Interim Results

BICC PLC 18 August 1999 BICC plc - 1999 INTERIM RESULTS ------------------------------- K E Y P O I N T S - Retained businesses improve pre-exceptional operating profits by 23% to £54 million - Disposal of loss-making Communications and Energy Cables businesses - Loss before tax of £392 million, reflecting losses and provisions in respect of disposed businesses - Net debt eliminated with further proceeds still to come -------------------- Engineering, Construction and Maintenance - Operating profits improve to £36 million - Strong, good quality order book - Major rail projects secured - Further profit progress in UK and US contracting - Andover Controls profits improve again --------------------- Cable Systems and Services - Brand-Rex operating profits improve by 14% ----------------------- Capital Projects and Developments - Significant profit progress as concessions begin to earn - Good progress on construction - Preferred bidder status achieved for further schemes - Further PFI opportunities being pursued ------------------------ 'Now that the disposal of our cables businesses has been largely completed, BICC has emerged from a period of great trauma and difficulty as a very different company. Results for the second half of the year and thereafter will obviously be quite different in shape and content from the highly abnormal situation shown in the figures published today. Those businesses which now make up the Company in its ongoing form all performed well in the first half of the year, and continue to do so. 'Overall I am confident that we now have a real opportunity, in our new form, to build a successful and growing business and thus create value for shareholders.' Viscount Weir, Chairman ooo00000ooo 18 August 1999 BICC plc -------- RESULTS FOR THE HALF-YEAR TO 3 JULY 1999 ---------------------------------------- BICC plc, the international engineering, construction and services group, today announced pre-tax profits before exceptional items for the six months to 3 July 1999 of £16 million (1998: £46 million). First half pre-exceptional operating losses in the Communications and Energy Cables businesses disposed of during the first half of 1999 amounted to £16 million. These businesses contributed profits of £23 million in the first half of 1998. By contrast, the retained businesses of Balfour Beatty, Capital Projects, Andover Controls and Brand-Rex made first half pre-exceptional operating profits of £54 million, a 23% increase on the first half of 1998 (£44 million). Exceptional items totalling £408 million were incurred, comprising the cost of provisions and the loss on disposal (including a charge for goodwill of £295 million) arising on the sale of the Energy Cable businesses. Pre-exceptional earnings per share were 0.9p (1998: 4.7p). Together with the results of the discontinued businesses, and the loss on their disposal, this produces a loss per share of 91.6p. The Board is recommending that an interim dividend of 2.0p be paid. In his statement to shareholders, BICC Chairman, Viscount Weir, said: 'Now that the disposal of our cables businesses has been largely completed, BICC has emerged from a period of great trauma and difficulty as a very different company. Its continuing ongoing business has Balfour Beatty as its principal operation, together with Capital Projects, and Brand-Rex data cables and Andover Controls. In contrast with the Company's former situation, it no longer carries a heavy burden of debt, and the new shape of its activities has resulted in it being reclassified by the Stock Exchange in the Construction Sector. 'Those businesses which now make up the Company in its ongoing form all performed well in the first half of the year, and continue to do so. Their results are reviewed separately below. 'The results of the discontinued businesses, together with the heavy loss on their disposal, produce a negative figure for earnings per share which is largely without relevance in the context of the ongoing business. 