Balfour Beatty plc Annual Report and Accounts 2013

RNS Number : 1237D

Balfour Beatty PLC

25 March 2014

 



Balfour Beatty plc Annual Report and Accounts 2013, Notice of 2014 Annual General Meeting and Class Meeting of Preference Shareholders, Forms of Proxy and Notice of availability of documents

Pursuant to Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority (the "UKLA"), and will shortly be available for inspection at the UKLA's Document Viewing Facility, via the National Storage Mechanism, which is located at http://www.hemscott.com/nsm.do:

·    The Company's Annual Report and Accounts for the year ended 31 December 2013 (Annual Report 2013);

·    The Notice of 2014 Annual General Meeting ("AGM") and Class Meeting of Preference Shareholders ("Class Meeting");

·    Forms of Proxy for AGM and Class Meeting; and

·    Notice of availability of Annual Report 2013 and Notice of AGM and Class Meeting.

Copies of the Annual Report 2013, the Notice of 2014 AGM and Class Meeting can also be viewed on the Company's website, www.balfourbeatty.com.

The printed Annual Report 2013, the Notice of 2014 AGM and Class Meeting and the relevant Form of Proxy have now been sent to those shareholders who have elected to continue to receive paper copies.  Shareholders who have not elected to continue to receive paper copies have been sent the relevant Form of Proxy and a Notice of availability of the Annual Report 2013 and Notice of AGM and Class Meeting.

The Independent Auditor's Report on the financial statements of the Company for the year ended 31 December 2013, which comprise the Group and Company income statements, the Group and Company statements of comprehensive income, the Group and Company balance sheets, the Group and Company statements of changes in equity, the Group and Company statements of cash flows, and the related Notes 1 to 41, is set out in full on page 86 of the Annual Report 2013.

The Annual Report 2013 submitted to the UKLA today also contains information regarding the Company's principal risks.

This material should be read in conjunction with, and is not a substitute for, the full Annual Report 2013.  Page and note references in the text below refer to page numbers in the Annual Report 2013.

Principal risks

Operating in many different business environments and territories inevitably entails risks and uncertainties that are not necessarily within our control. Although we cannot eliminate such risks and uncertainties completely, we have established risk management and internal control systems and procedures to manage their impact. The Board believes that our risk management and internal control systems will help us to identify such risks and respond in a timely manner.

The principal risks that could adversely impact our profitability and ability to achieve our strategic objectives are set out below.

Health AND Safety is paramount to everything we do across our business.

HEALTH AND SAFETY	No change to Risk −
Risk description We work on significant, complex and potentially hazardous projects which require continuous monitoring and management of health and safety risks.	What impact it might have Failure to manage these risks could result in harm to, or even death of, employees, subcontractor staff and members of the public, as well as potential criminal prosecutions, debarment and reputational damage.
How the risk may manifest itself Some common themes where health and safety risks have arisen are recognised and communicated, including: ·  Risk of poor risk identification/assessment ·  Risk of not having processes that promote risk elimination or mitigation ·  Failure to deliver management leadership/'Tone at the Top' ·  Management of subcontractors ·  Not briefing people properly before setting them to work ·  Failure to follow procedures ·  Debarment for safety failures.	How it is mitigated We have detailed health and safety policies and procedures to minimise such risks. These are reviewed and monitored by management and external verification bodies. Each division has experienced health and safety professionals who provide advice and support and undertake regular reviews. A Safety Executive committee meets regularly throughout the year to develop a consistent approach to health and safety best practice. In 2013, in response to an unacceptable level of fatalities, serious injuries and near misses, we initiated work on implementing our Global Safety Principles. The way we work p38

Key operational business risks we face as part of our project lifecycle.

