from a change in legislation. The Group continues to recognise defects on projects not covered by the BSA as part of its underlying performance.

Secondly, a charge of £52 million has been recognised in relation to a US Civils project completed in 2012. The Group, through a joint operation formed with Fluor Enterprises Inc. in which the Group owns a 40% share, completed a contract with the North Texas Tollway Authority (NTTA) to provide design and build services in relation to the extension of NTTA's President George Bush Turnpike Highway (SH161 in Texas). In October 2022, NTTA served the joint operation with a claim demanding damages of an unquantified amount under various claims relating to alleged breaches of contract and or negligence in relation to retaining walls along the project. In November 2024, through a jury verdict, damages were awarded against the joint operation in favour of NTTA amounting to $112m (Group's share). This jury verdict was substantially above the claim presented to the court of $77m (Group's share) comprising $8m expended to date and $69m for possible repair costs over the next 10 years. The NTTA has moved to enter the verdict as a judgement and is also requesting pre-judgement interest of $50m (Group's share) plus legal costs. The joint operation has opposed the NTTA's motion and the court has yet to issue a decision on that motion with a court date set for 27 March 2025. The Group believes that the jury verdict does not accurately reflect the evidence at trial and is evaluating all options to set aside or reduce the verdict and, if necessary, appeal any final judgement. The appeal would require a surety bond of $10m (Group share) to be provided in place of settling the judgement. However, in light of the jury verdict, the Group has recognised a non-underlying charge of £52m. This charge, which is net of insurance recoveries of £40m for which the Group has received confirmation of cover from its insurers, represents the Group's best estimate of the probable damages to be awarded. The Group maintains the view that these damages are a result of design elements of the contract which were performed by subcontractors to the joint operation. The Group, together with its joint operation partner, is pursuing recoveries from these subcontractors, however at this stage, the Group has not recognised any potential recoveries from these parties.

Thirdly, the Group has recognised a credit of £43 million for an insurance receivable relating to rectification work, for which the cost had previously been provided. In 2021, the Group recognised a provision of £42 million within non-underlying in relation to rectification work to be carried out on a development in London which was constructed by the Group between 2013 and 2016. In 2023, the Group increased this provision to £54 million following a reassessment of the rectification cost. The additional charge to the income statement was also recognised in non-underlying. The Group's estimated provision did not include potential recoveries from third parties. In 2024, rectification work continued to progress and is expected to complete in the first half of 2025. In July 2024, the Group received confirmation from its insurers that the rectification work qualifies for insurance coverage. Upon assessment of the interim cost by the insurer's loss adjusters as well as receipt of cash for the first application for payment submitted by the Group for a portion of the cost incurred to date, the Group has recognised an insurance recovery of £43 million. The Group has presented this income within non-underlying in line with the presentation adopted for the recognition of the provision.

Finally, a net credit of £21 million was recognised in the Group's Rail Germany operations. In 2024, the two remaining contracts held within Rail Germany reached the end of their warranty periods, resulting in the release of warranty provisions held in respect of these contracts. This release has been credited to the Group's income statement within non-underlying, net of provision increases relating to certain legacy liabilities remaining within the business.

Further detail is provided in Note 9.

Cash flow performance

The Group's net cash increased by £101 million in the year (2023: £27 million), resulting in a year end net cash position of £943 million (2023: £842 million), excluding non-recourse net borrowings and lease liabilities. Cash from operations, which included a working capital inflow, was partially offset by shareholder returns, while capital expenditure reduced in 2024 to a more normalised level following a peak year for capital expenditure in 2023.

*  Excluding infrastructure investments (non-recourse) net borrowings and lease liabilities

+  Including £2 million (2023: £3 million) of regular funding

∞ 2023 excludes £1 million (2024: nil) dividends received in relation to Investments asset disposals within joint ventures and associates

Working capital

A working capital inflow of £99 million (2023: £63 million) was favourable to the outflow previously expected for the year.

^ Excluding impact of foreign exchange

Including the impact of foreign exchange and non-operating items, negative (i.e. favourable) current working capital reduced slightly to £1,228 million (2023: £1,232 million). Negative working capital as a percentage of revenue for 2024 was 14.9% (2023: 15.4%). 

Net cash/borrowings

The Group's average net cash increased to £766 million in 2024 (2023: £700 million). The Group's year end net cash position, excluding non-recourse net borrowings and lease liabilities, was £943 million (2023: £842 million).

Non-recourse net borrowings, held in Infrastructure Investments entities consolidated by the Group, were £335 million (2023: £264 million). The balance sheet also included £162 million for lease liabilities (2023: £143 million). Statutory net cash at 31 December 2024 was £446 million (2023: £435 million).

Share buyback

On 2 January 2024, Balfour Beatty commenced an initial £50 million tranche of its 2024 share buyback programme, which was subsequently increased, following the release of its 2023 full year results, to £100 million on 13 March 2024. The Group completed the 2024 share buyback programme on 20 September 2024, having purchased 27.1 million shares, which were held in treasury. These shares were subsequently cancelled on 31 October 2024. The Group commenced the initial £50 million tranche of its 2025 share buyback programme on 6 January 2025. As announced today, the Group intends to buyback a total of £125 million of shares during the 2025 phase of its multi-year share buyback programme.