'As foreshadowed in my statement in the last Annual Report and Accounts, an interim dividend of 2.0p will be paid on 4 January 2000. Cash and Borrowings ------------------- 'The Group's net borrowings have been eliminated at the half year as a result of receipt of the proceeds from the sales of the cables businesses. Further income will be received in the second half from the completion of the sales of our interests in the German and Dubai operations. This, together with the historic pattern of second half cash performance from the business, should result in further improvement to the cash position at year end. Performance of Continuing Businesses ------------------------------------ 'The engineering, construction and maintenance activities performed well in the first half of the year. Their overall operating profit improved to £36 million despite pension charges which increased by £3m, and after the anticipated reduction in margins from rail maintenance which reflect the circumstances anticipated at the time we first acquired these businesses. 'The UK Construction business made a steady improvement in its performance, reflecting a more selective bidding policy, a stronger focus on repeat customers and better management of the supply chain. As a result it has a good order book both in terms of volume and of quality. 'Rail is a key market for Balfour Beatty. I would, however, stress that although rail maintenance in the UK is very important to them, and they have a leading position in this area, their expertise and activities are far wider than many other companies in this field and enable them, both at home and abroad, to undertake complete projects whether for electrification, upgrading or new construction. They have such projects in hand today, for Amtrak in the United States, for the West Coast Main Line and Channel Tunnel Rail Link at home, and in the Far East. There remain good opportunities for growth. 'In early July, for example, it was announced that Balfour Beatty was preferred bidder for the £185m maintenance contract from Railtrack for the Wessex area. This, and other recently announced contracts for Railtrack, further consolidate our position in this business. 'In the United States, Balfour Beatty's operations in the growing infrastructure market made further progress and they currently have an order book of some $700m. 'Balfour Beatty has now successfully established itself in the US in a chosen and limited number of specialist activities suited to its skills and including tunnelling, seismic retrofit, and road construction in Texas. 'While Major Projects in the construction field at home and overseas are harder to come by than at some times in the past, we are not without opportunities although we will continue with a selective policy in bidding. A number of substantial opportunities are currently being pursued. 'Turning to asset management in areas other than rail maintenance, these activities are now better focused than in the past on suitable opportunities, and Andover Controls is showing encouraging growth in its main markets of the UK and the US while extending its sales effort geographically. 'Brand-Rex, the data cable business, is achieving good growth across Europe, and some tentative signs of recovery are apparent in Asia-Pacific. 'In Capital Projects, our past successes in winning PFI projects in areas such as hospitals and roads are now bringing tangible benefits which started to emerge in the results for the first half of the year. This process will accelerate in the course of time, and meanwhile, the excellent team we have in this area is actively pursuing new projects to add to our portfolio. 'Operating profits in the first half showed a marked improvement from £5m to £13m as individual PFI concessions and capital projects progressed to the operational phase and initial development costs reduced. The Barking power generation investment performed well and in line with expectations. 'The PFI road projects for the A1/M1, A35 and A50 are now complete as far as construction is concerned, and our share of the concession companies' results are beginning to be consolidated in our figures for sales, operating profit and interest costs. A number of PFI concessions are still to reach the operational phase, including the Durham and Edinburgh hospitals and the A30 road. 'It should be noted that Capital Projects are becoming an increasingly valuable part of the on-going business and in addition to income from the equity in such projects, they will also generate additional income from maintenance and asset management services. 