Final Results

Balfour Beatty PLC 6 March 2001 6 March 2001 BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2000 SUBSTANTIAL PROGRESS AGAINST KEY OBJECTIVES w Pre-tax profits* up by 69% at £86 million (1999: £51 million) w £11 million net exceptional profit from cables disposals w Earnings per share* more than doubled to 10.9p (1999: 5.1p) w £104 million net cash (1999: £84 million) - strong operating cashflow w Record order book of £3.3 billion w Acquisitions in rail and security systems strengthen core businesses w Total dividend up by 13% to 4.5p (1999: 4.0p) Building, Building Management and Services w Operating profits* up 50% to £39 million w All companies make profit progress Civil and Specialist Engineering and Services w Operating profits* up 13% to £27 million w Good progress in the US and in the UK specialist businesses Rail Engineering and Services w Operating profits* fall to £6 million due to losses in UK rail maintenance w New contract structure in place for recovery w £600 million plus worldwide business strengthened by acquisitions Investments and Developments w Operating profits* up 37% to £41 million w Three more private finance concessions converted from preferred bidder status * before exceptional items and goodwill amortisation Outlook 'We are a soundly based business, with a number of key strengths which, taken together, differentiate us clearly from our competition. We start the year with a record order book, a sound financial position and excellent morale. Overall, and most particularly in rail, we view the current year with real confidence. We expect to make further progress in creating and restoring value for our shareholders.' Viscount Weir, Chairman 6 March 2001 BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2000 Balfour Beatty plc, the international engineering, construction and services group, today announced pre-tax profits before exceptional items and before the amortisation of goodwill for the 12 months to 31 December 2000 of £86 million (1999: £51 million). Earnings per share before exceptional items and goodwill amortisation were 10.9p (1999: 5.1p). Pre-tax profits before goodwill amortisation were further increased to £97 million by an exceptional profit of £11 million arising from the transactions to sell the group's Brand-Rex data cable and Energy Cable businesses. £3 million of goodwill amortisation in respect of acquisitions was charged to group profits. Operating profits from the group's continuing operations were £113 million (1999: £98 million) before goodwill amortisation. Turnover from the group's continuing operations was £2,566 million (1999: £2,310 million). Year-end net cash stood at £104 million (1999: £84 million). The year-end order book stood at a record £3.3 billion. The Board recommends that an increased final dividend of 2.5p should be paid (1999: 2.0p), making a total dividend for the year of 4.5p (1999: 4.0p). In his statement to shareholders, Chairman, Viscount Weir, said: 'In 2000, our results in overall terms were satisfactory and generally met or slightly exceeded market expectations, in spite of having to carry the burden of a disappointing performance in rail maintenance. The substantial improvements in performance over 1999 were attributable both to changes in our business mix and to underlying profit improvements. 'We are a soundly based business with a number of key strengths which, taken together, differentiate us clearly from our competition. We start the year with a record order book, a sound financial position and excellent morale. Overall, and most particularly in rail, we view the current year with real confidence. We expect to make further progress in creating and restoring value for our shareholders.' Mike Welton, Chief Executive, commented: 'Balfour Beatty has four key objectives - creating sustainable forward momentum in our earnings; increasing our focus on markets where we have sustainable competitive advantage; strengthening our position in markets in which continuing growth can be predicted; and further developing the professional and innovative management of our business processes. In pursuing these goals, we keep a clear focus on our responsibilities to the wider community in which our business operates. 'In 2000, we made substantial progress against each of these objectives, improving both the quantity and quality of our earnings; divesting the last major part of the old cables business; acquiring good businesses to strengthen our position where we have core competence and where growth can be anticipated; and progressing our business process improvement programme. 