Final Results
Balfour Beatty PLC
10 March 2004
10 March 2004
BALFOUR BEATTY PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2003
ANOTHER YEAR OF PROGRESS IN BUILDING SHAREHOLDER VALUE
Financial Summary
• Pre-tax profits* up by 10% at £130 million (2002: £118 million)
• Earnings per share* up by 28% at 20.6p (2002: 16.1p)
• Strong operating cash performance
• Increase in year-end net cash to £124 million (2002: £67 million)
• Final dividend of 3.4p. Full-year dividend of 6.0p (2002: 5.4p)
* before £5 million exceptional profit (2002: £9 million loss) and
goodwill amortisation £17 million (2002: £21 million) which
reconciles with profit before tax, but after goodwill amortisation
and exceptional items, of £118 million (2002: £88 million)
Highlights
• End-year order book up 14% at £5.8 billion
• Six PPP concessions converted to contract
• Metronet concessions bring £1.2 billion construction contracts
• Acquisition of Mansell further strengthens building sector
• Preferred bidder for £521 million Birmingham PFI hospital project
'2003 was another year of achievement in pursuit of our key objective of
sustainable growth. Profit and earnings growth was satisfactory. Once again,
our operating cash flow was strong, fully underpinning profits, reflecting our
maintained focus on working capital at a time of increasing sales volumes. Our
order book grew by 14% to £5.8 billion during the year. We also completed the
acquisition of Mansell, a leading UK construction and construction services
company.
'Overall, we expect to see further growth in 2004 and to make progress
accordingly.'
Sir David John Mike Welton
Chairman Chief Executive
10 March 2004
BALFOUR BEATTY PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2003
OVERVIEW
Balfour Beatty is a world-class engineering, construction and services group,
well positioned in infrastructure markets which offer significant growth
potential. Its partnerships with public and private customers generate secure,
long-term income. Its financial position, with significant net cash and with
strong operating cash flows, offers continuing flexibility to add additional
capacity and expertise to the business mix and to make appropriate investments
in PPP/PFI projects and other long-term growth opportunities.
RESULTS
Balfour Beatty plc, the international engineering, construction and services
group, today announced pre-tax profits before exceptional items and prior to the
amortisation of goodwill for the 12 months to 31 December 2003 of £130 million
(2002: £118 million). These results were achieved after an increase of £9
million in pension charges, which impacted the building, engineering and rail
sector results. Earnings per share before exceptional items and goodwill
amortisation were 20.6p (2002: 16.1p), in part reflecting a reduced tax charge
arising from the release of Advance Corporation Tax credits.
Operating profits before goodwill amortisation and exceptional items were £161
million (2002: £149 million).
£17 million was charged to the profit and loss account in respect of goodwill
amortisation arising from acquisitions (2002: £21 million).
There were a number of exceptional items. Provision was made for anticipated
costs arising from the termination of three Network Rail maintenance contracts,
losses on the disposal of the Group's investment in Garanti Balfour Beatty in
Turkey and for certain residual liabilities in respect of BICC's US cables
business sold in 1999. However, exceptional profits from the sale of an
operating facility, together with compensation payments for loss of the use of
this facility, led to a net exceptional profit for the year of £5 million (2002:
£9 million exceptional loss).
Profit before tax, but after goodwill amortisation and exceptional items, was
£118 million (2002: £88 million).
Year-end net cash stood at £124 million (2002: £67 million) after £21 million of
expenditure on acquisitions. The year-end order book stood at £5.8 billion
(2002: £5.1 billion).
Turnover increased to £3,678 million (2002: £3,441 million).
Against this background, the Board recommends an increased final dividend of
3.4p per ordinary share (2002: 3.05p) which, taken with the interim dividend
already paid, would give a total distribution for the year of 6.0p (2002: 5.4p)
per ordinary share, an increase of 11%.
THE YEAR IN SUMMARY
Performance
2003 was another year of achievement in pursuit of our key objective of
sustainable growth. Profit and earnings growth was satisfactory. Once again,
our operating cash flow was strong, fully underpinning profits, reflecting our
maintained focus on working capital at a time of increasing sales volumes.
In the 12 months to the end of 2003, our order book grew by 14% to £5.8 billion.
The principal contributory factor was the conversion of six Public Private
Partnership (PPP) concessions from preferred bidder to financial and contractual
close. By far the largest of these were the two London Underground PPPs for the
Sub-Surface Lines and the Bakerloo, Central and Victoria lines. With our 20%
interest in the Metronet concession companies came some £1.2 billion of track
replacement, civil engineering and station refurbishment orders, spread over the
next seven years. A further £0.4 billion of orders were received through the
PPP contracts for the M77 motorway in Scotland, Rotherham Schools, Blackburn
Hospital and the Sunderland Street Lighting project.
