Final Results
Balfour Beatty PLC
07 March 2007
BALFOUR BEATTY PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2006
ANOTHER YEAR OF PROGRESS IN BUILDING SHAREHOLDER VALUE
Financial Summary
+----------------------------------------------------------------------+
| | 2006 | 2005 |
|------------------------------------------------|----------|----------|
|Revenue including joint ventures and associates | £5,852m | £4,938m |
|------------------------------------------------|----------|----------|
|Pre-tax profit | | |
|------------------------------------------------|----------|----------|
|- before exceptional items and amortisation | £152m | £134m |
|------------------------------------------------|----------|----------|
|- after exceptional items and amortisation | £125m | £141m |
|------------------------------------------------|----------|----------|
|Earnings per share | | |
|------------------------------------------------|----------|----------|
|- adjusted* | 27.3p | 24.1p |
|------------------------------------------------|----------|----------|
|- basic | 21.2p | 24.9p |
|------------------------------------------------|----------|----------|
|Financing | | |
|------------------------------------------------|----------|----------|
|- net cash before PFI/PPP subsidiaries | £305m | £315m |
| (non-recourse) | | |
|------------------------------------------------|----------|----------|
|- net borrowings of PFI/PPP subsidiaries | £(21)m| £(14)m|
| (non-recourse) | | |
+----------------------------------------------------------------------+
* before exceptional items and amortisation of intangible assets
Highlights
- Pre-tax profit* up by 13% to £152 million
- Adjusted earnings per share* up by 13% to 27.3p
- Cash generated from operations up 30% at £217 million
- Order book increased by 20% to £9.1 billion
- Good progress in strategic acquisition and investment programme
- Agreement to acquire Centex Construction in the US
- Final dividend of 5.2p, full-year dividend up 12% at 9.1p
'We have record order books, a number of preferred bidder positions on major
projects and our markets are generally healthy and continue to offer substantial
opportunity. We have also made good progress in pursuing the strategic
priorities which we set out last year and have substantially added to our
earning power as a result, which will serve to underpin future growth. We
believe that we will be able to make further good progress in 2007.'
Sir David John, Chairman Ian Tyler, Chief Executive
BALFOUR BEATTY PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2006
RESULTS
Balfour Beatty, the international engineering, construction, services and
investment group, today announced pre-tax profits before exceptional items and
amortisation of intangible assets for the 12 months to 31 December 2006 up 13%
at £152 million (2005: £134 million). Adjusted earnings per ordinary share
before exceptional items and amortisation were also up 13% at 27.3p (2005:
24.1p). Basic earnings per share stood at 21.2p (2005: 24.9p).
The Board recommends a final dividend of 5.2p per ordinary share, making a total
dividend for the year of 9.1p (2005: 8.1p), an increase of 12%.
There were a number of exceptional items, the largest of which was a non-cash
asset write-down taken at the half-year, resulting in a net exceptional charge
after tax of £25 million (2005: £4m profit).
Pre-tax profit for the year (after exceptional items and amortisation of
intangible assets) amounted to £125 million (2005: £141 million).
Operating cash flow was, once again, strong and in line with profits. Year-end
net cash stood at £305 million (2005: £315 million), despite acquisition
expenditure of £80 million, and before taking account of the consolidation of
£21 million non-recourse net debt held in PPP subsidiaries (2005: £14 million).
The year-end order book increased by 20% to £9.1 billion (2005: £7.6 billion),
with over £1.0 billion of further work at preferred bidder stage.
OVERVIEW
It is pleasing to report another year of strong profit and earnings growth and
of good progress in pursuing the strategic priorities which we set out last
year, while maintaining the strength of our cash position.
We remain committed to the delivery of the reliable, responsible growth which
our shareholders have enjoyed over recent years. We are very clear about what is
needed to continue growing the business for the long term and have the proven
management capability to deliver.
BUSINESS SECTOR PERFORMANCE
Building, Building Management and Services
Profit from operations before exceptional items and amortisation of intangible
assets in the building sector improved by 23% to £43 million (2005: £35
million). This represented a good all round performance in strong markets. There
was particularly good progress achieved in UK building construction and a first
contribution from Charter in the US, offset by the impact of some issues related
to the delivery programme under the London Underground PPP, which also had an
effect in the engineering sector.
The sector order book increased by 50% to £3.6 billion. Major hospital schemes
in Birmingham and Glasgow commenced, as did work on the Birmingham Schools
contract. Haden Building Management secured over £750 million of facilities
management work, including major long-term contracts for the Department for Work
and Pensions and the Metropolitan Police Authority. The social housing market
continued to grow strongly. The acquisition of Centex Construction, a leading US
builder, was agreed in February 2007.
With order books continuing to grow, we expect very good progress in this sector
in 2007, accelerated by the additional benefit of the acquisition of Centex.
Civil and Specialist Engineering and Services
Profit from operations before exceptional items and amortisation of intangible
assets in the engineering sector increased by 12% to £55 million (2005:
£49 million). This reflected a good all round UK performance, with strong growth
from Balfour Beatty Utilities and Balfour Beatty Management. Outside the UK,
there were improved performances from our businesses in Hong Kong and Dubai. In
the US, although underlying performance improved, there were some further losses
in the central division, which is in the process of closure.
The sector order book increased by 12% to £4.5 billion. This reflected a major
long-term contract win in utilities contracting for Northern Gas Networks, four
new contract awards in road management and maintenance, the award of the
Northern Ticket Hall contract at King's Cross St Pancras Underground Station,
and the acquisition of Birse in July. Early in 2007, we signed the £550 million
Eastern overhead line and cable alliance with National Grid.
Our engineering markets, particularly in the UK, Dubai and Singapore, remain
strong and, with further recovery in the US, we expect to make substantial
progress in this sector in 2007.