Banking facilities

In the year, the Group extended its core Revolving Credit Facility (RCF) by one year, to June 2028, with the support of the lending bank group. The facility was reduced to £450 million (2023: £475 million) in the extension process. The RCF remains a Sustainability Linked Loan (SLL) and subsequent to the extension, in July 2024 new SLL metrics and targets were agreed with the lending bank group. The Group continues to be incentivised to deliver annual measurable performance improvement in three key areas: Carbon Emissions, Social Value generation and an independent Environment, Social and Governance (ESG) rating score. The RCF remained undrawn at 31 December 2024.

The Group retains an additional £30 million bilateral committed facility that has materially the same terms and conditions as the RCF. The facility is also an SLL, including metrics that mirror the RCF. In the second half of the year, the Group triggered its extension option in respect of the bilateral facility, to extend the maturity to December 2027. As at 31 December 2024, the facility remained undrawn.

Debt Refinancing

During 2024, the Group completed the early refinancing of US$50 million of US Private Placement (USPP) notes that were set to mature in March 2025. The Group raised US$50 million of new USPP notes, on terms and conditions that mirror existing debt facilities, and used this new funding to complete the early repayment of the US$50 million 2025 USPP notes. The new debt is comprised of US$25 million of 7-year notes, maturing in May 2031 at a fixed coupon of 6.71%, and US$25 million of 12-year notes, maturing in May 2036 at a fixed coupon of 6.96%. The refinancing exercise has extended the debt maturity profile of the Group until 2036, with the next debt maturity now in June 2027 (US$35 million USPP notes).

Going concern

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

Pensions

Balfour Beatty and the trustees of the Balfour Beatty Pension Fund (BBPF) have agreed to a journey plan approach to managing the BBPF whereby the BBPF is aiming to reach self-sufficiency by 2027. The Company and the trustees agreed the 31 March 2022 formal valuation in 2023 and, as a result, Balfour Beatty paid deficit contributions to the BBPF of £22 million in 2024 with a further £6 million payable in 2025. The next formal triennial valuation of BBPF is due with effect from 31 March 2025.

The Company and trustees of the Railways Pension Scheme (RPS) agreed the 31 December 2022 formal valuation in the first half of 2024 and, as a result, Balfour Beatty agreed to continue making deficit contributions of £6 million per annum until February 2025. The next formal triennial funding valuation of the RPS is due with effect from 31 December 2025.

The Group's balance sheet includes net retirement benefit assets of £2 million (2023: £69 million) as measured on an IAS 19 basis, with the surplus on the BBPF (£43 million) largely offset by deficits on RPS (£7 million) and other schemes (£34 million).

Dividend

The Board is committed to a sustainable ordinary dividend which is expected to grow over time, targeted at a pay-out ratio of 40% of underlying profit after tax excluding gains on disposal of Investments assets.

Following the 3.8 pence per ordinary share interim dividend declared at the half year, the Board is recommending a final dividend of 8.7 pence per share, giving a total recommended dividend for the year of 12.5 pence per share (2023: 11.5 pence per share).

DIVISIONAL REVIEWS

CONSTRUCTION SERVICES

Financial review

Revenue at £8,199 million was up 1% (2023: £8,081 million), a 3% increase at CER, with higher volumes at Gammon. Underlying profit from operations increased to £159 million (2023: £156 million) due to improved profitability in UK Construction and higher volumes at Gammon, partially offset by reduced profitability in US Construction. Statutory profit for the year was £87 million (2023: £143 million). The order book increased 11% (9% at CER) in the year to £15.2 billion (2023: £13.7 billion), due to a strong year of orders in US Construction.

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 9)

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

UK Construction: Revenue in UK Construction decreased by 1% to £3,011 million (2023: £3,027 million).

UK Construction underlying profit from operations increased to £81 million (2023: £69 million), largely driven by improved project delivery and the mix of work. This represents a 2.7% PFO margin (2023: 2.3%) and demonstrates progress in the Group's medium-term ambition to achieve a 3% PFO margin in UK Construction, with further improvement expected in 2025 and 2026.

The UK Construction order book grew marginally to £6.2 billion (2023: £6.1 billion), with 92% (2023: 91%) of those orders from public sector and regulated industry clients.

US Construction: Revenue in US Construction decreased by 2% (1% increase at CER) to £3,638 million (2023: £3,697 million). Underlying profit from operations for US Construction reduced by 22% to £40 million (2023: £51 million) as a small number of civils projects have taken longer than initially scheduled. Due to the fixed-price nature of the contracts, the cost of these delays has impacted profitability in 2024 and US Construction PFO is expected to improve in 2025.

The US Construction order book increased by 27% (25% at CER) to £7.1 billion (2024: £5.6 billion) with increases in both the buildings and civils divisions. US Buildings grew its order book in all but one of its geographic divisions, with an increase in commercial office, hospitality, government, education and airports. US Civils order book growth was largely due to the business signing a $746 million contract to rebuild part of the Interstate 35 through Austin for the Texas Department of Transportation.

Gammon: The Group's share of Gammon's revenue increased by 14% (17% at CER) to £1,550 million (2023: £1,357 million) driven by an increase in major civils volumes, including the Terminal 2 expansion and automated people mover projects at Hong Kong International Airport. Underlying profit increased to £38 million (2023: £36 million) representing a 2.5% profit margin (2023: 2.7%).