'The group's excellent order book has grown to a new record level and its balance has further shifted towards longer-term contracts with more predictable margins struck with relationship customers.' Sector Performance Progress in Building, Building Management and Services was excellent, with profits improving by 50% to £39 million. All the businesses in the sector improved their performance, including the largest part, Balfour Beatty Construction. A continuing emphasis on the professional management of business processes was a major contributing factor. A first contribution from Integral and substantial improvements in the results of the recently rationalised Haden Building Management and Balfour Kilpatrick were also important factors. In Civil and Specialist Engineering and Services, a 13% improvement in profits arose largely as a result of strong progress in US civil engineering and continuing advances in the road maintenance, foundations and regional engineering businesses in the UK. Results in our Major Projects business continued to be disappointing. We broadened our presence in international markets with a new permanent joint venture company with the Koc Group in Turkey. In Rail Engineering and Services, profits fell sharply to £6 million. This was entirely attributable to the financial performance of our rail maintenance business, which was extremely disappointing. There were a number of factors involved. We have referred to the declining profit trend in our inherited RT1a maintenance contracts for some time. This trend continued throughout the year. During the year, the rebid process for contracts in the new target cost IMC 2000 format was completed. In this process, we have remained absolutely determined only to take contracts under terms which offer us an acceptable level of return. The new target cost IMC 2000 contracts begin in April. We will be operating three UK maintenance contracts with an approximate annual value of £125 million. These contracts more closely align the interests of the customer and the contractor and give us confidence that we can achieve acceptable margins going forward. Additionally, following the Hatfield accident, the industry was understandably preoccupied with the National Recovery Programme. Consequently, normal resolution of some commercial matters was delayed. It should be noted that we recognise profit on a conservative basis and we anticipate that the commercial situation will begin to return to normal in 2001. A third factor involved specific difficulties on one particular contract, which have now been resolved. Some of our large rail development projects are at early stages and anticipated profits are yet to be earned and recognised. In 2001, we also expect to benefit significantly from a full year's profit contribution from Marta Metroplex and Balfour Beatty Rail Power Systems, acquired last year, and from the more recent acquisition of ABC-NACO's rail systems division in the US. In Investments and Developments, profits rose by 37% to £41 million. This reflected both strong growth in income from fully operational PFI concessions and first time contributions from concessions becoming operational during the year. Barking Power's profits recovered in the second half of the year following the downturn in the first half arising from planned maintenance outages. Acquisitions, Investments and Disposals In March 2000, Brand-Rex, the data and speciality cable business, was sold for a consideration of £147 million. This substantially completed the disposal of the group's cablemaking interests. In consequence, it put us in a position to both focus on and expand our presence in selected engineering, construction and service markets. Rail The worldwide market for rail engineering and services is growing under the influence of rapid traffic growth, the development of mass transit systems, rail utility restructuring and increased investment from the private sector. Balfour Beatty entered the year already a major established force in this market. In May, we acquired Marta and Metroplex, two US trackwork specialists, for a combined consideration of up to $65 million. In February 2001, also in the US, we acquired the rail systems division of ABC-NACO, a signalling specialist, for $21.5 million. These companies provide Balfour Beatty with a strong presence in the US rail market where there is excellent growth potential and where procurement trends match our established capabilities in multi-disciplinary rail projects and engineering. In October, we acquired the rail electrification and traction power businesses of Adtranz (renamed Balfour Beatty Rail Power Systems) for a consideration of £94 million subject to a final balance sheet adjustment. This business has world-recognised technology and expertise, including electrification systems for the very