Rail Engineering and Services
Profit from operations before exceptional items in the rail sector rose by 19%
to £38 million (2005: £32 million). This reflected an excellent recovery in the
second half of the year, with good settlements on projects in the UK, Europe and
Asia and steady progress on major works, including those for Metronet and BAA.
The sector order book declined by 17% to £1.0 billion during the year as a
number of major projects were completed. The £363 million contract for the
upgrade and extension of the East London Line was secured late in the year.
Notable on-time, on-budget completions included the complex Waterloo and City
Line project on the London Underground, the technical works in the Berlin
Tunnel, the new Malpensa to Turin line in Italy, and the multi-disciplinary
Ingolstadt to Nuremberg project in Germany.
We do not expect an upturn in overall spending in our major markets in the short
term. However, steady growth in the world rail infrastructure market is
predicted for the longer term.
Investments and Developments
Profit from operations before exceptional items in the investments sector
improved by 60% to £32 million (2005: £20 million). This reflected significantly
better profits in Barking Power, good performance in mature concessions, a
reclassification of Connect Roads from subsidiary to joint venture and an
increased shareholding in Consort Edinburgh. Performance of the Metronet
concessions was less satisfactory as a result of the complexity of the delivery
issues, which are the subject of close attention.
During the year, two projects were converted from preferred bidder to contract.
These were the £553 million Birmingham Hospital scheme and the £89 million
Birmingham Schools scheme. Preferred bidder status was achieved for the Knowsley
Building Schools for the Future scheme, the Derby street lighting scheme and, in
January 2007, for the Fife Hospital scheme in Scotland.
Also in January, as a first step in its diversification into non PPP
investments, Balfour Beatty Capital acquired Exeter International Airport for
£60 million. During the year, Balfour Beatty Capital offices were established in
the US, Germany and Singapore. Preliminary bids have been submitted in each of
these markets.
Balfour Beatty Capital now has 27 concessions, including six at preferred bidder
stage, involving £341 million of committed equity.
In 2007, profits will be impacted both by significantly increased bid costs and
overheads as we grow the business overseas and the performance of Metronet where
further action is being taken to secure the long-term success of the
concessions.
We anticipate that the financial performance of our healthcare, education, road
and general infrastructure concessions will continue to meet or exceed
expectations and that our preferred bidder projects and a strong bid pipeline
will see our portfolio continue to grow. We will also continue to increase our
presence in overseas PPP markets.
EXCEPTIONAL ITEMS
There was a net exceptional charge of £25 million post tax. In the first half of
the year, a £16 million goodwill write-down was taken on the carrying value of
the central division of our US civil engineering business, which arose from the
acquisition in 2001 of National Engineering and Contracting, with some
consequent restructuring costs. There were also exceptional integration costs
arising from the acquisition of the Birse Group in July.
As in previous years, there was a premium paid on the buy-back of preference
shares, amounting to £7 million in 2006. These items were partly offset by a
credit arising from a reduction in the fine levied in respect of the Hatfield
rail accident in 2000.
STRATEGIC PROGRESS
The Group's growth over the next two to three years is implicit in its existing
business mix and is underpinned by the order books and market positions of its
operating companies. In order to continue our long-term record of double-digit
profit and earnings growth, we have identified four areas for expansion and
investment.
UK Infrastructure
The majority of the businesses in which we make our best and most reliable
margins are in UK infrastructure markets, many of which have strong positive
growth momentum, including major public building, social housing, utilities
contracting and regional civil engineering. Last year, we announced our
intention to add to our presence in these markets.
In July, we completed the acquisition of Birse Group plc, a leading UK regional
civil engineering business, for a cash consideration of £32 million. Birse has
annual revenues of over £300 million and a strong presence in regional markets
which is complementary to that of Balfour Beatty Civil Engineering. It also adds
new disciplinary capabilities in the coastal and rail sectors and process
expertise in water, power and the nuclear sector. Other opportunities are under
review.
Professional and Technical Services
There is a clear trend amongst our key customers to demand a broader and more
proactive role from us in addition to that represented by our long-established
construction and maintenance services.
During 2006, we have made good progress in the further development of our
professional and technical services capability through the growth of Balfour
Beatty Management which was formed in 2003. This group, which now employs
approximately 350 professionals, has played a key role in securing major
long-term contracts for National Grid and United Utilities and, most recently,
has led a major bid to become partner for complex building integration for BAA's
10-year airport investment plan.
Balfour Beatty Management's work on the King's Cross St Pancras Underground
Station development has reduced overall project costs by over £170 million. The
business will continue to grow, including, possibly, through acquisition.
Private Finance
Our UK PPP business, Balfour Beatty Capital, has substantial skills and in-built
growth momentum. The experience and expertise represented in its team of over
200 professional staff put the business in a strong position to expand. During
2006, in addition to continuing the development of its UK PPP business, the
company has turned its attention to non-PPP asset investment in the UK and
emerging PPP markets in the US, continental Europe and Singapore.
In January 2007, through our specialist subsidiary, Regional and City Airports,
we acquired one of the UK's fastest growing regional airports, Exeter
International, for £60 million. We have significant expertise in the design and
construction of airport assets and are currently developing a master plan for a
phased development of the airport to match passenger demand growth.
Overseas, Balfour Beatty Capital has, during the year, established offices in
the US, Germany and Singapore and preliminary bids have been submitted for
projects in each of these territories. We have been shortlisted for the Oakland
Airport Connector project in California.
Overseas Markets
In the longer term, maintaining our growth targets will require the development
of broadly-based domestic businesses outside the UK.
Our key target markets are the United States, Western Europe and South-East Asia
. In February 2007, we announced that we had reached agreement to acquire Centex
Construction, a leading US building company, from Centex Corporation for a
consideration of $362 million. It is anticipated that, upon completion, Centex
Construction will have significant net cash in its balance sheet.