The Group's share of Gammon's order book decreased by 5% (11% at CER) to £1.9 billion (2023: £2.0 billion), with the progress made on the airport projects largely offset by new orders, which included a residential development in the Kai Tak area for the Hong Kong Housing Society, data centres in Hong Kong and Singapore, and a civils contract in Hong Kong's Northern Metropolis to prepare the land and deliver engineering infrastructure works for a new development area.

Operational review

UK Construction

Strong medium-term outlook in UK growth markets

Since coming to power in July 2024, the UK Government has been firm in its commitment to stimulating growth in the UK economy, and has highlighted the importance of maintaining, improving, and expanding UK infrastructure in achieving this. As part of its broad investment plans, the Government has addressed the requirement for additional investment in various sectors, including Balfour Beatty's UK growth areas of energy, transport and defence, with further detail to follow in June as part of the 10 Year Infrastructure Strategy and multi-year comprehensive spending review. The Government is also investigating other potential enablers to reduce the time and costs associated with infrastructure development in the UK, including the simplification of planning and the utilisation of private financing. In January 2025, the Government announced plans to block campaigners from making repeated legal challenges to planning decisions for major infrastructure projects in England and Wales, with the intention of reducing the time taken to achieve the relevant consents.

The essential long-term upgrade to the UK's energy infrastructure is now well underway, driving improvement in energy security and facilitating the energy transition, with Balfour Beatty heavily involved in active projects such as the new Hinkley Point C nuclear power station in Somerset and across the UK with its market-leading power transmission and distribution proposition. The scale of work required to meet the UK's net zero ambitions is vast and is likely to be ongoing for decades to come. In 2024, there were a number of key developments in the progression of new projects which Balfour Beatty expect to play a major role in:

· The UK Government announced a £21.7 billion pledge for projects to capture and store carbon emissions from energy, industry and hydrogen production. Following this, Balfour Beatty, alongside Technip Energies and GE Vernova, received notice to proceed to start the full engineering, procurement and construction package for the onshore power, capture and compression contract at Net Zero Teesside, the world's first gas-fired power station with carbon capture and storage;

· For the proposed Sizewell C nuclear power station, the UK Government increased its financial commitment to take the project to final investment decision to £5.5 billion. Balfour Beatty is part of the Civils Works Alliance for Sizewell C, alongside Bouygues Travaux Publics and Laing O'Rourke, which will deliver the extensive civil works package;

· Great British Nuclear, the UK Government's expert nuclear delivery body, shortlisted four companies for its small modular reactor programme, including Holtec, for which Balfour Beatty is the main construction partner. Final decisions are expected to be announced in the coming months.

The Group also continues to pursue opportunities in offshore wind, fusion and hydrogen, and the UK Construction division's civil engineering expertise is expected to be drawn on further as a result of the forecast expansion of power transmission and distribution volumes within Support Services.

The UK Government plans to strengthen national security and modernise defence infrastructure, with the intent of increasing defence spending to 2.5% of GDP by 2027. Balfour Beatty has been a long-term participant in the UK's defence and security sector and has delivered growth in its market share during 2024. The Group's experiences in civil nuclear construction hold close adjacencies with some of the projects being tendered, while its end-to-end capabilities can simplify high security project delivery by reducing complex interfaces. As a testament to this, Balfour Beatty has been selected by Rolls-Royce as a construction partner for the expansion work in Raynesway, Derby, needed to meet the growth in demand from the Ministry of Defence and as a result of the AUKUS agreement. As part of the package of works, which will be executed in stages over the next eight years, Balfour Beatty will deliver infrastructure enabling works, build new manufacturing and office facilities, and redevelop existing industrial buildings on site. This will increase Rolls-Royce's capacity to manufacture reactor components for nuclear submarines. The UK defence sector has been identified as one of the Group's key growth markets, and as such, further material opportunities are currently being pursued.

In the UK transport sector, the Group retains strong market positions in both major road and rail construction. Transport is an important component of the Government's growth plans, and further details are expected as part of the 10 Year Infrastructure Strategy and the Treasury's multi-year comprehensive spending review, due in June. Following these announcements, National Highways will release its third Road Investment Strategy (RIS3). These plans will give a clearer timeline for projects such as the Lower Thames Crossing road scheme, a project which the Group was awarded £1.2 billion of work for in 2023 but has yet to go to contract, and major rail electrification schemes, all of which are of strategic importance to both the UK and Balfour Beatty. The Group also holds deep experience in construction at UK airports, so the Government's plan for expansion and development of London airports is also positive for Balfour Beatty in the medium term. During 2024, Balfour Beatty was awarded a £185 million contract on the A9 road in Scotland, which will see the Group upgrade six miles of single carriageway to dual carriageway, and undertook early contractor involvement activities on the Lower Thames Crossing.

Continued margin expansion and strong operational delivery

Balfour Beatty holds a market-leading position in a growing UK infrastructure market, with unmatched scale and vertically integrated capability for delivering major and regional civils projects. In a period of increased demand, the Group is being more selective in the work it undertakes, resulting in a higher quality and lower-risk forward order book. The 2024 order book is heavily weighted towards lower-risk contract forms, with 59% target cost and 20% cost plus incentivised fee, while the remaining 21% is weighted towards two stage fixed price contracts, which are inherently lower-risk than one stage fixed price arrangements. UK Construction currently has around 700 live projects, and the Group remains focused on ensuring that new work is contracted on the appropriate contractual terms and conditions for the risk undertaken, in order to protect the Group's margin and reduce the loss-making portion of the project portfolio.