highest speeds, and a substantial presence in continental Europe and Asia-Pacific. Its geography and technology make an excellent fit with our existing rail businesses. Following these acquisitions, our annual worldwide turnover in rail is expected to be in excess of £600 million. We offer a comprehensive range of skills from major rail infrastructure developments through electrification and power system design and installation, trackwork, rail renewals and component manufacture to maintenance and specialist plant supply. Building Management and Control Systems The market for the hardware and systems generically known as building management controls continues to grow. Our subsidiary, Andover Controls, has a leading position in the US market for these products and is further developing its presence in Europe and Asia. In June, Balfour Beatty acquired Integral Technologies Inc for a maximum consideration of up to $50 million. Integral provides products and technology based on digital imaging and CCTV for the security and surveillance industry. It complements Andover's range of access control products and increases its share of the fast-growing technology-driven security controls market where it can now offer customers a broad-based, integrated product and service mix. Privately Financed Projects The market for private finance and public private partnerships in the UK is developing steadily, with more than £20 billion of deals predicted over the next three years by the UK Government. Balfour Beatty was one of the first and is one of the most successful participants in this market. During 2000, we converted a further three projects from preferred bidder to full concession status. These were the £225 million project for the University College London Hospital, the £80 million Aberdeen Waste Water Project and the £153 million Stoke Schools project. We also increased our investment in Connect Roads through the purchase of an additional 20.3% interest previously held by Philipp Holzmann for a consideration of £5 million. This brings our total projected investment in our current projects up to £57 million. We continue to bid for concessions in a number of sectors, notably healthcare, education and transportation, and to pursue our interest in the public private partnership for the London Underground. Balfour Beatty's 11 current concessions, including Barking Power Station, are anticipated to generate significant profits. Business Process Improvement The construction sector offers enormous scope for the creation of competitive advantage and the growth of profit margins through business process improvement. It is the group's intention to maintain and further enhance the cost and value differentials it has achieved against its competitors. Balfour Beatty has a number of group-wide and operating company-specific initiatives under way, which are aimed at this objective. They include the reduction in supplier numbers and the further development of a preferred supplier network; increasing use of the operations and site-working process blueprint, 'The Way We Work', introduced by the UK construction business in 1998; the development of an e-commerce platform to reduce transaction costs; the development of a knowledge management system; and the introduction of an enhanced business-based risk identification, evaluation and management system. Corporate Responsibility Balfour Beatty is determined to fulfil its full range of responsibilities to shareholders, customers, employees, suppliers and the communities in which it operates. A number of initiatives have been taken this year in this respect, including comprehensive, independent audits of our safety and environmental performance, the review and restatement of our policy in a number of relevant areas and the introduction of an enhanced comprehensive risk management system across the group. Cash Strong operating cash flow continued to be a characteristic of our operating businesses. The cash proceeds of the Brand-Rex sale were almost exactly matched by the cash outlay on acquisitions during the course of the year. Despite some expenditure on outstanding provisions in respect of the Energy Cables sale and approximately £15 million spent on the share buy-back programme, year end net cash stood at £104 million (up by £20 million on a year ago). Share Buy-Back At the EGM in March 2000, we obtained shareholders' approval, following the disposal of Brand-Rex, to purchase both ordinary and convertible preference shares, subject to market conditions, to a minimum cost of £40 million and on an equitable basis between the two classes of share. By year end we had purchased 6,469,274 ordinary and 7,257,629 convertible preference shares at a cost of £7 million and £8 million respectively. Approval will be sought at the time of the AGM to continue the purchase of both ordinary and convertible preference shares. Hatfield Shareholders will be aware that we were the maintenance contractor for the East Coast Main Line at the time of the tragic Hatfield accident which occurred in October last year. We are, of course, co-operating fully with all the investigating authorities and conducting our own detailed internal investigation to determine the exact chain of events which led to the derailment. There has been much premature and often misleading speculation on this subject. Balfour Beatty had recommended replacement of the rail in question some time prior to the accident. Balfour Beatty's responsibilities did not include planning or executing the rerailing work or remedial grinding, which were the subject of separate contractual arrangements between other parties. The Board Paul Lester and Jim Cohen joined the Board in February 2000. They are the executive Directors respectively responsible for Building, Building Management and Services and for Rail Engineering and Services together with Investments and Developments. Malcolm Eckersall, who is mainly responsible for Civil and Specialist Engineering and Services, joined the Board in June. We therefore now have an excellent executive team in place. In August, Sir David John joined the Board as a non-executive Director. He is Chairman of BOC plc, among other important past and present appointments, and brings to us very valuable corporate experience in many areas. Outlook The outlook for the group's main markets is currently positive. Growth in expenditure on rail, private finance, outsourced services, asset management, US infrastructure and integrated building and building services is established and is likely to continue. There now seems a real prospect that the UK major infrastructure market will also expand. We anticipate that our recent acquisitions will make good profit contributions during 2001. Further, our strong cash position allows us to continue to pursue acquisitions and a number of small to medium sized opportunities in key areas are currently being evaluated. We will continue to look only at opportunities which extend our existing core skills into new geographical or technological areas and which already have competent, largely self-contained management teams. We are determined in our commitment to sound finances, prudent disciplines and process improvements throughout the group. We remain committed to increasing long-term shareholder returns by improving the quality of our earnings and sustaining earnings growth. ENDS Enquiries to:- Mike Welton, Chief Executive Ian Tyler, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * Media can download high resolution images from NewsCast at www.newscast.co.uk from 12 noon. * * * * * * * * BALFOUR BEATTY PLC GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 December 2000 Before Except- Total Before Except- Total except- ional except- ional ional items ional items items (Note items (Note 3) 3) Notes 2000 2000 2000 1999 1999 1999 £m £m £m £m £m £m TURNOVER INCLUDING SHARE OF JOINT VENTURES AND 2 2,603 - 2,603 2,904 - 2,904 ASSOCIATES Share of turnover of (83) - (83) (97) - (97) joint ventures Share of turnover of (178) - (178) (172) - (172) associates GROUP TURNOVER 2,342 - 2,342 2,635 - 2,635 Continuing operations 2,233 - 2,233 2,070 - 2,070 Acquisitions 72 - 72 - - - Discontinued operations 37 - 37 565 - 565 GROUP OPERATING PROFIT 57 - 57 41 (12) 29 Share of operating profit 30 - 30 23 - 23 of joint ventures Share of operating profit 24 - 24 26 - 26 of associates OPERATING PROFIT 2 INCLUDING SHARE 111 - 111 90 (12) 78 OF JOINT VENTURES AND ASSOCIATES Operating profit before 114 - 114 90 (12) 78 goodwill amortisation Goodwill amortisation (3) - (3) - - - Continuing operations 104 - 104 98 (5) 93 Acquisitions 6 - 6 - - - Discontinued operations 1 - 1 (8) (7) (15) Fundamental restructuring - - - - (2) (2) costs Net profit/(loss) on sale - 11 11 - (446) (446) of operations Provision for loss on sale of Telecommunication - - - - 26 26 Cable businesses PROFIT/(LOSS) BEFORE 111 11 122 90 (434) (344) INTEREST Net interest payable and similar charges: Group 2 (12) Share of joint ventures' (20) (17) interest Share of associates' (10) (10) interest PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 94 (383) Taxation 4 (23) 4 PROFIT/(LOSS) AFTER 71 (379) TAXATION Minority equity interests - 1 PROFIT/(LOSS) FOR THE 71 (378) FINANCIAL YEAR Dividends: Preference (17) (17) Ordinary (19) (17) TRANSFER TO/(FROM) 35 (412) RESERVES ADJUSTED EARNINGS PER p p ORDINARY SHARE 10.9 5.1 Goodwill amortisation (0.6) - Exceptional items