Centex Construction is a high-quality building company, with sales expected to
exceed $2 billion in 2007. It gives Balfour Beatty critical mass in the US in a
core Group business and brings substantial new business development
opportunities, including in PPP. It is also expected to make a strong immediate
contribution to growth and generate significant value for shareholders.
It operates through four divisions based in Florida, Texas, Washington DC and
North Carolina and is among the market leaders in each of its territories of
operation. It is also a leading player in the US military housing market and has
announced that it has been awarded the $525 million Navy South-East contract in
conjunction with its partner, GMH.
OTHER ACQUISITIONS
In March 2006, Balfour Beatty completed the acquisitions of Charter in the US
and Edgar Allen in the UK. Charter, based in Texas, provides construction
management, design and build and construction services to a range of customers,
particularly in the education sector. The business, which was acquired for a
cash consideration of £17 million, has annual sales of approximately £100
million and has become part of Heery International.
Edgar Allen is a UK manufacturer of switches, crossings and other rail track
products, with annual sales of approximately £25 million. Its acquisition, for
an initial consideration of £21 million, strengthens Balfour Beatty's leading
position in the UK and international track products markets.
THE BOARD
Two new non-executive Directors were appointed to the Board in July 2006, Mike
Donovan, who was most recently Chief Operating Officer of Marconi plc, and
Stephen Howard, who was most recently Group Chief Executive of Novar plc.
Chalmers Carr retired as a non-executive Director in August 2006. Jim Cohen, an
executive Director since 2000, retired from the Board on 18 February 2007.
SAFETY
The Group's accident frequency rate reduced by a further 24% during 2006,
continuing the positive trend of recent years. The safety of our people and
those whom our business affects remains our highest priority. We have also made
good progress in managing our environmental impacts, including our relative
contribution to global warming and managing and recycling our waste.
OUTLOOK
We have record order books, a number of preferred bidder positions on major
projects, and our markets are generally healthy and continue to offer
substantial opportunity.
We have also made good progress in pursuing the strategic priorities which we
set out last year and have substantially added to our earning power as a result,
which will serve to underpin future growth.
We believe that we will be able to make further good progress in 2007.
ENDS
Enquiries to:- Ian Tyler, Chief Executive
Anthony Rabin, Finance Director
Tim Sharp, Head of Corporate Communications
Tel: 020 7216 6800
www.balfourbeatty.com
* * * * * * * *
Balfour Beatty is a world-class engineering, construction, services and
investment business, well positioned in infrastructure markets which offer
significant long-term growth. We work in partnership with sophisticated
customers who value the highest levels of quality, safety and technical
expertise. Our skills are applied in appropriate combinations to meet individual
customer need. 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 and
other long-term growth opportunities.
* * * * * * * *
High resolution photographs are available to the media free of charge at
www.newscast.co.uk (tel +44 (0)20 7608 1000).
A presentation to analysts and investors will be made at ABN AMRO,
250 Bishopsgate, London, EC2 at 10.30 am.
There will be a live webcast of this presentation on www.balfourbeatty.com and
the slides presented will be available on the website from 10.30 am.
Group income statement
For the year ended 31 December 2006
2006 2005
Before Exceptional Before Exceptional
exceptional items* exceptional items
items* (Notes 5) Total items (Note 5) Total
£m £m £m £m £m £m
Revenue including share
of joint ventures and
associates 5,852 - 5,852 4,938 - 4,938
Share of revenue of
joint ventures
and associates 12 (1,365) - (1,365) (1,101) - (1,101)
Group revenue 4,487 - 4,487 3,837 - 3,837
Cost of sales (4,121) - (4,121) (3,528) (14) (3,542)
Gross profit 366 - 366 309 (14) 295
Net operating expenses
- amortisation of
intangible assets - (1) (1) - - -
- other (285) (19) (304) (237) - (237)
Group operating profit 81 (20) 61 72 (14) 58
Share of results of
joint ventures
and associates 12 63 - 63 43 30 73
Profit from operations 144 (20) 124 115 16 131
Investment income 3 26 - 26 56 - 56
Finance costs 4 (18) (7) (25) (37) (9) (46)
Profit before taxation 152 (27) 125 134 7 141
Taxation 6 (35) 1 (34) (32) (3) (35)
Profit for the year attributable
to equity shareholders 117 (26) 91 102 4 106
* and amortisation of intangible assets (Note 11)
2006 2005
pence pence
Basic earnings per ordinary
share 7 21.2 24.9
Diluted earnings per ordinary
share 7 21.0 24.7
Dividends per ordinary share
proposed for the year 8 9.1 8.1
Group statement of recognised income and expense
For the year ended 31 December 2006
Notes 2006 2005
£m £m
Actuarial gains/(losses) on retirement benefit
obligations 36 (14)
PFI/PPP cash flow
hedges - net fair value gains/(losses) 32 (17)
- reclassified and reported in net
profit - 1
PFI/PPP financial
assets - fair value revaluation (2) 10
- reclassified and reported in net
profit - (4)
Changes in fair value of net investment hedges 14 (6)
Currency translation differences (17) 8
Tax on items taken directly to equity (26) 9
Net income/(expense) recognised directly in equity 37 (13)
Profit for the year 91 106
Total recognised income for the year attributable
to equity shareholders 16 128 93
Group balance sheet
At 31 December 2006
Notes 2006 2005
£m £m
Non-current assets
Intangible assets - goodwill 10 427 284
- other 11 9 -
Property, plant and equipment 183 167
Investments in joint ventures and associates 12 458 375