The two key drivers of the ongoing increase in the UK Construction margin, which has improved for a fourth successive year and is forecast to do so further in 2025, are the lower-risk nature of the order book and strong operational delivery. Balfour Beatty's ambition to provide industry-leading project delivery across the UK Construction portfolio not only drives margin performance in the period, but demonstrates the Group's capabilities and standards, thereby aiding the pursuit of future work. 

On the UK's largest infrastructure project, HS2, Balfour Beatty and its joint venture partners are delivering the main civil engineering works for the Area North section and the new station at Old Oak Common in west London. On Area North, the Balfour Beatty VINCI joint venture has completed the four huge piers of the Curzon 2 bridge, marking a significant construction milestone on the sequence of viaducts that will take high-speed trains in and out of Birmingham. At Old Oak Common, the Balfour Beatty VINCI SYTRA joint venture completed the excavation of the stations underground box, a vast structure big enough to accommodate the equivalent of 300 Olympic sized swimming pools, and has now completed construction of the stations base slab, which required 76,000 cubic metres of concrete and 17,000 tonnes of reinforced steel. At Hinkley Point C, the Balfour Beatty team delivering the marine works for the new nuclear station have made strong progress under the Bristol Channel. In December, the team completed the two connections in the outfall tunnel, which was a key project milestone for the year, with focus now on the remaining connections in the two intake tunnels.

The Major Highways team is two years in to the major improvement scheme at the interchange between Junction 10 of the M25 and the A3. During 2024, Balfour Beatty conducted three full weekend closures as part of the improvement scheme at Wisley, the first in the M25's 38 year history, with works completed ahead of schedule on all occasions. The team has also made good progress on the A63 improvement scheme in Hull and has added additional emergency refuge areas on the M25, M3 and M4, improving safety for all users of these routes.

In 2024, the division completed work at a wide range of projects including the Edinburgh Futures Institute at the University of Edinburgh, highway and junction improvements in North West Crewe and the Lewisham Gateway residential project. Beyond the new Rolls-Royce and A9 contracts, other projects added to the UK Construction order book during 2024 included HMP Highland in Inverness, on behalf of the Scottish Prison Service, enabling works at HMNB Devonport, a replacement secondary school for the Nairn academy and also the divisions share of the Group's recent power transmission and distribution orders.

In November, Balfour Beatty signed a two year extension to its existing four year term as sole contractor to both of the SCAPE Civil Engineering frameworks, which cover England, Wales and Northern Ireland, and the entirety of Scotland. The frameworks will now run until November 2028.

US Construction

Positive outlook in Group's US geographies

Balfour Beatty's US Construction division is comprised of the US Buildings and US Civils businesses. US Buildings is a construction management business diversified across geographies and client sectors, which targets major cities and urban areas in states with favourable economic outlooks. The US Civils business focuses on highways projects in Texas and the Carolinas, and on local rail and civils work in California. Given the division's diversification across capabilities, geographies and sectors, the result of the recent US election has not had a material impact on the outlook for US Construction, while recent third party forecasts have projected construction spending in the Group's chosen states to surpass the national average to 2029, with an annual average growth of 7% forecast.

At the 2023 full year results announcement, the Group outlined differing strategic approaches to the two US Construction disciplines, which have influenced the direction of the businesses in 2024 and will continue to do so in the future. US Buildings had been recognised as one of Balfour Beatty's four growth markets, with the business making notable progress in 2024, and is considered the lower-risk segment within the division. With most of the projects undertaken by US Construction contracted on fixed-price terms, Buildings utilise the early issuance of subcontracts and insurance of the supply chain to mitigate risk. Comparatively, civils contracts in the US are generally delivered on a self-perform basis, which on fixed price arrangements gives limited scope to mitigate inflation and schedule risk. As a result, the Group remains cautious in its approach to complex civils contracts in the US and has reduced its exposure to the sector in recent years, with bidding now focused on projects which closely align to its core capabilities.

US activities further weighted towards growing US Buildings business

Balfour Beatty's growth engine in the US is its buildings business, which increased revenue by 2% (5% at CER) in 2024 and contributed 87% of US Construction revenues (2023: 85%, 2022: 78%). Having identified the opportunity for growth in 2023, based on the strength of some core markets, including aviation, leisure, education and government, combined with the impact of a more settled economy, the Group put to work its two-pronged organic growth strategy to add further diversification to its regional businesses. The Group opened new offices, targeting additional cities in states with existing Balfour Beatty offices, and broadened the end-markets served in some regions where the business was already active. These factors have contributed to the US Buildings order book increasing 26% (24% at CER) in 2024, underpinning the growth expectations for 2025 and beyond.

The new office locations, which were chosen based on market fundamentals and adjacency to established offices, include Sacramento in California, Savannah in Georgia, Charleston in South Carolina, Wilmington in North Carolina, Richmond in Virginia, and Jacksonville and Tampa in Florida. These offices have played an important role in the order book growth and are delivering projects such as the construction of a new terminal at the Jacksonville International Airport, a runway expansion at the Airport in Onslow County near Wilmington, and the second phase of an elementary school project in Sacramento.