after 3 2.5 (98.9) attributable taxation and minority interests EARNINGS/(LOSS) PER 5 12.8 (93.8) ORDINARY SHARE DILUTED EARNINGS/(LOSS) PER ORDINARY SHARE 5 12.8 (93.8) DIVIDENDS PER ORDINARY 9 4.5 4.0 SHARE STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2000 1999 For the year ended 31 December 2000 £m £m Profit/(loss) for the financial year 71 (378) Exchange adjustments 1 2 Reduction in fixed asset revaluation surplus - (2) Prior year adjustment - (8) TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR 72 (386) GROUP BALANCE SHEET 2000 1999 At 31 December 2000 £m £m FIXED ASSETS Intangible assets - goodwill 168 3 Tangible assets 124 161 Investments in joint ventures Share of gross assets 503 352 Share of gross liabilities (444) (316) 59 36 Investments in associates 39 37 390 237 CURRENT ASSETS Stocks 81 81 Debtors - due within one year 554 555 - due after one year 85 88 Cash and deposits 192 158 912 882 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Borrowings (71) (51) Other (927) (834) NET CURRENT LIABILITIES (86) (3) TOTAL ASSETS LESS CURRENT LIABILITIES 304 234 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Borrowings (17) (23) Other (48) (44) PROVISIONS FOR LIABILITIES AND CHARGES (82) (84) 157 83 SHAREHOLDERS' FUNDS 156 82 MINORITY EQUITY INTERESTS 1 1 157 83 Shareholders' funds include non-equity shareholders' funds of £170m (1999: £ 177m) GROUP CASH FLOW STATEMENT Notes 2000 1999 For the year ended 31 December 2000 £m £m Net cash inflow/(outflow) from operating activities 7 105 (14) Dividends from joint ventures and associates 14 13 Returns on investments and servicing of finance (17) (30) Taxation (5) (4) Capital expenditure and financial investment (38) (43) Acquisitions and disposals of businesses (11) 310 Ordinary dividends paid (17) (25) Cash inflow before use of liquid resources and financing 31 207 Management of liquid resources (7) 16 Financing - buy-back of ordinary and preference shares (15) - - new loans/(loans repaid) 23 (224) Increase/(decrease) in cash in the period 32 (1) NOTES 1. BASIS OF PRESENTATION The accounts have been prepared under the historical cost convention, modified for the revaluation of certain land and buildings, and comply with all applicable accounting standards and the Companies Act 1985. There have been no changes in accounting policies since the previous year. On implementing FRS 15 'Tangible Fixed Assets' the Group has not adopted a policy of revaluation and has taken advantage of the transitional arrangements of FRS 15 and retained the book amount of previously revalued assets. 2. SEGMENT ANALYSIS Operating profit before Turnover exceptional Capital items employed 2000 1999 2000 1999 2000 1999 £m £m £m £m £m £m TOTAL GROUP, INCLUDING SHARE OF JOINT VENTURES AND ASSOCIATES Building, building management and 1,017 923 39 26 (141) (94) services Civil and specialist engineering and 1,011 922 27 24 (8) (14) services Rail engineering and services 439 351 6 18 (6) 14 Investments and developments 99 114 41 30 70 60 2,566 2,310 113 98 (85) (34) Discontinued operations 37 594 1 (8) - 57 2,603 2,904 114 90 (85) 23 Goodwill amortisation (3) - Operating profit 111 90 Net interest payable (28) (39) Profit before tax and exceptional 83 51 items Net cash 104 84 Goodwill (including share of joint ventures and 175 3 associates) (37) (27) Tax and dividends 157 83 The Brand-Rex cable businesses sold in March 2000 and the Energy Cable and Telecommunication Cable businesses sold in 1999 have been classified as discontinued. Goodwill amortisation arose in Building, building management and services £ 0.7m (1999: nil), Civil and specialist engineering and services £ 0.3m (1999: £0.1m) and Rail engineering and services £ 1.8m (1999: nil). Goodwill arises in Building, building management and services £ 29m (1999: nil), Civil and specialist engineering and services £ 7m (1999: £3m), Rail engineering and services £ 138m (1999: nil) and Investments and developments £ 1m (1999: nil). 3. EXCEPTIONAL ITEMS 2000 1999 £m £m Charged against operating profit: Rationalisation of cable businesses - (7) Reorganisation of head offices - (3) Bid defence costs - (2) - (12) Fundamental restructuring costs - (2) Net profit/(loss) on sale of operations 11 (446) Provision for loss on sale of Telecommunication Cable businesses - 26 11 (434) In 2000, the net profit on sale of discontinued operations arose on the disposal of the Brand-Rex cable businesses (£ 20m after charging goodwill of £ 53m, previously written off to reserves) less further losses arising from the disposal in 1999 of the Energy Cable businesses and related costs (£ 9m). In 1999, the net loss on sale of operations arose on the disposal of the Energy Cable and Telecommunication Cable businesses. Goodwill of £295m was charged in respect of the Energy Cable businesses and £26m (previously provided in 1998) in respect of the Telecommunication Cable businesses. Exceptional items charged against operating profit in 1999 comprised the costs of rationalising the discontinued cables businesses £7m, the reorganisation of head offices £3m and bid defence costs £2m, each of which arose in Europe. Fundamental restructuring costs of £2m in 1999 related to the discontinued cables businesses. Exceptional items had no effect on the Group's tax charge in 2000 (1999: £18m reduction) and had no effect on minority interests in 2000 and 1999. 