Investments 46 38
PFI/PPP financial assets 22 14
Deferred tax assets 102 83
Derivative financial instruments 2 2
Trade and other receivables 50 35
1,299 998
Current assets
Inventories 75 61
Due from customers for contract work 252 217
Derivative financial instruments 3 -
Trade and other receivables 626 619
Cash and cash equivalents 323 345
1,279 1,242
Total assets 2,578 2,240
Current liabilities
Trade and other payables (1,289) (1,038)
Due to customers for contract work (265) (274)
Derivative financial instruments (1) (4)
Current tax liabilities (28) (30)
Borrowings (17) (30)
(1,600) (1,376)
Non-current liabilities
Trade and other payables (77) (66)
Derivative financial instruments - (2)
Borrowings - PFI/PPP non-recourse term loans (21) (14)
- other (1) -
Deferred tax liabilities (5) (3)
Liability component of preference shares (90) (98)
Retirement benefit obligations 15 (288) (280)
Provisions (109) (109)
(591) (572)
Total liabilities (2,191) (1,948)
Net assets 387 292
Equity
Called-up share capital 14 215 214
Share premium account 16 43 26
Equity component of preference shares 16 16 18
Special reserve 16 169 175
Share of joint ventures' and associates'
reserves 16 243 182
Other reserves 16 5 5
Accumulated losses 16 (304) (328)
Total equity 16 387 292
Group cash flow statement
For the year ended 31 December 2006
Notes 2006 2005
£m £m
Cash flows from operating activities
Cash generated from operations 17(a) 217 167
Income taxes paid (24) (28)
Net cash from operating activities 193 139
Cash flows from investing activities
Dividends received from joint ventures and
associates 24 12
Interest received 29 64
Acquisition of businesses, net of cash and
cash (80) (56)
equivalents acquired
Purchase of property, plant and equipment (57) (57)
Purchase of investments (8) -
Investment in and loans made to joint
ventures and (22) (12)
associates
Investment in financial assets (12) (21)
Disposal of businesses, net of cash and cash
equivalents disposed - (15)
Disposal of property, plant and equipment 9 8
Disposal of investments - 6
Net cash used in investing activities (117) (71)
Cash flows from financing activities
Proceeds from issue of ordinary shares 6 6
Purchase of ordinary shares (3) (3)
Proceeds from new loans 35 6
Repayment of loans (27) (80)
Finance lease principal repayments (1) (2)
Buy-back of preference shares (19) (11)
Ordinary dividends paid (52) (28)
Interest paid (5) (27)
Premium paid on repayment of US Dollar term
loan - (9)
Preference dividends paid (12) (13)
Net cash used in financing activities (78) (161)
Net decrease in cash and cash equivalents (2) (93)
Effects of exchange rate changes (6) 3
Cash and cash equivalents at beginning of 316 406
year
Cash and cash equivalents at end of year 17(b) 308 316
Notes
1 Basis of presentation
The annual financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the European Union and
therefore comply with Article 4 of the EU IAS Regulation and with those parts of
the Companies Act 1985 that are applicable to companies reporting under IFRS. The
Group has applied all accounting standards and interpretations issued by the
International Accounting Standards Board and International Financial Reporting
Interpretations Committee relevant to its operations and effective for accounting
periods beginning on 1 January 2006. IFRS 7 Financial Instruments: Disclosures,
IFRS 8 Operating Segments and IFRIC 12 Service Concession Arrangements were in
issue at the date of authorisation of the financial statements but not yet
effective. IFRS 7 and IFRS 8 affect only disclosures and therefore have no material
impact on the financial statements of the Group. The impact of IFRIC 12, which
defines the accounting for the Group's PFI/PPP concessions, is currently under
review.
The financial statements have been prepared using accounting policies which have
been applied consistently throughout the year and the preceding year.
2 Segment analysis - continuing operations
For the year ended 31 December 2006
Performance by Building, Civil and
activity: building specialist Rail
management engineering engineering Investments
and and and and Corporate
services services services developments costs Total
£m £m £m £m £m £m
Group revenue 2,030 1,677 766 14 - 4,487
Group operating profit 42 47 35 (19) (24) 81
Share of results of
joint ventures and
associates 1 8 3 51 - 63
Profit from
operations before
exceptional items and
amortisation 43 55 38 32 (24) 144
Exceptional items - (21) 2 - - (19)
Amortisation of
intangible assets - (1) - - - (1)
Profit from
operations 43 33 40 32 (24) 124
Investment income 26
Finance costs (25)
Profit before taxation 125
Performance by geographic North
origin: Europe America Other* Total
£m £m £m £m
Group revenue 3,893 572 22 4,487
Profit from operations before exceptional
items and amortisation 141 (12) 15 144
Exceptional items (1) (18) - (19)
Amortisation of
intangible assets (1) - - (1)
Profit from operations 139 (30) 15 124
For the year ended 31 December 2005
Performance by Building, Civil and
activity: building specialist Rail
management engineering engineering Investments
and and and and Corporate
services services services developments costs Total
£m £m £m £m £m £m
Group revenue 1,674 1,366 763 34 - 3,837
Group operating profit 32 39 32 (10) (21) 72
Share of results of
joint ventures and
associates 3 10 - 30 - 43
Profit from
operations before
exceptional items 35 49 32 20 (21) 115
Exceptional items (8) - (12) 36 - 16
Profit from
operations 27 49 20 56 (21) 131
Investment income 56
Finance costs (46)
Profit before taxation 141
Performance by geographic Europe North Other* Total
origin: America
£m £m £m £m
Group revenue 3,332 483 22 3,837
Profit from operations before
exceptional items 134 (20) 1 115
Exceptional items 28 (12) - 16
Profit from operations 162 (32) 1 131
* Other principally comprises the Group's operations in Hong Kong and Dubai.