By broadening the regions in which it serves certain end-markets, the US Buildings business is further utilising its in-house expertise and long-term customer relationships to drive organic growth, with success in various sectors. Following on from recent activity at Los Angeles International Airport, the Group more than doubled its aviation order book in 2024, adding new work in North Carolina, Florida and California. In education, the Group has leveraged its market-leading Californian offering, where it was the top education builder for the second consecutive year, to strengthen its local order book and also win work in North Carolina and Oregon. While for theme parks, as well as material new work being added in Florida, work is under way on projects in Texas and California. The Group is also exploring data centre opportunities outside of the Northwest market, which has served the business well in recent years.

Strong operational delivery in US Buildings

During the year, progress has been made on significant Buildings projects including:

· Transformation of an old Coca-Cola bottling facility in Atlanta, Georgia, into an elevated mixed-use property;

· The completion of the Del Mar Heights School rebuild project in San Diego, California;

· Began construction activities to deliver Sacramento International Airport's pedestrian walkway project in California;

· Started construction of a mixed-use development in Dallas, Texas, which includes retail, restaurant, office and parking;

· Broke ground at the new Durham School of the Arts in North Carolina, alongside our joint venture partner.

Further progress made in US Civils strategy

The US Civils business continued to pivot towards a more concentrated portfolio of projects in 2024. Highways and bridges, which are profitable activities for the division, represents 75% of the order book at year end compared to 60% the year before. This was driven by progress made on live projects during the year and new orders, which included a $746 million contract to rebuild part of the Interstate 35 through Austin for the Texas Department of Transportation. The project, which is expected to complete in 2033, closely aligns to the Group's selective approach to US civils; working for a long-term customer and in a geography where Balfour Beatty has proven expertise, strong teams and trusted supply chain partners.

Progress at US Civils projects in 2024 included:

· Balfour Beatty achieved substantial completion on the Caltrain electrification rail project in California in 2024, with final completion achieved in February 2025;

· The business completed construction of the Sterling Natural Resource Center, a water reclamation facility in California;

· As part of the LINXS joint venture at Los Angeles International Airport, the Group entered the testing and commissioning phase of the project, with recent testing bringing a train vehicle through the airport's central terminal area, and the three automated people mover stations inside it, for the first time;

· As part of the Colorado River Constructors joint venture on the Oak Hill Parkway highways project in Texas, the Group opened four cross-street bridges to traffic;

· Progress continues on the Havelock Bypass project in North Carolina, with all 16 bridges and roadway construction now successfully completed.

Gammon

Strong positions in Hong Kong and Singapore

Gammon, Balfour Beatty's 50:50 joint venture with Jardine Matheson based in Hong Kong, has forged a reputation for delivering high-quality projects in Southeast Asia. The outlook for the Hong Kong construction sector remains positive, with Government commitments to grow the railway network and build new major roads, in addition to the long-term Northern Metropolis project to develop more than 3,000 hectares by phases over the next 20 years. Gammon's Singapore operations finished 2024 with a record order book and further opportunities to come. The Singapore Government is projecting increased infrastructure spend in 2025 and 2026, as it rolls out major infrastructure projects at its airport and metro, and the private sector property market continues to be strong.

Gammon continues to have a strong share of both the buildings and civils markets in Hong Kong. In buildings, the focus is on the use of Design for Manufacture and Assembly (DfMA) and modular construction to improve productivity and efficiency and expanding the customer base on a selective basis. In civils, the strategy is to leverage engineering excellence, with a key area of future work likely to be from significant infrastructure programmes in Hong Kong and in Singapore.

During 2024, Gammon delivered an increased volume of work, with the automatic people mover (APM) and Terminal 2 expansion projects at Hong Kong International Airport both reaching peak levels of activity. The official inauguration of the airport's three-runway system in November signified a key milestone for both projects, with Gammon playing a crucial role in the airports expansion to date, including the construction of a tunnel beneath the runway and taxiways, as well as essential infrastructure for air traffic control, utilities, roads, and drainage.

Gammon's Tonkin Street project reached substantial completion in October and is the first private residential project in Hong Kong to adopt concrete Modular Integrated Construction (MiC). By implementing MiC for the 22-storey, 198 unit, residential tower, the project achieved 65% reduction in construction waste and noise, as well as 60% decrease in traffic loading, significantly lowering carbon emissions throughout the construction process.

Gammon's buildings team is progressing with the One Causeway Bay project, which when complete will have 500,000 square feet of office space across 24 floors and five floors for retail, marked a major milestone with a topping-out ceremony. The project, which occupies the former site of the historic Excelsior Hotel on the waterfront of Hong Kong's Victoria Harbour, will open in 2025.

SUPPORT SERVICES

Financial review

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

Support Services revenue increased by 20% to £1,210 million (2023: £1,006 million), mainly due to higher volumes in the road maintenance business, which included the first full years of the major contracts at Buckinghamshire and East Sussex, and increased power transmission and distribution activity. Underlying profit from operations increased to £93 million (2023: £80 million) driven by higher revenue. This resulted in PFO margin of 7.7% in the year (2023: 8.0%), which is at the top end of the targeted 6-8% PFO margin range and represents a further strong year for the power, road and rail maintenance businesses, with the reduction in margin driven by a change in the mix of work delivered. 