We also secured good long-term contracts for road construction, widening and
maintenance in the UK and railway electrification work around Europe, and were
appointed as preferred bidder for both new rail renewals and power upgrade
projects by Network Rail. The Group is carrying out over £180 million of
project work in respect of Heathrow's Terminal 5.
Shortly after the turn of the year, our PPP healthcare vehicle, Consort, was
appointed preferred bidder for the £521 million Birmingham Hospital project,
which is scheduled to reach financial close in March 2005.
In contrast, rail maintenance work under contracts for Network Rail's Kent and
Anglia regions, previously due to run to March 2006, will now terminate in 2004.
Our contract for Wessex reverted to Network Rail towards the end of 2003. The
decision to terminate these contracts early as part of a comprehensive change in
Network Rail policy was both surprising and disappointing, not least because we
had worked hard as Network Rail's development partner in pioneering new contract
forms. We are, however, co-operating fully with Network Rail in the safe and
efficient handover of these contracts.
The year was not without its difficulties. Both our East Coast civil
engineering business in the US and our UK utilities business had significant
challenges to face. However, both businesses finished the year with their
performance on an improving trend.
In July, manslaughter charges and charges under the Health and Safety At Work
Act were brought against former employees of Balfour Beatty Rail Infrastructure
Services and that company itself in respect of the tragic rail accident at
Hatfield in October 2000. We see no justification for manslaughter charges to
be brought against our maintenance business or its former employees. The
company will firmly defend itself against these allegations and provide the
fullest support to its ex-employees in respect of the charges against them.
The year ended positively when we completed the acquisition of Mansell, a
leading UK construction and construction services company, for a total
consideration of £43 million. Mansell, with annual sales of over £500 million,
is a profitable, well-managed company with excellent market positions in social
housing, refurbishment, fit-out and other construction disciplines. Its
business mix in terms of geography, sector and project size is highly
complementary to our existing UK building business, Balfour Beatty Construction.
Mansell was founded in 1908, the year prior to the foundation of Balfour Beatty.
Its successful early growth has been accelerated by acquisition, including, in
1997, Hall & Tawse, another company with a history of successful growth
stretching back to the early part of the 20th century. We look forward to the
continuing expansion of Mansell from its existing firm foundations.
Segmental Performance
(before goodwill amortisation and exceptional items)
In Building, Building Management and Services, profits were down by 2% at £45
million (2002: £46 million). Performance was steady in UK building construction
and building services and in US construction and programme management. Profits
from facilities management improved, but were offset by the impact of a slow
first half for the building management and security controls markets in the US.
All the UK businesses responded successfully to the increasing market demand for
bigger, more complex projects and forward order books rose significantly as a
result.
In Civil and Specialist Engineering and Services, profits improved by 24% to £21
million (2002: £17 million). Performance in UK major projects, regional civil
engineering, power engineering, road maintenance and in Devonport Management was
good. Progress was also made in reducing the losses in US civil engineering,
although some claim settlements previously anticipated in 2003 were delayed. In
Balfour Beatty Utilities, the cost of integrating Kentons and John Kennedy and
some contract issues adversely affected performance in that sector but, as in
the US, the year ended on an improving trend.
In Rail Engineering and Services, profits increased by 11% to £41 million (2002:
£37 million). This reflected a particularly strong second half year with
continuing good performance from the Group's German-based rail power systems
business, particularly in Italy. There were also good performances in UK
maintenance, track renewals and systems, plant and major projects, and some
successful settlements on UK projects.
Preferred bidder status was secured on both major UK track renewals work and the
Southern Region power upgrade project, while the sector order book increased
substantially as a result of the award of the £500 million contract for the new
trackwork for Metronet under the London Underground PPPs. A small acquisition
was made in Germany in early 2004 to enhance the Group's capacity to serve
Deutsche Bahn.
Profits in Investments and Developments improved by 10% to £54 million (2002:
£49 million). Continued growth in existing concession income was augmented by a
first contribution in line with budget from the Group's investment, through
Metronet, in the London Underground PPPs. This more than offset the anticipated
fall in profits at Barking Power where, following the entry into administration
of TXU Europe, some 28% of the station's output is now sold on the spot market.