3 Investment income
2006 2005
£m £m
PFI/PPP
non-recourse - interest on financial assets 1 36
PFI/PPP subordinated debt interest receivable 8 5
Other interest receivable and similar income 17 15
26 56
4 Finance costs
2006 2005
£m £m
PFI/PPP non-recourse - other interest payable 1 19
Other interest payable - bank loans and overdrafts 3 1
- other loans 2 4
Preference shares - finance cost 12 13
18 37
Exceptional items - premium on buy-back of preference shares 7 3
- net premium on repayment of US Dollar term loan - 6
25 46
A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable
preference share of 1p was paid in respect of the six months ended 30 June 2006 on 1 July 2006
to holders of these shares on the register on 26 May 2006. A preference dividend of 5.375p
gross (4.8375p net) per cumulative convertible redeemable preference share was paid in respect
of the six months ended 31 December 2006 on 1 January 2007 to holders of these shares on the
register on 24 November 2006.
5 Exceptional items
2006 2005
£m £m
(a) Credited to/(charged against) profit from operations
Group operating
profit - litigation settlements and fines 2 (8)
- National Engineering and Contracting Company:
- impairment of goodwill (16) -
- reorganisation costs (2) -
(18) -
- Birse Group integration costs (3) -
- profit on sale of interest in Connect Roads - 6
- impairment of investment in Romec Ltd - (8)
- impairment of goodwill in Balfour Beatty Rail Inc - (4)
(19) (14)
Share of results of joint
ventures and associates
- TXU distributions to Barking Power Ltd - 30
(19) 16
(b) Charged to finance costs
- premium on buy-back of preference shares (7) (3)
- net premium on repayment of US Dollar term loan - (6)
(Charged against)/credited to profit before taxation (26) 7
(c) Taxation thereon 1 (3)
(Charged against)/credited to profit for the year (25) 4
(a) The exceptional item credited to Group operating profit in 2006 arose from the reduction in the
fine (less associated costs) imposed on Balfour Beatty Rail Infrastructure Services Ltd in
respect of the Hatfield derailment in October 2000. As a result of unsatisfactory performance
in the central division of Balfour Beatty Construction Inc, the goodwill arising on the
acquisition of National Engineering and Contracting Company has been written off and charged
against Group operating profit, together with costs of reorganisation of the division. Costs
incurred in the reorganisation and integration of Birse Group acquired in 2006 have been
charged against Group operating profit.
The exceptional items charged against Group operating profit in 2005 arose from litigation and
settlement costs of £8m which include a payment to the US Government by Balfour Beatty
Construction Inc, for its share of a settlement payment to resolve allegations arising from
investigations into a joint venture contract awarded in 1995 and completed in 2000 and the
costs awarded against Balfour Beatty Rail Infrastructure Services Ltd for admitted breaches of
the Health and Safety at Work Act following the Hatfield derailment in October 2000, provision
for the associated fine having been made in prior years; a profit of £6m on the disposal of a
15% interest in Connect Roads Ltd and Connect M77/GSO Holdings Ltd; an impairment charge of £8m
in respect of the Group's investment in Romec Ltd; and a goodwill impairment charge of £4m in
respect of Balfour Beatty Rail Inc. The exceptional item credited to profit from operations in
share of results of joint ventures and associates in 2005 arises in Barking Power Ltd in which
the Group holds a 25.5% interest. The £30m gain represents the Group's share, after charging
taxation of £12m, of the first three distributions received by Barking Power Ltd from the
administrator of TXU Europe following the damages agreement reached in December 2004 of £179m.
(b) The exceptional items charged against finance costs are the premium of £7m (2005: £3m) arising
on the repurchase for cancellation of 12.0m (2005: 6.8m) preference shares at a cost of £19m
(2005: £11m), and, in 2005, the net premium of £6m arising from the repayment of the US Dollar
term loan.
(c) The exceptional items in 2006 have given rise to a net tax credit of £1m (2005: £3m net
charge).
6 Taxation
2006 2005
£m £m
UK current tax
- corporation tax for the year at 30% (2005: 30%) 19 34
- double tax relief (4) (6)
- adjustments in respect of previous periods - (9)
15 19
Foreign current tax
- foreign tax on profits for the year 7 5
- adjustments in respect of previous periods - 1
7 6
Total current tax 22 25
Deferred tax
- UK 11 3
- foreign tax 1 2
- adjustments in respect of previous periods - 5
Total deferred tax 12 10
Total tax charge 34 35
The Group tax charge above does not include any amounts for joint ventures and associates,
whose results are disclosed in the income statement net of tax (see Note 12).
In addition to the Group tax charge above are amounts charged directly to equity for
current tax of £8m (2005: £4m credit) and deferred tax of £7m (2005: £10m credit), which
with a charge in respect of joint ventures and associates of £11m (2005: £5m) totals £26m
(2005: £9m credit).
The weighted average applicable tax rate is 32% (2005: 35%) based on profit before
taxation, exceptional items and amortisation of intangible assets, excluding the results
of joint ventures and associates.
7 Earnings per ordinary share
2006 2005
Basic Diluted Basic Diluted
£m £m £m £m
Earnings 91 91 106 106
Exceptional items 25 (4)
Amortisation of intangible assets 1 -
Adjusted earnings 117 102
m m m m
Weighted average number of ordinary shares 427.1 431.0 424.2 428.7
pence pence pence pence
Earnings per ordinary share 21.2 21.0 24.9 24.7
Exceptional items 5.9 (0.8)
Amortisation of intangible assets 0.2 -
Adjusted earnings per ordinary share 27.3 24.1
The calculation of basic earnings is based on profit for the year attributable to
equity shareholders. The weighted average number of ordinary shares used to calculate
diluted earnings per ordinary share has been adjusted for the conversion of share
options. 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 each year. Adjusted earnings per ordinary share, before
exceptional items and amortisation of intangible assets, has been disclosed to give a
clearer understanding of the Group's underlying trading performance.