The Support Services order book increased by 14% to £3.2 billion (2023: £2.8 billion) driven by new power transmission and distribution contacts, aligned with the growing demand in the sector.

1 Including share of joint ventures and associates

2 Before non-underlying items (Note 9)

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

Operational review

Further traction in power transmission and distribution expansion

In 2024, the UK Electricity System Operator published a report titled 'Beyond 2030 - A national blueprint for a decarbonised electricity system in Great Britain', which estimated that over £60 billion of investment in network infrastructure is required by 2030 to facilitate the connection of new offshore generation and other new renewable energy sources. The key transmission infrastructure operators, National Grid, SSEN and SPEN, have now published their RIIO-T3 business plans, which layout their proposed projects to 2031 and confirm the sharp expansion of work required across the industry in the balance of this decade and beyond.

Balfour Beatty holds a market-leading position in the rapidly growing UK power transmission and distribution construction industry and saw a record level of bidding success in 2024, being contracted or selected for various schemes and frameworks including:

- An Initial Works Contract with SSEN for the Skye Reinforcement project;

- A £192 million contract with SSEN for the Argyll Substations project;

- A £363 million contract with National Grid to deliver the Bramford to Twinstead Reinforcement project;

- A contract with Prysmian to install 69km of high-voltage direct current land cables as part of the Eastern Green Link 2 (EGL2) project, being jointly developed by SSEN Transmission and National Grid;

- Selected as one of eight preferred partners for Scottish Power Energy Networks' Strategic Agreement for Transmission Overhead Line Works, with up to £3 billion of work being tendered.

The increased activity in the market is driving a capability imbalance, with demand outweighing supply. This brings commercial opportunities to the Group, which benefits from holding the largest power workforce in the UK, and ensures that contracts can be undertaken on a lower-risk basis than in the past. It also leaves the Group with a recruitment challenge to meet the growing demand, and in 2024 the Power team had over 500 new starters, while improving the retention of existing colleagues.

During the year, the business finished wiring all 116 T-Pylons and constructing a further 27 traditional lattice pylons on the Hinkley Point C Connection project for National Grid. The Viking Link interconnector, the longest interconnector in the world for which Balfour Beatty constructed the 65km UK onshore underground cable route, is now live and transmitting power between the UK and Denmark. The Group also completed 62km of overhead line refurbishment between Bramford and Norwich, began to transition 3.5km of overhead lines in the North Wessex Downs to underground cables, handed back the first leg of the London Power Tunnels 2 project and energised the final circuit at the 400kV Littlebrook Substation. Balfour Beatty's portfolio of power transmission and distribution projects continues to reflect the major role which the Group is playing in upgrading the grid to meet the UK's net zero ambitions.

Increased road maintenance activity

The addressable road maintenance market continues to grow, with the Government's Autumn 2024 Budget announcing nearly £1.6 billion in capital funding for local highways maintenance in England for the financial year starting April 2025, which represents a £500 million increase on the prior year. Longer-term funding will be determined by the ongoing comprehensive spending review.

In 2024, Balfour Beatty substantially increased the volume of road maintenance work delivered, driven by the first full year of the Buckinghamshire and East Sussex contracts which had started in 2023, and increased demand for road patching activities. Looking forward, there are several Local Authority contracts coming to market in the next year for which the Group is well positioned, as it looks to further deploy its effective maintenance solutions and technology-driven infrastructure management.

Rail

The rail maintenance market is well funded for the period to 2029, with £45 billion available for investment in operations, maintenance and renewal as part of Network Rail's Control Period 7 (CP7) strategic business plan. The business is diversified across various frameworks, and during the year won £169 million of work for the Central Rail Systems Alliance framework, with the Group now half way through its 10 year contract.

The Group is particularly focused on electrification schemes, as part of its ambition to deliver more net zero infrastructure in the UK. Furthermore, the proposed restructuring of the UK rail industry should see greater opportunities for efficiency as the management of track and trains are brought closer together.

INFRASTRUCTURE INVESTMENTS

Financial review

Infrastructure Investments made an £8 million underlying loss from operations in the year (2023: £5 million profit). In the US, the costs relating to the independent compliance monitor's work across the US military housing portfolio increased, and in the UK, the Group wrote off capitalised bidding costs following the cancellation of a student accommodation project, for which it had been awarded preferred bidder status. When including a gain on disposal of £43 million (2023: £26 million), underlying profit from operations was £35 million (2023: £31 million).

Balfour Beatty continues to invest in attractive new opportunities, each expected to meet its investment hurdle rates. In the year, the Group invested £28 million in new and existing projects, with a US student accommodation project and a US multifamily housing project added to the portfolio. Balfour Beatty also continues to sell assets, timed to maximise benefit to shareholders. One disposal was completed in 2024, with the Group reducing its stake in the Northside student accommodation project at the University of Texas at Dallas. The transaction delivered £43 million gain on disposal and £43 million of cash, which was above the Directors' valuation.

Net investment income of £19 million was £3 million higher than the prior year (2023: £16 million) and included an impairment write back of subordinated debt as, following a final decision from Ofgem, costs were recovered relating to a faulty OFTO cable, which had been provided for in prior periods. This was partially offset by lower interest received on subordinated debt.