ECONOMIC ENVIRONMENT	Increased Risk é
Risk description The continued or residual effects of the global economic downturn, or other national or market trends or new developments in infrastructure expenditure or procurement, may cause our clients to postpone, reduce or change existing or future projects, which may impact our strategy, business model, revenue or profitability in the short or medium term.	What impact it might have Any significant changes in the level or timing of client spending or investment plans could adversely impact our future order book. Such changes could arise from changes in government policy or clients' failure to secure financing for future projects or for future stages of existing projects. Failure of a client, including any government or public sector body, could result in non collection of amounts owed.
How the risk may manifest itself We may fail to anticipate or assess national or market events and developments, their potential negative impact, or the opportunities they present. Such events or developments, whether or not anticipated or correctly assessed, could lead to: ·  Cash pressures for clients and suppliers ·  Increased competition (eg in the UK from other EU countries) ·  Supply chain failure risk ·  Reduced revenue or pressure on margins. These risks may also be triggered or exacerbated by the need, actual or perceived, to pursue work in a declining market.	How it is mitigated The Group's strategy to focus on the more resilient and stable infrastructure markets will help mitigate this risk. The effect of spending changes in any one market is mitigated by our broad exposure to infrastructure markets across the globe and the continued need for infrastructure spending. We also mitigate the effects of such market conditions by continuing to adapt our business model, overheads and efficiency. The financial solvency and strength of counterparties is always considered before contracts are signed and is a specific focus in the current economic climate. During the life of a contract such assessments are updated and reviewed whenever possible. We also seek to ensure that we are not over reliant on any one counterparty.

BIDDING	Increased Risk é
Risk description Through our different divisions we seek to win profitable work through a large number of bids. In some cases we bid in joint venture with carefully selected partners, often to help us manage or spread risks, especially where we want to augment our expertise or knowledge of the relevant market. We also invest in PPP and infrastructure investments, where success depends on a number of assumptions made, at the time of investment, on future revenues and costs. Our success depends on our ability to identify, price and execute the right volume and quality of bids to maintain a profitable, sustainable order book. This in turn requires that we have a competitive business model and overheads.	What impact it might have Failure to estimate accurately the risks, costs, time to complete, impact of inflation and contractual terms and how best to manage them could diminish profitability of contracts. In the event of disagreement with, failure of, or poor delivery performance by a joint venture partner, we could face financial and reputational risks. If any of the assumptions behind investment decisions prove incorrect, the profitability of those investments could be reduced.
How the risk may manifest itself ·  Unrealistic programme ·  Incorrect pricing ·  Overambitious budgets ·  Bidding at too low a margin ·  Poor partner selection ·  Client credit and late payment risks ·  Partner and subcontractor performance and credit risks ·  Inability to make profit from non-PPP investments and other new work types ·  Failure to ensure our overhead structure remains competitive.	How it is mitigated All bids are subject to rigorous estimating and tendering processes within a defined framework. We have defined delegated authority levels for approving all tenders and infrastructure investments. All major and significant contracts above those authority levels are subject to Group review and approval by the Group Tender and Investment Committee (GTIC).   Governance p61 We conduct reviews following successful and unsuccessful tenders to ensure we learn from them and apply those lessons to future tenders. Before entering into a joint venture agreement we have procedures for reviewing the relevant skills, experience, resources and values of joint venture partners to understand how they complement ours. Investment appraisals are performed and reviewed by experienced professionals. We analyse the risks associated with revenues and costs and, where appropriate, establish contractual and other risk mitigations.

PROJECT EXECUTION	No change to Risk −
Risk description We work on complex design, engineering, construction and asset management projects. If we fail to deliver them on time, to clients' requirements, and in accordance with our own cost assumptions and reporting, we face the risk of financial loss, claims and reputational damage. Successful delivery of many of these projects depends on the successful implementation and maintenance of a range of operational and commercial procedures and controls, backed up by appropriate training, clear accountabilities and oversight, accurate, realistic and timely reporting, and regular audit and review. It also depends on the combined availability and effective management of sub contractors and other service providers. Finally, it relies upon many complex, technical and commercial judgements and estimates regarding cost, value, progress and likely or practicable outcomes.	What impact it might have Failure to manage or deliver against contracted client requirements on time and to an appropriate quality could result in issues such as contract disputes, rejected claims, design issues, cost overruns or failure to achieve client savings - which in turn harm our profitability and reputation. Execution failure on a high profile project could result in significant reputational damage and costs.
How the risk may manifest itself ·  Unrealistic progress assessments ·  Overestimating our ability to recover claims within the timeframe or in the amounts estimated ·  Incomplete visibility and appreciation of scale of commercial judgements ·  Inaccurate, incomplete cost and value data or failure to analyse and report correctly, which could arise due to poor training, lack of supervision, lack of accountability or a project manager's or project team member's fear of reporting bad news ·  Inadequate experienced, independent challenge from support functions such as commercial, operations, finance etc.	How it is mitigated Each business area has defined operating procedures to address the risks inherent in project delivery. In addition, the Group risk management framework aids identification and quantification of specific risks on projects and the mitigating actions required. Projects are subject to management, commercial function and internal audit review at all levels to monitor progress and to review steps put in place to address specific risks identified on those projects. We also have public indemnity cover to provide further safeguards. We monitor the performance of joint ventures, joint venture partners, sub contractors and suppliers throughout the life of a project.