8 Dividends on ordinary shares
2006 2005
Per share Amount Per share Amount
pence £m pence £m
Proposed dividends for the year:
Interim - current year 3.9 17 3.5 15
Final - current year 5.2 22 4.6 20
9.1 39 8.1 35
Recognised dividends for the year:
Final - prior year 20 16
Interim - current year 17 15
37 31
An interim dividend of 3.9p (2005: 3.5p) per ordinary share was paid on 13
December 2006. Subject to approval at the Annual General Meeting on 10 May 2007,
the final 2006 dividend will be paid on 2 July 2007 to holders of ordinary shares
on the register on 27 April 2007 by direct credit or, where no mandate has been
given, by cheque posted on 28 June 2007 payable on 2 July 2007. These shares will
be quoted ex-dividend on 25 April 2007.
9 Acquisitions
On 30 March 2006, the Group acquired 100% of the issued share capital of Edgar
Allen Ltd, the UK rail track products manufacturer, for an initial consideration
of £21.0m, before adjustment to reflect the value of the net assets acquired
estimated at £7.3m, and costs of £0.7m. The provisional fair value of net assets
acquired was £7.5m and goodwill arising was £6.9m, pending finalisation of the
post-acquisition review of the fair value of the net assets. The goodwill
recognised is attributable to the acquisition strengthening the Group's position
in the design, manufacture and supply of track products.
On 31 March 2006, the Group acquired 100% of the issued share capital of Charter
Builders Ltd, the US construction management company, for a consideration of
£17.3m and costs of £0.8m. The provisional fair value of net assets acquired was
£3.8m and goodwill arising was £14.3m, pending finalisation of the
post-acquisition review of the fair value of the net assets. The goodwill
recognised is attributable to the acquisition complementing the Group's US
project and programme management business, with a particular strength in the
education sector.
On 21 July 2006, the Group acquired 100% of the issued share capital of Birse
Group plc, the UK regional civil engineering company, for a consideration of
£32.1m and costs of £2.2m. The provisional fair value of net liabilities
acquired was £110.9m (including intangible assets recognised of £9.2m) and
provisional goodwill arising was £145.2m, pending finalisation of the
post-acquisition review of the fair value of the net liabilities. The goodwill
recognised is attributable to the acquisition strengthening the Group's regional
presence in the UK civil engineering sector.
The provisional fair value of the net assets acquired, consideration paid and
provisional goodwill arising on these transactions were:
Book value Fair value Fair value
of assets adjustments of assets
acquired acquired
£m £m £m
Net assets acquired:
Intangible assets - other - 10 10
Property, plant and equipment 13 - 13
Working capital (17) (87) (104)
Retirement benefit obligations 2 (37) (35)
Provisions (1) (12) (13)
Current tax liabilities (1) - (1)
Deferred taxation 3 33 36
Cash and cash equivalents (4) - (4)
Borrowings (2) - (2)
(7) (93) (100)
Goodwill 167
67
Satisfied by:
Cash consideration 70
Costs incurred 4
74
Deferred consideration (7)
67
In 2006, £2m deferred consideration was paid in respect of acquisitions
completed in earlier years.
Birse Group plc earned revenues of £154m and a loss from continuing operations
of £3m (after charging exceptional items of £3m and amortisation of intangible
assets of £1m) in the period since acquisition. Other acquired businesses earned
revenues of £97m and profits from continuing operations of £4m in the periods
since acquisition.
10 Intangible assets - goodwill
Accumulated
impairment Carrying
Cost losses amount
£m £m £m
At 1 January 2006 308 (24) 284
Exchange adjustments (11) 3 (8)
Businesses acquired (see Note 9) 167 - 167
Impairment losses for the year - (16) (16)
At 31 December 2006 464 (37) 427
11 Intangible assets - other
Accumulated Carrying
Cost amortisation amount
£m £m £m
At 1 January 2006 - - -
Businesses acquired (see Note 9) 10 - 10
Amortisation charge for the year - (1) (1)
At 31 December 2006 10 (1) 9
Other intangible assets comprise customer contracts,
customer relationships and brand names.