DEVELOPING OUR STRATEGY
In 2003, we carried out a major Board level strategic review. Most of our
business is undertaken in the UK. Our customers are, principally, in the public
and utility sectors. The great majority of our UK businesses are amongst their
sector market leaders and our footprint across the supply chain from design to
whole-life operation and management shows few significant gaps.
We have the capacity to service increased demand for integrated skills and
services in each of our four business segments. We also are responding to a PPP
concession market which continues to grow and to generate the complex
large-scale contracting work at which we excel. We are well placed to respond
to increasing demands for outsourced services. We have created Balfour Beatty
Management to service the strategic and project management requirements of our
major infrastructure customers. These factors offer good scope for medium-term
organic growth.
Looking to the longer term, in the US we have some of the building blocks
already in place to create a presence of the same scale and constituency as our
UK business. A new US senior management team, recruited over the last 12
months, is charged with identifying, developing and executing opportunities to
move our US business in that direction.
Our rail skills, anchored by our strong domestic positions in the UK, Germany
and Italy, are transportable internationally. Our strong presence, usually on a
single discipline basis in a large number of national rail markets such as
Spain, Sweden, Austria, Greece, Malaysia and China, offers scope for broadening
our rail footprint in a number of territories.
Continued selective investment in PPP concessions both in the UK and elsewhere
offers another source of long-term growth.
Our strongly positive cash position and the cash generative capacity of our
existing business mix gives us the flexibility and confidence to pursue selected
bolt-on opportunities. The successful integration of new businesses into the
Group and the availability of key management talent to achieve this are key
priorities.
In any event, our focus remains firmly on a small number of simple but critical
management priorities. We aim to sustain earnings growth. We will manage our
working capital closely. We will maintain strong financial controls and account
prudently. We will keep our businesses focused on areas where we have existing
expertise and can sustain competitive advantage. We will take contracts and
make investments only where the best interests of our shareholders are
demonstrably served.
SAFETY AND THE ENVIRONMENT
Balfour Beatty's determination to continuously improve the safety of its people
resulted in a 17% fall in accident frequency rate (AFR) in 2003. Over the last
10 years, the Group's AFR has improved significantly despite a 160% increase in
numbers of employees and subcontracted staff and the acquisition and integration
of over 20 new businesses during the period. In the unfortunate event of a
fatality or other serious incident, a very detailed Board level review is
undertaken and improvements to processes and practices are made in the light of
the findings, as appropriate.
2003 marked the second year of the detailed measurement, in the UK, of our
principal environmental impacts and a first set of data returns from outside the
UK. A fourth year of detailed benchmarking of operating company policies and
practices revealed further across-the-board improvements in the engagement of
our UK operating companies in environmental management and the embeddedness of
their systems. Our overseas operations were benchmarked for the first time in
2003.
OUTLOOK
A very significant proportion of anticipated current year UK work has already
been secured and longer-term order books are also healthy despite the
disappointing developments in UK rail maintenance.
During 2004, pension charges will increase further. Barking Power should see
the first recoveries, from the administrator, of monies owed as a result of the
demise of TXU Europe.
In the Building sector, the addition of Mansell should see progress made during
the year. In Engineering, UK markets should continue to develop positively and,
with improving performance in the US and from UK utilities, we are confident
that this sector, too, should provide forward momentum in 2004.
Our Rail business performed particularly strongly in the second half of 2003.
It is an acknowledged world leader with excellent positions in a number of
national markets. UK volumes are likely to be reduced in 2004, reflecting the
changes in UK maintenance, and sector performance is likely to be broadly in
line with 2003.
In Investments, a full year of Metronet and continuing improvements in existing
concession performance should ensure progress.
Overall, we expect to see further growth in 2004 and to make progress
accordingly.
ENDS
Enquiries to:-
Mike Welton, Chief Executive
Anthony Rabin, Finance Director
Tim Sharp, Head of Corporate Communications
Tel: 020 7216 6800
www.balfourbeatty.com
* * * * * * * *
High resolution photographs are available to the media free of charge at
www.newscast.co.uk (+44 (0)20 7608 1000).