4. TAXATION 2000 1999 £m £m UK Corporation tax at 30% (1999: 30.25%) 9 (8) Double tax relief (1) (1) 8 (9) Deferred taxation 5 (6) 13 (15) Share of joint ventures' taxation 1 2 Share of associates' taxation 4 4 18 (9) Foreign Current taxation 2 5 Deferred taxation 1 (1) 3 4 Share of joint ventures' taxation 2 - Share of associates' taxation - 1 5 5 Taxation charge/(credit) 23 (4) 5. EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on the profit for the financial year, after charging preference dividends, divided by the weighted average number of ordinary shares in issue during the year of 419.3m (1999: 421.4m). The calculation of diluted earnings per ordinary share is based on the profit for the financial year, after charging preference dividends, divided by the weighted average number of ordinary shares in issue, adjusted for the conversion of share options by 1m (1999: nil). As in 1999, no adjustment has been made in respect of the conversion of the cumulative convertible redeemable preference shares, which were antidilutive throughout the year. Adjusted earnings per ordinary share before goodwill amortisation and exceptional items have been disclosed to give a clearer understanding of the Group's underlying trading performance. 6. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2000 1999 £m £m Profit/(loss) for the financial year 71 (378) Dividends (36) (34) 35 (412) Other recognised gains and losses (net) 1 2 Goodwill 53 295 Reduction in fixed asset revaluation surplus - (2) Buy-back of ordinary and preference shares (15) - 74 (117) Opening shareholders' funds 82 207 Prior year adjustment - (8) Closing shareholders' funds 156 82 7. NOTES TO THE CASH FLOW STATEMENT 2000 1999 £m £m (a) Net cash inflow from operating activities comprises: Group operating profit before exceptional items 57 41 Depreciation 32 39 Goodwill amortisation 3 - Profit on disposal of fixed assets (5) (1) Exceptional items - cash expenditure (20) (46) Working capital decrease/(increase) 38 (47) Net cash inflow/(outflow) from operating activities 105 (14) 2000 1999 £m £m (b) Analysis of movement in net cash/(borrowings) Opening net cash/(borrowings) 84 (129) Cash flow 16 207 Disposals of businesses - debt at date of disposal 6 6 Exchange adjustments (2) - Closing net cash 104 84 2000 1999 £m £m (c) Reconciliation of cash flow movement to movement in net cash/ borrowings 32 (1) Increase/(decrease) in cash in the period (23) 224 Cash (inflow)/outflow from increase/decrease in borrowings and minority redeemable capital 7 (16) Cash outflow/(inflow) from increase/decrease in term deposits Change in net cash/debt resulting from cash flows 16 207 Disposals of businesses - debt at date of disposal 6 6 Exchange adjustments (2) - Movement in net cash/borrowings 20 213 8. POST BALANCE SHEET EVENT On 26 February 2001 the Group acquired the Rail Systems Division of ABC - NACO for a total consideration of US $ 21.5m all of which was paid on completion. 9. DIVIDEND PAYMENT Subject to approval at the Annual General Meeting on 2 May 2001, the final dividend of 2.5p (1999: 2.0p) per ordinary share will be paid on 2 July 2001 to ordinary shareholders on the register on 4 May 2001 by direct credit or, where no mandate, by warrants posted on 29 June 2001. A preference dividend of 5.375p gross (4.8375p net) per preference share will be paid in respect of the six months ending 30 June 2001 on 1 July 2001 to preference shareholders on the register on 18 May 2001 by direct credit or, where no mandate, by warrants posted on 29 June 2001. ************************************* The financial information set out above (which was approved by the Board on 5th March 2001) does not constitute the Company's statutory accounts. The statutory accounts for the year ended 31 December 2000 (from which this financial information has been extracted) will be filed with the Registrar of Companies following the Annual General Meeting. The auditors' report on these accounts was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985.

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