SUPPLY CHAIN RISKS	Increased Risk é
Risk description We are heavily reliant on our supply chain partners for successful operational delivery, which means we are also exposed to a variety of risks in the supply chain, including financial, technical, quality, safety and ethics.	What impact it might have Failure of a subcontractor or supplier would result in the Group having to find a replacement or undertaking the task itself. This could result in delays and additional costs. We will be commercially as well as reputationally responsible for performance shortcomings by suppliers and subcontractors, whether in terms of quality, safety, technical or ethical standards. Mistreatment of suppliers, subcontractors and their staff by us, or poor ethical standards in the supply chain, could lead to significant reputational harm for us.
How the risk may manifest itself ·  Supply chain failure risk, exacerbated during, and when emerging from, tough economic conditions ·  A subcontractor's failure to perform to an appropriate standard and quality, which could cause project delays, reducing our ability to meet contractual commitments and harming our reputation ·  Supply chain operating to lower standards (safety, ethics, quality, timber, child labour, forced labour) ·  Failure to deliver targeted UK procurement savings ·  Ethical treatment of the supply chain.	How it is mitigated We aim to develop long term relationships with key subcontractors, working closely with them to understand their operations. We develop contingency plans to address subcontractor failure, and also obtain project retentions, bonds and/or letters of credit from subcontractors, where appropriate to mitigate the impact of any insolvency. We aim to work as much as possible with preferred suppliers and subcontractors who undergo rigorous, risk-based prequalification processes and share our values. We aim to avoid becoming over reliant on any one supplier or subcontractor.

Important risks we face, common to many other businesses.

PEOPLE	Increased Risk é
Risk description Our inability to recruit and retain the best management and employees who have the appropriate competencies and also share our values and behaviours may hamper our growth prospects.	What impact it might have Failure to recruit and retain appropriately skilled people could harm our ability to win or perform specific contracts and grow our business.
How the risk may manifest itself ·  Failure to attract and retain skilled staff ·  Distraction and impact on morale of change programmes ·  Inability to successfully promote the right people through succession planning ·  Commercial and project management quality/performance ·  New staff unfamiliar with culture and procedures ·  Lack of a diverse workforce ·  Bullying and harassment ·  Loss of former staff with traditional bidding and execution skills ·  Staff dissatisfaction and loss of loyalty/engagement caused by termination of defined benefit pension plan.	How it is mitigated We measure all potential recruits for key roles in the organisation against a competency and leadership framework. Divisions undertake organisation and people reviews to review the roles, competencies, performance and potential of personnel. We have a well-developed succession planning process to identify and develop high potential personnel to fill key roles. These plans are reviewed regularly and discussed at all levels within the organisation and by the Board. We have appropriate remuneration and incentive packages to help us attract and retain key employees.   The way we work p40