GROUP PROFIT AND LOSS ACCOUNT Before Exceptional Before Exceptional
For the year ended 31 December 2003 exceptional items exceptional items
items (Note 3) Total items (Note 3) Total
2003 2003 2003 2002 2002 2002
Notes £m £m £m £m £m £m
TURNOVER INCLUDING SHARE OF
JOINT VENTURES AND ASSOCIATES 2 3,678 - 3,678 3,441 - 3,441
Share of turnover of joint (297) - (297) (191) - (191)
ventures
Share of turnover of associates (220) - (220) (150) - (150)
GROUP TURNOVER 3,161 - 3,161 3,100 - 3,100
Continuing operations 3,158 - 3,158 3,100 - 3,100
Acquisitions 12 3 - 3 - - -
GROUP OPERATING PROFIT 68 3 71 67 (9) 58
Share of operating profit of joint 9 47 - 47 42 - 42
ventures
Share of operating profit of 9 29 - 29 19 - 19
associates
OPERATING PROFIT INCLUDING SHARE OF
JOINT VENTURES AND ASSOCIATES 2 144 3 147 128 (9) 119
Operating profit before goodwill 161 3 164 149 (9) 140
amortisation
Goodwill amortisation (17) - (17) (21) - (21)
Continuing operations 144 3 147 128 (9) 119
Acquisitions 12 - - - - - -
Provision for loss on sale of (10) (10) - -
operations
Profit on sale of fixed assets 12 12 - -
PROFIT BEFORE INTEREST 144 5 149 128 (9) 119
Net interest payable and similar
charges:
Group 4 (1) - (1) - - -
Share of joint ventures' interest 4 (18) - (18) (24) - (24)
Share of associates' interest 4 (12) - (12) (7) - (7)
PROFIT ON ORDINARY ACTIVITIES BEFORE 113 5 118 97 (9) 88
TAXATION
Profit on ordinary activities
before goodwill 130 5 135 118 (9) 109
Amortisation and taxation
Goodwill amortisation (17) - (17) (21) - (21)
Tax on profit on ordinary activities 5 (30) 1 (29) (35) - (35)
PROFIT FOR THE FINANCIAL YEAR 83 6 89 62 (9) 53
Dividends:
Preference 6 (15) (16)
Ordinary 6 (25) (22)
TRANSFER TO RESERVES 49 15
ADJUSTED EARNINGS PER ORDINARY SHARE 20.6p 16.1p
Goodwill amortisation (4.1)p (4.9)p
Exceptional items after attributable 1.4p (2.2)p
taxation
BASIC EARNINGS PER ORDINARY SHARE 7 17.9p 9.0p
DILUTED EARNINGS PER ORDINARY SHARE 7 17.7p 8.9p
DIVIDENDS PER ORDINARY SHARE 6 6.0p 5.4p
GROUP BALANCE SHEET Notes 2003 2002
At 31 December 2003 £m £m
FIXED ASSETS
Intangible assets - goodwill 8 306 266
Tangible assets 158 140
Investments 36 30
Investments in joint ventures:
Share of gross assets 866 662
Share of gross liabilities (777) (584)
9 89 78
Investments in associates 9 47 35
636 549
CURRENT ASSETS
Stocks 109 98
Debtors - due within one year 759 703
- due after one year 60 72
Cash and deposits 202 175
1,130 1,048
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR (7) (29)
Borrowings (1,196) (1,129)
Other creditors
NET CURRENT LIABILITIES (73) (110)
TOTAL ASSETS LESS CURRENT 563 439
LIABILITIES
CREDITORS: AMOUNTS FALLING DUE AFTER (71) (79)
MORE THAN ONE YEAR (95) (57)
Borrowings (167) (110)
Other creditors
PROVISIONS FOR LIABILITIES AND
CHARGES
230 193
SHAREHOLDERS' FUNDS 10 230 193
Shareholders' funds include non-equity shareholders' funds of £150m (2002:
£161m)
GROUP CASH FLOW STATEMENT Notes 2003 2002
For the year ended 31 December 2003 £m £m
NET CASH INFLOW FROM OPERATING ACTIVITIES 11(a) 170 142
DIVIDENDS FROM JOINT VENTURES AND 11 20
ASSOCIATES
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE 9 8
Interest received (10) (12)
Interest paid (15) (16)
Preference dividends paid
NET CASH OUTFLOW FROM RETURNS ON (16) (20)
INVESTMENTS AND SERVICING OF FINANCE
UK corporation tax paid (19) (12)
Foreign tax paid (6) (5)
TAXATION (25) (17)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT (51) (46)
Capital expenditure 24 4
Disposal of tangible fixed assets (6) 14
Investment in joint ventures and (7) (7)
associates
Other investments
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (40) (35)
AND FINANCIAL INVESTMENT
ACQUISITIONS AND DISPOSALS
Acquisitions of businesses 11(d) (21) (65)
Disposals of businesses 11(e) - (2)
NET CASH OUTFLOW FROM ACQUISITIONS AND (21) (67)
DISPOSALS
ORDINARY DIVIDENDS PAID (22) (21)
CASH INFLOW BEFORE USE OF LIQUID RESOURCES 57 2
AND REFINANCING
MANAGEMENT OF LIQUID RESOURCES
(Increase) / decrease in term deposits 11(b) (32) 7
NET CASH (OUTFLOW) / INFLOW FROM (32) 7
MANAGEMENT OF LIQUID RESOURCES
FINANCING
Ordinary shares issued 5 1
Buy-back of ordinary and preference shares (16) (7)