'For the year as a whole, however, the results will clearly still be heavily coloured by the events of the first half. Indeed, the complexity of the transactions carried out in the first half and the timescale required to completely resolve every issue may result in some small additional adjustments. Moreover, the costs associated with the considerable internal rationalisation and reorganisation which is required following the disposals will result in some further exceptional costs in the second half albeit on a modest scale. I should also add that new accounting standards affect the timing and manner in which provisions can now be taken. Management Structure -------------------- 'As recently announced, Mike Welton, who has been Chief Executive of Balfour Beatty for the last three years, will be taking over as Chief Executive of BICC as of 1st September upon Alan Jones's retirement. Balfour Beatty's results have improved dramatically under his management. 'I need hardly repeat what I said at the time of that announcement, when I stressed the debt owed to Mr Jones for the great contribution he made to the Company's affairs during a period of much difficulty. 'Given the simplified scope of the Company as it is now constituted, action is in hand to rationalise both management structure and costs in line with its slimmer base. Outlook ------- 'Results for the second half of the year and thereafter will obviously be quite different in shape and content from the highly abnormal situation shown in the figures published today and basically will reflect the simpler and slimmer operating structure of the group; the radical change from its previous high level of debt; and the disposal of serious lossmakers. 'We are continuing to review the opportunities open to the Company as it is now constituted, so that we have a clear plan as to the priorities towards which we should best direct our efforts and resources. In parallel, as already stated, we are working towards a management structure and overhead cost appropriate to our new shape. 'Overall, therefore, I am confident that we now have a real opportunity, in our new form, to build a successful and growing business and thus create value for shareholders.' Enquiries to:- Mike Welton, Chief Executive Ron Henderson, Finance Director Tim Sharp, Head of Corporate Communications Tel 0171 629 6622 ooo00000ooo The Interim Report for the period to 3 July 1999 will be posted on 19 August 1999 to holders of ordinary shares and preference shares. Copies will also be available for members of the public at the Company's registered office at Devonshire House, Mayfair Place, London, W1X 5FH. The interim 1999 dividend of 2.0p net will be paid on 4 January 2000 to ordinary shareholders on the register on 5 November 1999. Dividend warrants will be posted on 29 December 1999, payable on 4 January 2000. A preference dividend of 5.375p gross (4.8375p net at current tax rate) will be paid on 1 January 2000 in respect of the six months ending 31 December 1999 to preference shareholders on the register on 19 November 1999. Dividend warrants will be posted on 29 December 1999, payable on 1 January 2000. ooo00000ooo THE REFOCUSED GROUP ------------------- PRINCIPAL BUSINESSES -------------------- RAIL ENGINEERING AND SERVICES ----------------------------- 1998 Turnover £400m (of which £75m is in Major Projects and £250m is in Asset Management) Balfour Beatty is the UK's largest rail services company, and is an international leader in major rail engineering projects. It offers a complete service to the world's railways from design through construction and commissioning to asset management and maintenance. MAJOR PROJECTS -------------- 1998 Turnover £375m (of which £75m is in Rail) Balfour Beatty provides the full range of skills for the execution of complex infrastructure projects worldwide, across all disciplines and sectors. It offers skills in project management, design and consultancy, engineering, multidisciplinary management and financial and commercial capabilities. US CONSTRUCTION --------------- 1998 Turnover £180m Balfour Beatty has a substantial and growing presence in the fast-developing market for infrastructure construction in the USA. It provides project management, engineering skills and execution of major projects, principally in transportation, tunnelling and seismic retrofit. UK CONSTRUCTION --------------- 1998 Turnover £1,000m Balfour Beatty undertakes the design, construction and refurbishment of a wide range of buildings in the UK and overseas. It also offers civil and other specialist engineering skills and the design, supply, installation and commissioning of mechanical and