12 Joint ventures and associates
Share of results and net assets of joint
ventures and associates
2006
Investments and
Building, Civil and developments
building specialist Rail
management engineering engineering
and and and Barking
services services services PFI/PPP Power Total
£m £m £m £m £m
Revenue 115 705 4 458 83 1,365
Operating profit before
exceptional items 2 10 3 15 23 53
Investment income - 3 - 122 2 127
Finance costs - (1) - (84) (4) (89)
Profit before taxation
and exceptional items 2 12 3 53 21 91
Taxation (1) (4) - (17) (6) (28)
Profit after taxation 1 8 3 36 15 63
Intangible assets - goodwill - 22 2 - - 24
- other - - - 2 - 2
Property, plant and equipment 2 61 - 29 105 197
PFI/PPP financial assets - - - 1,541 - 1,541
Net (borrowings)/cash (2) 93 6 (1,260) (9) (1,172)
Other net assets/(liabilities) 4 (108) (6) 2 (26) (134)
Net assets 4 68 2 314 70 458
2005
Investments and
Building, Civil and developments
building specialist Rail
management engineering engineering
and and and Barking
services services services PFI/PPP Power Total
£m £m £m £m £m
Revenue 113 554 3 368 63 1,101
Operating profit before
exceptional items 4 16 - 15 15 50
Investment income - 1 - 69 - 70
Finance costs - (1) - (52) (3) (56)
Profit before taxation
and exceptional items 4 16 - 32 12 64
Taxation (1) (6) - (10) (4) (21)
Exceptional items - - - - 30 30
Profit after taxation 3 10 - 22 38 73
Intangible assets - goodwill - 25 2 - - 27
- other - - - 2 - 2
Property, plant and equipment 1 66 1 29 109 206
PFI/PPP financial assets - - - 1,255 - 1,255
Net (borrowings)/cash (3) 55 6 (914) (32) (888)
Other net assets/(liabilities) 6 (79) (9) (123) (22) (227)
Net assets 4 67 - 249 55 375
13 PFI/PPP subsidiaries
As at 31 December 2006, the Group had a 100% interest in two PFI/PPP concessions
through its shareholdings in Connect Roads Sunderland Holdings Ltd and Connect
Roads South Tyneside Holdings Ltd. The Group also had a 100% interest in three
PFI/PPP concessions through its shareholdings in Connect Roads Ltd and Connect
M77/GSO Holdings Ltd until 20 December 2005, when the Group disposed of a 15%
interest in those concessions and they became joint ventures. The performance of
the wholly-owned PFI/PPP concessions (until ceasing to be subsidiaries as
appropriate) and their balance sheets are summarised below:
2006 2005
£m £m
Income statement
Group revenue 14 32
Profit from operations - -
Investment income 1 36
Finance costs (1) (19)
Profit before taxation - 17
Taxation - (5)
Profit for the year - 12
Cash flow
Profit from operations - -
Decrease in working capital 1 -
Income taxes paid - (3)
Net cash inflow/(outflow) from operating activities 1 (3)
Net cash outflow from investing activities (7) (20)
Net cash (outflow)/inflow from financing activities (1) 29
Net cash (outflow)/inflow (7) 6
Net borrowings at beginning of year (14) (244)
Net borrowings at date of disposal - 224
Net borrowings at end of year (21) (14)
Balance sheet
PFI/PPP financial assets 22 14
Other net current assets (1) -
Non-recourse term loans (21) (14)
Net assets - -
14 Share capital
During the year ended 31 December 2006, 1,375,582 ordinary shares were issued
following the exercise of savings-related share options and 1,999,231 ordinary
shares were issued following the exercise of executive share options for an
aggregate cash consideration of £6m.
During the year ended 31 December 2006, 12,012,640 preference shares were
repurchased for cancellation by the Company for a total consideration of
£18,836,111 at an average price of 156.8p.
15 Retirement benefit obligations
The Group's actuaries have updated to 31 December 2006 on the basis of IAS 19 'Employee Benefits' the
latest actuarial funding valuations of the Group's principal defined benefit schemes, namely the Balfour
Beatty Pension Fund, the Balfour Beatty Shared Cost section of the Railways Pension Scheme, the two
Mansell pension schemes and the Birse scheme. Details of these valuations and the disclosures prescribed
by IAS 19 are set out in the Report and Accounts along with the funding valuation reviews.
The principal assumptions used by the actuaries, the scheme details and IAS 19 disclosures for the
Group's principal defined benefit schemes are summarised below:
2006 2005
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Mansell Birse Pension Pension Mansell
Fund Scheme schemes scheme Fund Scheme schemes
% % % % % % %
Inflation rate 3.1 3.1 3.1 3.1 2.8 2.8 2.8
Discount rate 5.15 5.15 5.15 5.15 4.75 4.75 4.75
Future salary increases 4.6 4.6 4.6 4.6 4.3 4.3 4.3
Future pension increases 3.1 3.1 3.1 3.1 2.8 2.8 2.8
Expected return on plan assets 6.35 7.30 6.79 7.36 5.98 7.00 6.60
Number Number Number Number Number Number Number
Total number of members 33,943 3,322 3,361 2,086 35,057 3,342 3,397
£m £m £m £m £m £m £m
IAS 19 DEFICIT
Present value of funded obligations (1,876) (158) (210) (94) (1,806) (159) (212)
Fair value of plan assets 1,688 150 177 62 1,629 136 160
Liability in the balance sheet (188) (8) (33) (32) (177) (23) (52)
In addition, the Group has funded and unfunded post-retirement defined benefit obligations in Europe and
North America amounting to £27m (2005: £28m), the majority of which arrangements are closed to new
entrants.
The movement in retirement benefit obligations of the Group's defined benefit schemes for the year ended
31 December 2006 was as follows:
£m
At 1 January 2006 (280)
Exchange adjustments 2
Service cost (52)
Interest cost (104)
Expected return on plan assets 117
Contributions from employer 36
Benefits paid 2
Actuarial gains and losses - assets 21
- liabilities 5
Businesses acquired (35)
At 31 December 2006 (288)
The Balfour Beatty Pension Fund includes a defined contribution section with 4,119 members as at 31
December 2006 (2005: 2,776 members). Including £7m (2005: £4m) contributions paid and charged in the
income statement in respect of this section and £6m (2005: £5m) pension costs in respect of other
defined contribution schemes, the total net pension cost recognised in the income statement in the year
was £52m (2005: £49m), with contributions paid of £49m (2005: £42m).