New loans 3 5
Repayment of loans (11) (5)
Capital element of finance lease payments (3) (3)
NET CASH OUTFLOW FROM FINANCING (22) (9)
INCREASE IN CASH IN THE PERIOD 11(c) 3 -
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND 2003 2002
LOSSES £m £m
For the year ended 31 December 2003
Profit for the financial year:
Group
Group operating profit 71 58
Provision for loss on sale of operations (10) -
Profit on sale of fixed assets 12 -
Net interest payable and similar charges (1) -
Tax (14) (25)
58 33
Share of joint ventures (see Note 9a) 19 12
Share of associates (see Note 9a) 12 8
Exchange adjustments (1) (1)
TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR 88 52
NOTES
1. BASIS OF PRESENTATION
The accounts have been prepared under the historical cost convention, modified for the revaluation of certain land and
buildings, using accounting policies which have been applied consistently throughout the year and the preceding year and
comply with all applicable accounting standards and the Companies Act 1985.
2. SEGMENT ANALYSIS
a) Total Group, including share of joint ventures and associates
Operating profit
before
Turnover exceptional items Capital employed
2003 2002 2003 2002 2003 2002
£m £m £m £m £m £m
PERFORMANCE BY ACTIVITY
Building, building management and 1,196 1,123 45 46 (133) (89)
services
Civil and specialist engineering and 1,393 1,347 21 17 (44) (41)
services
Rail engineering and services 873 838 41 37 (51) (18)
Investments and developments 216 133 54 49 56 53
3,678 3,441 161 149 (172) (95)
Goodwill amortisation (17) (21)
Operating profit 144 128
Net interest payable (31) (31)
Profit before tax and exceptional items 113 97
Net cash 124 67
Goodwill (including share of joint ventures and 318 280
associates)
Tax and dividends (40) (59)
230 193
Goodwill amortisation arises in Building, building management and services £2.8m (2002: £1.8m), Civil and
specialist engineering and services £5.5m (2002: £5.8m) and Rail engineering and services £9.0m (2002: £12.9m).
In 2003, goodwill amortisation includes £0.5m impairment charge in respect of Garanti Balfour Beatty. In 2002,
goodwill amortisation included £5m impairment charge in respect of Balfour Beatty Rail Systems Inc £4m and
Garanti Balfour Beatty £1m. Goodwill arises in Building, building management and services £85m (2002: £35m),
Civil and specialist engineering and services £80m (2002: £88m), Rail engineering and services £152m (2002:
£156m) and Investments and developments £1m (2002: £1m).
3. EXCEPTIONAL ITEMS
2003 2002
£m £m
a) CREDITED TO / (CHARGED AGAINST) OPERATING PROFIT:
Compensation for loss of use of operating facility 10 -
Cancellation of Network Rail maintenance contracts (7) -
Aborted acquisition costs - (9)
3 (9)
b) PROVISION FOR LOSS ON SALE OF OPERATIONS:
Losses arising from the disposal of the discontinued Cables businesses (8) -
Provision for loss on disposal of Garanti Balfour Beatty (2) -
(10) -
c) PROFIT ON SALE OF FIXED ASSETS:
Profit on sale of operating facility 12 -
5 (9)
a) Exceptional items charged against Group operating profit in 2003 comprise compensation received in respect of
business disruption, following the compulsory purchase of an operating facility, offset by costs arising from the
cancellation of three Network Rail maintenance contracts. These exceptional items relate to the Rail engineering
and services segment and arise in Europe.
Exceptional items charged against Group operating profit in 2002 arose from the aborted acquisition of J A Jones
Inc.
b) The provision for loss on sale of operations comprises provision for environmental and employee retirement costs
relating to the discontinued Cables business in North America sold in 1999 and provision for losses on the disposal
in 2004 of the Group's 49.2% interest in Garanti Balfour Beatty in Turkey in the Civil and specialist engineering
segment in Europe.
c) The profit on sale of fixed assets arises on the compulsory purchase of an operating facility. This profit
relates to the Rail engineering and services segment and arises in Europe.
d) Exceptional items have reduced the Group's tax charge by £0.5m (2002: nil).