electrical services in the built environment. ASSET MANAGEMENT ---------------- 1998 Turnover £450m (of which £250m is in Rail) Balfour Beatty, as well as being the UK's largest rail maintenance company, has a growing portfolio of contracts for road term maintenance and management. In premises management, the Group has comprehensive management contracts for a number of major organisations. DATA CABLE SYSTEMS ------------------ 1998 Turnover £125m Brand-Rex is a market leader and worldwide specialist manufacturer of structured cabling systems for data networks and other specialist cable types. It provides a single source for customers looking for complete systems and solutions for communications 'backbones'. BUILDING MANAGEMENT CONTROLS ---------------------------- 1998 Turnover £54m Andover Controls is a leader in the design and manufacture of advanced micro-computer based intelligent building control systems. It has over 40,000 systems installed in a wide range of premise types, worldwide. CAPITAL PROJECTS ---------------- 1998 Turnover £92m BICC is one of the most successful participants in the UK government's Private Finance Initiative with a growing portfolio of roads, hospitals and power projects. It is also a 25.5% shareholder in Barking Power, one of the first and biggest of the UK's independently owned power stations. ooo00000ooo GROUP PROFIT AND LOSS ACCOUNT 1999 1998 1998 For the half-year ended first half first half year 3 July 1999 based on as as unaudited figures restated restated Notes £m £m £m TURNOVER INCLUDING SHARE OF JOINT VENTURES AND ASSOCIATES 2 1,636 2,066 3,975 Less: share of turnover of joint ventures (51) (87) (156) share of turnover of associates (82) (72) (149) ----- ----- ----- GROUP TURNOVER 1,503 1,907 3,670 ___________________________ Continuing operations 1,070 1,056 2,204 Discontinued operations 433 851 1,466 ___________________________ ===== ===== ===== OPERATING PROFIT INCLUDING SHARE OF JOINT VENTURES AND ASSOCIATES Group operating profit before exceptional items 16 53 79 Share of operating profit of joint ventures 9 - - Share of operating profit of associates 13 14 29 --- --- --- 38 67 108 Exceptional items charged against operating profit (including 1999 £2m continuing operations) 3 (9) - (124) --- --- --- 29 67 (16) _________________________ Continuing operations 52 44 91 Discontinued operations (23) 23 (107) _________________________ EXCEPTIONAL ITEMS Fundamental restructuring costs 3 (2) (16) (27) Loss on sale of operations 3 (423) (11) (7) Provision for loss on sale of Telecommunication Cable businesses 3 26 - (26) --- --- --- (LOSS)/PROFIT BEFORE INTEREST (370) 40 (76) Net interest payable: Group (10) (14) (25) Share of joint ventures' interest (7) (1) (2) Share of associates' interest (5) (6) (11) --- --- --- (LOSS)/PROFIT BEFORE TAXATION (392) 19 (114) Taxation 4 14 (10) (20) --- --- --- (LOSS)/PROFIT AFTER TAXATION (378) 9 (134) Minority interests 1 (4) (5) --- --- --- (LOSS)/PROFIT FOR THE PERIOD (377) 5 (139) Dividends: Preference 5 (9) (8) (15) Ordinary 7 (8) (17) (25) --- --- --- TRANSFER FROM RESERVES (394) (20) (179) === === === p p p ADJUSTED EARNINGS PER ORDINARY SHARE 0.9 4.7 6.6 Exceptional items after attributable taxation and minority interests (92.5) (5.4) (43.4) ---- ---- ---- LOSS PER ORDINARY SHARE 6 (91.6) (0.7) (36.8) ==== ==== ==== DILUTED LOSS PER ORDINARY SHARE 6 (91.6) (0.7) (36.8) ==== ==== ==== DIVIDENDS PER ORDINARY SHARE 7 2.0 4.0 6.0 ==== ==== ==== GROUP BALANCE SHEET 1999 1998 1998 At 3 July 1999 first half first half year based on unaudited figures as as restated restated Notes £m £m £m FIXED ASSETS Intangible assets - goodwill 3 26 3 Tangible assets 158 532 362 Investments - - 1 Investments in joint ventures: _________________________ Share of gross assets 322 265 323 Share of gross liabilities (284) (217) (275) _________________________ 38 48 48 Investments in associates 17 29 30 --- --- --- 216 635 444 --- --- --- CURRENT ASSETS Businesses in the course of disposal 18 - - Stocks 95 292 244 Debtors - due within one year 623 889 814 - due after one year 94 109 111 Cash and deposits 226 146 184 ----- ----- ----- 1,056 1,436 1,353 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Borrowings and minority redeemable capital (107) (175) (214) Other (793) (1,108) (1,131) ----- ----- ----- NET CURRENT ASSETS 156 153 8 ----- ----- ----- TOTAL ASSETS LESS CURRENT LIABILITIES 372 788 452 