BUSINESS CONDUCT/COMPLIANCE	Increased Risk é
Risk description We operate in various markets that may present business conduct-related risks involving, for example, fraud, bribery or corruption, whether by our own staff or via third parties such as partners or subcontractors. Those risks are higher in some countries and markets than others but cannot be ignored or underestimated even in low risk countries.	What impact it might have Failure by the Group, our employees and third parties acting on our behalf or in partnership with us to observe the highest standards of integrity and conduct could result in civil and/or criminal penalties, debarment and reputational damage.   The way we work p39
How the risk may manifest itself ·  Corruption ·  Bribery ·  Fraud/false claims ·  Fair competition ·  Human rights abuses, such as child and other labour standards generally, illegal workers and human trafficking ·  Unethical treatment of and by the supply chain ·  Other emerging ethical risks ·  Risk of ethics and values being compromised when times are tough, not just in high risk markets.	How it is mitigated Throughout the Group we take a rigorous approach to assessing and addressing corruption risks. We have a variety of programmes to promote compliance with our Code of Conduct published online and in areas such as competition and false claims fraud. Each business area has a compliance officer responsible for the application and monitoring of these programmes. The risk of business conduct/compliance breaches by third parties with whom we work is harder to control, but we have a range of risk assessment, due diligence and procurement controls that are designed to identify and minimise such risks. We work with very few agents, all of whom undergo a rigorous due diligence and approval process.
LEGAL AND REGULATORY	No change to Risk −
Risk description We operate in diverse territories and our businesses are subject to a variety of complex, demanding and evolving legal, tax and regulatory requirements.	What impact it might have A breach of local laws and regulations could lead to legal proceedings, investigations or disputes resulting in business disruption ranging from additional project costs to potential debarment and reputational damage. Increasingly, businesses are the target of cyber crime, which can result in loss of confidential, personal or commercial data, disruption to operations and associated costs. Sometimes we may be the target of state-sponsored cyber activities because of who our clients are, rather than because our business is a particular target.
How the risk may manifest itself ·  Data protection and privacy ·  Information security lapse ·  Cyber crime ·  Government/regulatory enquiry and enforcement actions ·  Local procurement laws ·  Debarment or blacklisting.	How it is mitigated We monitor and respond to legal and regulatory developments in the territories where we operate. We consider the local legal and regulatory framework as part of any Group decision to conduct business in a new country. We have data protection and information security programmes across the Group, and cyber crime and other information security risks are assessed on a continual basis.

EXPANSION INTO NEW TERRITORIES AND MARKETS AND BY ACQUISITION		Reduced in Risk  ê
Risk description In pursuit of our strategic objectives, we may seek to enter new territories, markets or sectors and continue to make acquisitions. Although this results from a careful and deliberate balancing of opportunity and risk, it has the potential to expose the Group to risks that it may not have encountered before or does not fully understand.	What impact it might have Failure to identify, understand and evaluate the risks of conducting business in a new territory, market or sector could lead to significant financial loss and reputational damage. Failure to recognise the expected benefits from acquisitions and to integrate acquired businesses successfully into the Group's processes could result in an adverse impact on our strategic objectives, future prospects, financial condition and profitability.
How the risk may manifest itself New geographies ·  Political, security, safety and ethical risks, as well as the risk that economic, market and other risks mentioned elsewhere and the means of mitigating them are less well understood New sectors and work-types ·  Higher risk/higher return design/build projects Acquisitions and partnerships ·  Integration of acquisitions and performance to business plan ·  Partner performance, creditworthiness and ethics Inherited liabilities ·  Problem liabilities ·  Unethical past practice ·  Unaccounted for liabilities eg tax.	How it is mitigated New geographies As part of the decision making process before entering a new territory, we undertake a detailed country and sector risk assessment. This will consider and assess the prevailing economic, political, regulatory, ethical, health, safety and sustainability conditions to ensure that we can operate there in line with our own values and standards. Acquisitions and partnerships We undertake detailed due diligence on all potential acquisitions and partnerships (such as joint ventures and consortia) to ensure that all aspects of their business align with ours. In many cases, we have worked with these businesses before. In addition, we prepare valuation models on all potential acquisitions, drawing on both internal and external resources. Due diligence includes an assessment of our ability to integrate the acquired businesses successfully into the Group. When a business is acquired, we actively work with it to ensure the business is successfully assimilated into the Group and its internal control framework.

SUSTAINABILITY	Increased Risk é
Risk description Through our activities we can impact either positively or adversely the world in which we operate and the communities with which we come into contact.	What impact it might have Failure to address these risks and to execute projects sustainably could result in significant potential liabilities, reputational damage and inability to win future work.
How the risk may manifest itself ·  Environmental incident ·  Inaccurate greenhouse gas data may mean we are unaware of our actual impact ·  Inaccurate carbon reduction commitment data and other data in sustainability reporting may leave us exposed to unacceptable damage, fines etc ·  Unethical/unsustainable sourcing (eg timber, forced labour, child labour) ·  Insufficient management support and monitoring to achieve our agreed KPIs in this area.	How it is mitigated Our sustainability strategy covers our operations until 2020 in terms of profitable markets, healthy communities and environmental limits. Sustainability issues such as climate change adaptation are considered in risk management activities at divisional as well as project level.   The way we work p41 to p42

We also face significant risks and uncertainties that are common to many companies - including financial and treasury risks, the management of pension liabilities, information security risks, business continuity and crisis management and hazard risks.

 

END

 

 

ACSPGUWWWUPCGPA