4. NET INTEREST PAYABLE AND SIMILAR CHARGES
2003 2002
£m £m
Bank loans and overdrafts 2 3
Finance leases 1 1
Other loans 9 9
12 13
PFI/PPP subordinated debt interest receivable (2) (4)
Other interest receivable and similar income (9) (9)
Group net interest payable 1 -
Share of joint ventures' net interest payable 18 24
Share of associates' net interest payable 12 7
31 31
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
a) Taxation charge 2003 2002
£m £m
UK CURRENT TAX
Corporation tax on profits of the period at 30% (2002: 30%) 31 31
Double tax relief (2) (2)
Adjustments in respect of previous periods (4) (3)
25 26
UK ADVANCE CORPORATION TAX
Written back against current year UK tax (8) -
Adjustments in respect of previous periods (5) -
(13) -
FOREIGN CURRRENT TAX
Foreign tax on profits of the period 5 5
Adjustments in respect of previous periods 2 1
7 6
Total current tax 19 32
DEFERRED TAX
UK (5) (3)
Foreign - (1)
Adjustments in respect of previous periods - (3)
Total deferred tax (5) (7)
JOINT VENTURES AND ASSOCIATES
Share of UK joint ventures' tax 10 6
Share of UK associates' tax 5 4
Total joint ventures' and associates' tax 15 10
Taxation charge 29 35
b) Factors that may affect future tax charges
The Group has benefited from overseas tax losses in 2003. These losses have resulted in reduced tax payments in
recent years and the Group expects to continue to benefit in 2004. The unrecognised deferred tax asset in respect
of losses that arose over a number of years in the USA and Germany is estimated to be £100m.
The Group has unrecognised surplus advance corporation tax. Recovery of this surplus, which is subject to certain
restrictions, may result in a reduction of the tax charge in the foreseeable future of approximately £17m.
6. DIVIDENDS
Per share Amount Per share Amount
2003 2003 2002 2002
pence £m pence £m
On preference shares:
Paid 4.8375 7 4.8375 8
Payable 4.8375 8 4.8375 8
9.6750 15 9.6750 16
On ordinary shares:
Interim payable 2.60 11 2.35 10
Final proposed 3.40 14 3.05 12
6.00 25 5.40 22
An interim dividend of 2.60p (2002:2.35p) per ordinary share was paid on 2 January 2004. Subject to approval at the
Annual General Meeting on 13 May 2004, the final dividend of 3.40p (2002: 3.05p) per ordinary share will be paid on
1 July 2004 to ordinary shareholders on the register on 30 April 2004 by direct credit or, where no mandate, by
warrants posted on 29 June 2004.
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 2004 on 1 July 2004 to preference shareholders on the register on 28 May 2004 by direct credit or,
where no mandate, by warrants posted on 29 June 2004.
7. 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 416.3m (2002: 414.1m).
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 potential
conversion of share options by 3m (2002: 5m). As in 2002, no adjustment has been made in respect of the potential
conversion of the cumulative convertible redeemable preference shares, the effect of which would have been 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.
8. INTANGIBLE ASSETS - GOODWILL
Gross Amortisation Net
£m £m £m
At 1 January 2003 296 (30) 266
Exchange adjustments (1) 1 -
Businesses acquired (see note 12) 54 - 54
Other adjustments 1 - 1
Amortisation - (15) (15)
At 31 December 2003 350 (44) 306
Goodwill arising on joint ventures and associates 12
Total goodwill 318
9. INVESTMENTS
a) Share of results and net assets of joint ventures and associates
Comprising
Connect Other PFI/ Total PFI/ Barking
Yorkshire Roads PPP PPP Power Joint
Link Ltd Ltd Metronet* investments investments Ltd Other Total ventures Associates
2003 2003 2003 2003 2003 2003 2003 2003 2003 2003
£m £m £m £m £m £m £m £m £m £m
Turnover 23 24 75 52 174 42 301 517 297 220
Operating profit 16 17 12 9 54 6 16 76 47 29
Interest (13) (10) (6) 4 (25) (5) - (30) (18) (12)
Profit before 3 7 6 13 29 1 16 46 29 17
taxation
Taxation (1) (2) (2) (5) (10) (1) (4) (15) (10) (5)
Profit after 2 5 4 8 19 - 12 31 19 12
taxation
Dividends (2) (2) - (2) (6) - (5) (11) (6) (5)
Retained Profits - 3 4 6 13 - 7 20 13 7
Net debt (132) (75) (1) (387) (595) (78) (2) (675) (561) (114)
Net assets 13 17 11 40 81 11 44 136 89 47
Comprising
Connect Other PFI/ Total PFI/ Barking
Yorkshire Roads PPP PPP Power Joint
Link Ltd Ltd Metronet* investments investments Ltd Other Total ventures Associates
2002 2002 2002 2002 2002 2002 2002 2002 2002 2002
£m £m £m £m £m £m £m £m £m £m
Turnover 23 25 - 32 80 51 210 341 191 150
Operating profit 16 18 - 6 40 15 6 61 42 19
Interest (13) (11) - - (24) (6) (1) (31) (24) (7)
Profit before 3 7 - 6 16 9 5 30 18 12
taxation
Taxation (1) (2) - (2) (5) (2) (3) (10) (6) (4)
Profit after 2 5 - 4 11 7 2 20 12 8
taxation
Dividends (3) (10) - - (13) - (3) (16) (16) -
Retained Profits (1) (5) - 4 (2) 7 (1) 4 (4) 8
Net debt (138) (85) - (217) (440) (81) 1 (520) (410) (110)
Net assets 13 17 - 31 61 11 41 113 78 35
* Metronet comprises Metronet Rail BCV Holdings Ltd and Metronet Rail SSL
Holdings Ltd.