Underlying profit before tax increased to £54 million (2023: £47 million). Statutory profit before tax was £51 million (2023: £43 million).

2 Before non-underlying items (Note 9)

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

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

Operational review

Balfour Beatty's competitive expertise to finance, develop, build and maintain infrastructure puts the Group in a strong position to capitalise on new investment opportunities. The Group has maintained its disciplined approach to investments and disposals to ensure the delivery of investment hurdle rates and is currently assessing investment opportunities in:

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

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

· US P3: The US has become an increasingly exciting market for public-private partnerships, and, to date, 42 states (plus DC) have passed legislation allowing P3 projects;

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

In the UK, the Group has commenced construction of a new student accommodation project - the 1,899 bed West Slope development - on behalf of the University of Sussex. The first new student accommodation and the health and wellbeing centre are expected to be open in time for the 2026/27 academic year, with more accommodation, catering and retail facilities opening over the following two years. 

In the US, the Group added two new projects to the portfolio, with a 564 bed US student accommodation project in Denton, Texas, and a 296 unit US multifamily housing project in Mount Laurel, New Jersey. The Group was also awarded a developer contract to build a 1,070 bed undergraduate student housing complex at the University of Texas in Austin, while good progress has been made with construction on the 1,204 bed William & Mary University project in Virginia. The Group's key US P3 investment is the automated people mover project at Los Angeles International Airport, with US Construction contributing to the build phase and Infrastructure Investments providing an element of the financing. Construction is ongoing.

In US military housing, the Group supported the military's energy resilience goals by completing rooftop solar projects across five Navy bases in Florida, totalling 10.55 megawatts, and a $31 million energy savings performance contract bringing energy and water efficiency improvements to the housing communities at 11 Navy installations in the Southeast. In 2025, the Group will be redeveloping homes at Ft Eisenhower and Ft Leonard Wood, with Government funding announced for both, while a ground lease extension at Ft Carson is under negotiation in order to bring forward funds to finance faster redevelopment. The Group continues to work with the independent compliance monitor, who commenced work in 2022 having been appointed by the Department of Justice. In November 2024, Balfour Beatty Communities and the independent compliance monitor agreed to extend the most recent implementation period to enable the delivery of the additional recommendations set out in the first follow-up report and agreed to commence the second follow-up review period in March 2025.

Directors' valuation

The Directors' valuation increased by 3% to £1,254 million (2023: £1,212 million). The portfolio is 58% weighted towards the US (2023: 58%). The number of projects in the portfolio increased by one to 60 (2023: 59).

Movement in value 2023 to 2024

Balfour Beatty invested £28 million (2023: £31 million) in new and existing projects. During the year the Group added two new investments: a student accommodation project in Denton, Texas, and a multifamily housing project in Mount Laurel, New Jersey.

Cash yield from distributions amounted to £34 million (2023: £48 million). Balfour Beatty continued disposals in the year with proceeds of £43 million (2023: £61 million), with the Group reducing its stake in the Northside student accommodation project at the University of Texas at Dallas. A preferred bidder student accommodation project in the UK was cancelled and has been removed from the portfolio.

Unwind of discount at £81 million (2023: £87 million) is a function of moving the valuation date forward by one year with the result that future cash flows are discounted by twelve months less.

Operational performance movements resulted in a £2 million decrease (2023: £1 million). The operational performance movements in the UK were primarily due to recovery of costs for previous repairs on a faulty OFTO cable, offset by a higher costs and risk premia on certain assets. In the US, higher than forecast rental increases on the military housing portfolio were offset by higher costs, including an increase in independent compliance monitor costs.

The exchange rate movement was a £12 million increase (2023: £43 million decrease). This was driven by sterling depreciating against the US dollar, slightly offset by sterling appreciating against the euro and thereby reducing the valuation of the one euro denominated project in the portfolio.

Methodology and assumption changes

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

UK discount rates range from 7.25% to 10.25% (2023: 7.25% to 9.25%) depending on the maturity and risk of each project. The implied weighted average discount rate for the UK portfolio is 8.4% (2023 8.3%). A 1% change in the discount rate would change the value of the UK portfolio by approximately £48 million.

US discount rates range between 6.25% and 10.5% (2023: 6.25% and 10.5%) and the implied US weighted average discount rate is 7.9% (2023: 8.1%). A 1% change in the discount rate would change the value of the US portfolio by approximately £79 million.

The portfolio remains positively correlated to inflation. A 1% change in the long-term inflation rate in the UK portfolio would change the valuation by approximately £28 million and a 1% change in the long-term rental growth rate in the US portfolio would change the valuation by approximately £74 million.

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

Value by phase

Value by income type

MEASURING OUR FINANCIAL PERFORMANCE

Providing clarity on the Group's alternative performance measures

The Group has included this section in this announcement with the aim of providing transparency and clarity on the measures adopted internally to assess performance.

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

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

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

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

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

Readers are encouraged to review this announcement in its entirety.

Performance measures used to assess the Group's operations

Underlying profit from operations (PFO)

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

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

Underlying profit before tax (PBT)

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

These returns take the form of subordinated debt interest receivable, interest receivable on PPP financial assets and fair value gains

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

Operating cash flow (OCF)

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

Measuring the Group's performance

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

Statutory measures

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

Where a standard allows certain interpretations to be adopted, the Group has applied its accounting policies consistently. These accounting policies can be found on pages 200 to 206 of the Annual Report and Accounts 2024.