The principal assumptions used by the actuaries and the funding valuations for the Group's principal
defined benefit schemes are summarised below:
2006 2005
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Mansell Birse Pension Pension Mansell
Fund Scheme schemes scheme Fund Scheme schemes
% % % % % % %
Inflation assumption 3.1 3.1 3.1 3.1 2.8 2.8 2.8
Rate of increase in salaries 4.6 4.6 4.6 4.6 4.3 4.3 4.3
Rate of increase in pensions in payment (or
such other fixed rate as is guaranteed) 3.1 3.1 3.1 3.1 2.8 2.8 2.8
Return on existing investments:
- actives and deferred members
- pre-retirement 7.75 7.75 7.75 7.75 7.7 7.7 7.7
- post-retirement 5.4 5.4 5.4 5.4 5.0 5.0 5.0
- pensioners, widows and dependants 4.9 4.9 4.9 4.9 4.5 4.5 4.5
£m £m £m £m £m £m £m
SCHEME SURPLUS/(DEFICIT)
Market value of assets 1,689 150 177 63 1,630 136 160
Present value of scheme liabilities (1,671) (140) (171) (64) (1,583) (137) (169)
Surplus/(deficit) in scheme 18 10 6 (1) 47 (1) (9)
16 Movements in equity
For the year ended 31 December 2006
Share
of joint
Equity ventures'
Called-up Share component and
share premium preference special associates' Other Accumulated
capital account shares reserve reserves reserves losses Total
£m £m £m £m £m £m £m £m
At 1 January 2006 214 26 18 175 182 5 (328) 292
Net profit for the year - - - - 63 - 28 91
Actuarial gains on retirement
benefit obligations - - - - 10 - 26 36
PFI/PPP cash flow hedges
- net fair value gains - - - - 32 - - 32
PFI/PPP financial assets
- fair value revaluation - - - - (2) - - (2)
Changes in fair value of net
investment hedges - - - - - 14 - 14
Currency translation differences - - - - (7) (10) - (17)
Tax on items taken directly to equity - - 1 - (11) (8) (8) (26)
Total recognised income for the year - - 1 - 85 (4) 46 128
Ordinary dividends - - - - - - (37) (37)
Joint ventures' and associates'
dividends - - - - (24) - 24 -
Issue of ordinary shares 1 5 - - - - - 6
Buy-back of preference shares - 12 (3) - - - (12) (3)
Movements relating to
share-based payments - - - - - 2 (1) 1
Transfers - - - (6) - 2 4 -
At 31 December 2006 215 43 16 169 243 5 (304) 387
For the year ended 31 December 2005
Share
of joint
Equity ventures'
Called-up Share component and
share premium preference special associates' Other Accumulated
capital account shares reserve reserves reserves losses Total
£m £m £m £m £m £m £m £m
At 1 January 2005 212 15 19 181 86 29 (315) 227
Net profit for the year - - - - 73 - 33 106
Actuarial gains/(losses) on
retirement benefit obligations - - - - 7 - (21) (14)
PFI/PPP cash flow hedges
- net fair value gains/(losses) - - - - (20) 3 - (17)
- reclassified and reported
in net profit - - - - - 1 - 1
PFI/PPP financial assets
- fair value revaluation - - - - 29 (19) - 10
- reclassified and reported
in net profit - - - - - (4) - (4)
Changes in fair value of
net investment hedges - - - - - (6) - (6)
Currency translation differences - - - - 5 3 - 8
Tax on items taken directly
to equity - - 1 - (6) 6 8 9
Total recognised income for the
year - - 1 - 88 (16) 20 93
Ordinary dividends - - - - - - (31) (31)
Joint ventures' and associates'
dividends - - - - (12) - 12 -
Issue of ordinary shares 2 4 - - - - - 6
Buy-back of preference shares - 7 (2) - - - (8) (3)
Movements relating to share-based
payments - - - - - (2) 2 -
Transfers - - - (6) 20 (6) (8) -
At 31 December 2005 214 26 18 175 182 5 (328) 292
17 Notes to the cash flow statement
2006 2005
£m £m
(a) Cash generated from operations comprises:
Profit from operations 124 131
Share of results of joint ventures and associates (63) (73)
Depreciation of property, plant and equipment 43 41
Amortisation of other intangible assets 1 -
Impairment charges 16 12
Movements relating to share-based payments 4 3
Profit on disposal of property, plant and equipment (1) (2)
Profit on disposal of businesses - (6)
Operating cash flows before movements in working capital 124 106
Decrease in working capital 93 61
Cash generated from operations 217 167
(b) Cash and cash equivalents comprise:
Cash and deposits 142 146
Term deposits 181 199
Bank overdrafts (15) (29)
308 316
(c) Analysis of net cash:
Bank overdrafts (15) (29)
Other short-term unsecured loans (1) -
Finance leases (1) (1)
Other secured loans (1) -
Cash and deposits 142 146
Term deposits 181 199
305 315
PFI/PPP non-recourse - Sterling floating rate term loan
term loans (2008-2027) (17) (13)
- Sterling floating rate term loan
(2011-2030) (4) (1)
Net cash 284 301
A significant part of the PFI/PPP non-recourse project finance floating rate term
loans has been swapped into fixed rate debt by the use of interest rate swaps.
(d) Analysis of movement in net cash:
Opening net cash 301 67
Net decrease in cash and cash equivalents (2) (93)
Acquisitions - borrowings at date of acquisition (2) (1)
Businesses sold - borrowings at date of disposal - 253
New loans (35) (6)
Repayment of loans 27 80
Finance lease principal repayments 1 2
Exchange adjustments (6) (1)
Closing net cash 284 301
18 Post balance sheet events
On 5 January 2007 the Group acquired Exeter and Devon Airport Ltd for a cash
consideration of £60m.
On 1 February 2007 the Group agreed to acquire Centex Construction, a leading US
building company, from Centex Corporation for a cash consideration of
approximately US $362m.
The financial information set out above (which was approved by the Board on 6 March
2007) has been compiled in accordance with IFRS, but does not contain sufficient
information to comply with IFRS. That financial information does not constitute the
Company's statutory accounts for the year ended 31 December 2006 for the purpose of
Section 240 of the Companies Act 1985 which comply with IFRS, but is extracted from
those accounts. The Company's statutory accounts for the year ended 31 December 2006
will be filed with the Registrar of Companies following the Annual General Meeting.
The independent auditors' report on those accounts was unqualified and did not
contain any statement under Section 237(2) or (3) of the Companies Act 1985. The
Company's statutory accounts for the year ended 31 December 2005 have been filed with
the Registrar of Companies. The independent auditors' report on those accounts was
unqualified and did not contain any statement under Section 237(2) or (3) of the
Companies Act 1985.
This information is provided by RNS
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