2003 2002
10. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS £m £m
Profit for the financial year 89 53
Dividends (40) (38)
49 15
Other recognised gains and losses (net) (1) (1)
Ordinary shares issued 5 1
Buy-back of preference shares (16) (7)
37 8
Opening shareholders' funds 193 185
Closing shareholders' funds 230 193
11. NOTES TO THE CASH FLOW STATEMENT
2003 2002
£m £m
a) Net cash inflow from operating activities comprises:
Group operating profit before exceptional items 68 67
Depreciation 43 40
Goodwill amortisation 15 19
Profit on sale of fixed assets (3) (1)
Provision against own shares held 1 1
Exceptional items - cash receipts / (expenditure) 5 (9)
Working capital decrease 41 25
Net cash inflow from operating activities 170 142
Cash and Borrowings
deposits (including
and Term finance Tota1 Total
overdrafts deposits leases) 2003 2002
b) Analysis of movement in net cash £m £m £m £m £m
At 1 January 2003 140 19 (92) 67 63
Cash flow 3 32 11 46 (4)
Acquisitions of businesses - term deposits/(debt) at - 5 - 5 (1)
date of acquisition
Exchange adjustments - (1) 7 6 9
At 31 December 2003 143 55 (74) 124 67
11. NOTES TO THE CASH FLOW STATEMENT continued
c) Reconciliation of cash flow to movement in net cash 2003 2002
£m £m
Increase in cash in the period 3 -
Cash outflow from decrease in borrowings 11 3
Cash outflow / (inflow) from increase / (decrease) in term deposits 32 (7)
Change in net cash resulting from cash flows 46 (4)
Acquisitions of businesses - term deposits / (debt) at date of acquisition 5 (1)
Exchange adjustments 6 9
Movement in net cash 57 4
d) Acquisitions of businesses 2003 2002
Net assets acquired: £m £m
Intangible assets - goodwill 54 38
Tangible fixed assets 24 4
Investments - 15
Stocks 4 2
Debtors (including deferred tax) 115 15
Creditors and provisions (including current tax) (174) (20)
Term deposits 5 -
Borrowings (including finance leases) - (1)
28 53
Due on acquisitions (7) 17
21 70
Satisfied by:
Cash consideration 36 60
Cash, deposits and overdrafts acquired (15) 5
Cash outflow 21 65
Interest in subsidiary disposed - 5
21 70
Companies acquired during the year comprised Mansell plc (see Note 12). Mansell
plc generated a net cash inflow from operating activities of £13m from 18
December 2003 to 31 December 2003.
e) Disposals of businesses 2003 2002
Net assets disposed of: £m £m
Intangible assets - goodwill - 2
Tangible fixed assets - 2
Stocks - 5
Debtors - 9
Creditors and provisions - (15)
- 3
Profit on sale, before goodwill - -
- 3
Satisfied by:
Cash consideration - -
Cash, deposits and overdrafts sold - (2)
Cash outflow - (2)
Interest in joint venture acquired - 5
- 3
Disposals in 2002 comprised the reorganisation of the Group's interests in BK
Gulf LLC and Dutco Balfour Beatty LLC.