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

Performance measures

In assessing its performance, the Group has adopted certain non-statutory measures because, unlike its statutory measures, these cannot be derived directly from its financial statements.

The Group commonly uses the following measures to assess its performance:

a) Order book

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

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

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

In accordance with IFRS 15 Revenue from Contracts with Customers, the Group is required to disclose the remaining transaction price allocated to performance obligations not yet delivered. This can be found in Note 4.3 in the Annual Report and Accounts 2024. This is similar to the Group's order book disclosure, however it differs for the following reasons:

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

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

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

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

+ Refer to Note 4.3 in the Annual Report and Accounts 2024.

b) Underlying performance

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

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

·  costs of major restructuring and reorganisation of existing businesses;

·  costs of integrating newly acquired businesses;

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

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

·  impairment of goodwill.

These are non-underlying costs as they do not relate to the underlying performance of the Group.

From time to time, it may be appropriate to disclose further items as non-underlying items in order to reflect the underlying performance of the Group.

Further details of non-underlying items are provided in Note 9.

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

Reconciliation of 2024 statutory results to performance measures

Reconciliation of 2024 statutory results to performance measures by segment

Reconciliation of 2023 statutory results to performance measures

Reconciliation of 2023 statutory results to performance measures by segment

c) Underlying profit before tax

As mentioned on page 19, the Group's Infrastructure Investments segment is assessed on an underlying profit before tax (PBT) measure. This is calculated as follows:

+ Refer to Note 7 and Note 8.

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

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

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

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

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

f) Operating cash flow (OCF)

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

Reconciliation from statutory cash generated from operations to OCF

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

Pension payments including deficit funding (£30 million): the Group has excluded pension payments which are included in the Group's statutory measure of cash flows from operating activities from its internal OCF measure as these primarily relate to deficit funding of the Group's main pension fund, Balfour Beatty Pension Fund (BBPF). The payments made for the deficit funding are in accordance with an agreed journey plan with the trustees of the BBPF and are not directly linked to the operational performance of the Group.

Repayment of lease liabilities (including lease interest payments) (£66 million 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 (£71 million 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 (£13 million): 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 (£24 million): 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

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 £766 million for 2024 (2023: £700 million).

Using a statutory measure (inclusive of non-recourse elements and the lease liabilities recognised) gives average net cash of £441 million for 2024 (2023: £438 million).

i) Directors' valuation of the Investments portfolio

The Group uses a different methodology to assess the value of its Investments portfolio. As described in the Directors' valuation section, the Directors' valuation for most of the investments in the portfolio has been undertaken using forecast cash flows for each project on an asset by asset basis, based on progress to date and market expectations of future performance. These cash flows have been discounted using different discount rates depending on project risk and maturity, reflecting secondary market transaction experience. As such, the Board believes that this measure better reflects the potential returns to the Group from those investments. The Directors have valued the Investments portfolio at £1.25 billion at year end (2023: £1.21 billion).

The Directors' valuation will differ from the statutory carrying value of these investments, which are accounted for using the relevant standards in accordance with IFRS rather than a discounted cash flow approach.

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

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

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

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

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

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

· historical cost;

· amortised cost; and

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

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

j) Constant exchange rates (CER)

The Group operates across a variety of geographic locations and in its statutory results, the results of its overseas entities are translated into the Group's presentational currency at average rates of exchange for the year. The Group's key exchange rates applied in deriving its statutory results are shown in Note 4.

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:

2024 statutory growth compared to performance growth

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

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, operations and prospects. These forward-looking statements may be identified by the use of forward-looking terminology or the negative thereof such as "expects" or "does not expect", "anticipates" or "does not anticipate", "targets", "aims", "continues", "is subject to", "assumes", "budget", "scheduled", "estimates", "risks", "positioned", "forecasts" "intends", "hopes", "believes" or variations of such words or comparable terminology and phrases or statements that certain actions, events or results "may", "could", "should", "shall", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are not based on historical facts, but rather on current predictions, expectations, beliefs, opinions, plans, objectives, goals, intentions and projections about future events, results of operations, prospects, financial condition and discussions of strategy. 

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. These events and circumstances include changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates, future business combinations or disposals, and any epidemic, pandemic or disease outbreak. If any one or more of these risks or uncertainties materialises or if any one or more of the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Such forward looking statements should therefore be construed in the light of such factors. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

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, other than in accordance with its legal or regulatory obligations, Balfour Beatty expressly disclaims any obligations or undertaking to update, or revise, any forward-looking statements in this report.

No statement in this report is intended as a profit forecast or profit estimate and no statement in this presentation should be interpreted to mean that Balfour Beatty's earnings per share for the current or future financial years would necessarily match or exceed the historical published earnings per share for Balfour Beatty.

This report does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this presentation does not constitute any advice or recommendation regarding any securities.

Group Income Statement

For the year ended 31 December 2024

Group Statement of Comprehensive Income

For the year ended 31 December 2024

^ Recycling of revaluation reserves to the income statement on disposal has no associated tax effect.

Group Statement of Changes in Equity For the year ended 31 December 2024