Financial Information

Jacobs UK and Halcrow Group Ltd (HGL) Financial Statements Year ended 01 October 2021 and HPS2 Trustee Annual Report ended 31 December 2021

Halcrow Group Ltd
The Financial Statement to 1st October 2021 was released at Companies House on 2nd August 2022. As stated last year (2020 financial statement), it appears the process of winding down HGL has started in earnest. Turnover in the year was only £2.1m, whereas in the prior 9 months it was £174m. Notably the largest proportion of turnover was in the Middle East at £1.6m – possibly resulting from the size and longevity of on-going contracts there. A mere 5 tech and professional staff remained allocated to HGL at October 2021 while in October 2020 there were 1760. New projects and the remaining staff have been progressively allocated to the Jacobs UK business. It cannot be too long before HGL is fully closed: A sobering thought for ex- Halcrovians. It remains unclear what assets were retained by HGL when the majority were taken on by Jacobs UK in October 2020, including of course the sponsorship of HPS2. This is the first reporting year where HPS2 has been under the sponsorship of Jacobs UK and there is now no mention or reporting of HPS2 in the HGL Notes to the Financial Statements.

Jacobs UK
We continue to report a summary comparison between the four main Defined Benefit (DB) pension schemes that Jacobs UK sponsor in Table 1 below. A fifth DB scheme (ex Halcrow, HGA) known as MEDA is excluded as it is very small. This is a helpful way to gauge the relative performance and stability of HPS2 alongside Jacobs UK other three main DB schemes. To remind readers, the four schemes are HPS2, Babtie, Jacobs Engineering UK and Allott & Lomax. Since September 2022, all five schemes have been brought under a single corporate Trustee Board known as Jacobs Four Limited (formerly only for the Babtie scheme):

Table 1 * HPS2 Summary Funding Statement May 2022 at December 2021 prices has different figures

The HPS2 Summary Funding Statement May 2022 stated that the Target Funding level was £686.5m or a £5.4m deficit albeit at December 2021 prices, as opposed to the figures above. The difference between the definition of “Target Funding level” and “Defined Benefit Liabilities” is assumed to be that the latter is a standard accounting requirement whilst the former is the Trustee’s preferred target allowing for some contingency on the defined benefit liabilities.

The HPS2 % surplus in Table 1 is significantly better than the other three where Babtie continues to report a deficit since 2020 with the other two reporting reduced % surpluses to HPS2.  The Fair value of Assets is down from 2020 on the Jacobs Engineering and Allott & Lomax schemes and is broadly neutral on Babtie and HPS2. The Defined Benefit Liabilities are tending to reduce year on year for all four schemes, probably following the general trend in reducing membership numbers. Of interest to the relative performance of all four schemes, the Jacobs UK Engineering, Babtie, and Allot & Lomax schemes at October 2021 had markedly different investment strategies to HPS2 as Table 2 below demonstrates: 

Table 2 Note not all investment categories shown so % does not add to 100%

Both Jacobs Engineering and Babtie have very comparable investment strategies (the same Trustees?) whilst HPS2 and Allott & Lomax stand out with their respective heavy weightings in Bonds and Insured Annuities respectively with both having minimal cash positions. The conclusion that could be drawn is that the HPS2 positive performance to October 2021 has been driven by its focus on Bonds. It remains to be seen how this plays out up to October 2022 during the current volatility and uncertainty in financial markets when both equities and bond prices have generally fallen.

Mindful of the current significant inflationary pressures, we wrote in July 2022 to the chair of the HPS2 Trustee/Jacobs UK to seek their consideration for a discretionary increase in the pre-April 1997 service pension provision that would normally attract a zero % annual increase. Given the positive performance of HPS2, the timing of such a request we felt was timely.  You may have seen their negative reply in November 2022, which has been posted on the HPS2 website and emailed to HPS2 membership and stated that "Jacobs considers it is important to focus its contributions to ensure beneficiaries’ entitlements are securely funded, ahead of increasing the liabilities of the Scheme by paying discretionary increases to pensions. Since the Trustee and Company's funding objectives have not yet been fully achieved the Company will not be funding a discretionary increase at this time". Further questions have been asked and we await a reply.

HPS2 Trustee Annual Report 31 December 2021
The above report was issued in August 2022. Essentially this reports similar information to the Jacobs UK Financial Statements above but at the end of December 2021, this being the anniversary of the HPS2 Trustee reporting cycle. It is unfortunate that the company and HPS2 reporting cycles differ by three months. Whilst similar, this does report in further detail on the investment strategy and performance, Jacobs UK contributions to HPS2 and of particular note, the membership numbers. Table 3 below shows the membership numbers at 31 December 2021, indicating a net increase in pensioners of 7 and a net reduction in deferred members of 48 since last year. This trend will continue year on year as the membership cohort age, with deferred becoming pensioners and some pensioners unfortunately passing away.

Table 3
Jacobs UK contribution to HPS2 was £5.492m, in accordance with the agreed recovery plan. This was split six months to 01 July 2021 at the previously agreed contribution level of £8.73m per year and the latter 6 months at the newly agreed contribution level of £2.256m per year. The next triennial review will be prepared effective 31st December 2022 and will reflect the recent changes in the financial markets and other changes.