12. ACQUISITIONS
a) On 18 December 2003 the Group acquired Mansell plc, a UK construction and
construction services company, for an initial consideration of £32.5m which was
paid on completion, deferred consideration of £10.2m and costs of £1.1m. The
provisional fair value of the net assets acquired, consideration paid and
payable and provisional goodwill arising were:
Book Fair
value of Accounting value of
assets policy Fair value assets
acquired adjustments adjustments acquired
£m £m £m £m
Fixed assets 24 - - 24
Stocks 4 - - 4
Debtors 107 (6) - 101
Creditors and provisions (132) - (40) (172)
Taxation - current (2) - - (2)
Taxation - deferred - 2 12 14
Cash and deposits 15 - - 15
Term deposits 5 - - 5
21 (4) (28) (11)
Consideration and costs - cash 32
Consideration and costs - deferred 11
43
Goodwill 54
Accounting policy adjustments relate to the harmonisation of accounting policies
for the recognition of profit on long-term contracts. Fair value adjustments
have been made to reflect the fair value of pension obligations and other
onerous commitments. Accounting policy and fair value adjustments will be
finalised in 2004.
The results of Mansell plc and its subsidiaries in the period 1 January 2003 to
18 December 2003 (based on its accounting policies prior to acquisition) were:
Total
£m
Turnover 529
Trading profit 9
Exceptional items (4)
Operating profit 5
Net interest payable and similar charges 1
Profit on ordinary activities before taxation 6
Taxation (3)
Profit for the period 3
There were no other recognised gains or losses in the above period. In the
financial year ended 31 December 2002 the consolidated profit after taxation of
Mansell plc (based on its accounting policies prior to acquisition) was £0.5m
loss, after charging exceptional items of £8.0m. The business recorded sales of
£3m and an operating profit, before goodwill amortisation, of £0.1m in the
period from 18 December 2003 to 31 December 2003.
b) In 2003, £4m deferred consideration was paid in respect of acquisitions
completed in 2001 and 2002.
Goodwill arising on businesses acquired in 2002 has been increased by £1m (net).
This reflects amendments to the provisional fair value of the net assets of
Walgrave Group Ltd and Romec Ltd, resulting in increases in goodwill of £0.9m
and £0.5m respectively. This has been offset by a reduction in the
consideration payable in respect of the rail plant and services business of Knox
Kershaw Inc. of £0.1m.
The Group has used acquisition accounting to account for these transactions.
13. PENSIONS
The Group continues to account for pensions in accordance with the requirements
of SSAP 24 'Accounting for Pension Costs'. The Group's actuaries have reviewed
the funding valuations of the principal schemes at 31 December 2003, namely the
Balfour Beatty Pension Fund (£54m surplus), the Balfour Beatty Shared Cost
section of the Railways Pension Scheme (£16m surplus, Group's share £9m) and the
two Mansell pension schemes (deficit £38m). Details of these valuations and the
actuaries' assumptions are set out in the Report and Accounts.
The transitional rules and disclosures for the implementation of FRS17 '
Retirement Benefits' are also set out in the Report and Accounts. At 31 December
2003, and based on the FRS17 valuation assumptions, the principal schemes are
disclosed as having valuation deficits, namely the Balfour Beatty Pension Fund
(£138m, £97m net of deferred tax), the Balfour Beatty Shared Cost section of the
Railways Pension Scheme (£26m, £18m net of deferred tax) and the two Mansell
pension schemes (£60m, £42m net of deferred tax).
14. POST BALANCE SHEET EVENTS
On 1 January 2004 the Group acquired the business and assets of the railway
division of ABB Gegabaudetechnik AG based in Germany for a consideration of
€4.1m.
On 16 January 2004 and 23 January 2004 the Group acquired from Atkins its 32.2%
shareholdings in Connect Roads Ltd and Connect M77/GSO Holdings Ltd respectively
for a total consideration of £13.3m cash.
On 16 January 2004 the Group sold its 49.2% holding in Garanti Balfour Beatty
Insaat Sanayi ve Ticaret AS for a consideration of US$1.
On 6 February 2004 the Group executed binding terms to sell to its partner its
40.0% holding in First Philippine Balfour Beatty Inc for a consideration of
US$3.5m.
*************************************
The financial information set out above (which was approved by the Board on 9
March 2004) does not constitute the Company's statutory accounts. The statutory
accounts for the year ended 31 December 2003 (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. The statutory accounts for the year ended 31 December 2002
(from which this financial information has been extracted) have been filed with
the Registrar of Companies. The auditors' report on those accounts was
unqualified and did not contain any statement under section 237(2) or (3) of the
Companies Act 1985.
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