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Borrowings and minority redeemable capital (118) (236) (99) Other (23) (23) (37) PROVISIONS FOR LIABILITIES AND CHARGES (128) (130) (108) ---- ---- ---- 103 399 208 ==== ==== ==== CAPITAL AND RESERVES 8 102 365 199 MINORITY EQUITY INTERESTS 1 34 9 ---- ---- ---- 103 399 208 ==== ==== ==== Capital and reserves include non-equity shareholders' funds of £177m. GROUP CASH FLOW STATEMENT For the half-year ended 1999 1998 1998 3 July 1999 based on first half first half year unaudited figures Notes £m £m £m Net cash flow from operating activities 9 (95) (37) 170 Dividends from joint ventures and associates 8 3 6 Returns on investments and servicing of finance (26) (25) (46) Taxation (10) (10) (24) Capital expenditure and financial investment (36) (44) (115) Acquisitions and disposals of businesses 312 (24) (20) Ordinary dividends paid (25) (16) (31) --- --- --- CASH INFLOW/(OUTFLOW) BEFORE 9 USE OF LIQUID RESOURCES AND FINANCING 128 (153) (60) === === === STATEMENT OF TOTAL RECOGNISED 1999 1998 1998 GAINS AND LOSSES first half first half year For the half-year ended as as 3 July 1999 based on restated restated unaudited figures £m £m £m (Loss)/profit for the period (377) 5 (139) Exchange adjustments 4 (5) (4) Reduction in fixed asset valuation surplus (2) - (27) --- --- --- TOTAL RECOGNISED GAINS AND LOSSES FOR THE PERIOD (375) - (170) === === === NOTES 1 BASIS OF PRESENTATION The interim financial statements have been prepared on the basis of the accounting policies set out in the 1998 BICC plc Annual Report & Accounts except as noted below. Comparative figures have been restated to comply with FRS 12 Provisions and Contingencies. Provisions created in 1997 as fundamental restructuring costs amounting to £29m together with the associated tax relief of £6m have been reversed and recharged in 1998 and 1999 when the costs were actually incurred or committed. Similarly, provisions created in 1998 in connection with the rationalisation of the discontinued cables businesses amounting to £7m together with the associated tax relief have been reversed and recharged in 1999. These restatements have had no effect on shareholders' funds at 3 July 1999. In addition, £14m relating to onerous contracts has been provided as a prior year adjustment relating to periods prior to 1998. The Energy cable and Telecommunication cable businesses sold in 1999, Optical Fibres and the businesses sold in 1998 under the reorganisation of the Group's interests in Metal Manufactures, which were mainly engaged in the manufacture and distribution of building products, have been classified as discontinued. 2. SEGMENT ANALYSIS Operating profit before Turnover exceptional items 1999 1998 1998 1999 1998 1998 first first year first first year half half half half £m £m £m £m £m £m Engineering, construction & maintenance 1,060 1,033 2,184 36 35 69 Cable manufacturing, related systems & services 67 63 125 5 4 8 Capital projects & developments 45 51 92 13 5 14 ----- ----- ----- ----- ----- ----- 1,172 1,147 2,401 54 44 91 Discontinued operations 464 919 1,574 (16) 23 17 ----- ----- ----- ----- ----- ----- 1,636 2,066 3,975 38 67 108 ===== ===== ===== Net interest payable (22) (21) (38) --- --- --- Profit before tax and exceptional items 16 46 70 === === === The Cable manufacturing, related systems and services segment comprises the results of Brand-Rex only. 3. EXCEPTIONAL ITEMS The loss on sale of discontinued operations arose on the disposal of the Energy cable and Telecommunication cable businesses. Goodwill of £295m was charged in respect of the Energy cable disposal and £26m (previously provided in 1998) in respect of the Telecommunication cable businesses. These transactions reduced the Group's tax charge by £15m. Exceptional items in 1999 comprise the costs of rationalisation of the discontinued cables businesses (£7m as restated), the costs arising from approaches made to the BICC plc Board by Wassall plc (£2m) and fundamental restructuring costs (£2m as restated). Exceptional items in 1998 comprised the costs of rationalising the discontinued cables businesses (£18m as restated), asset impairment provisions (£106m) and fundamental restructuring costs (£27m as restated). Of the 1998 restatements, fundamental restructuring costs of £16m arose in the first half. In 1998, the net loss on sale of operations arose on the disposal of the Group's interest in Metal Manufactures (£11m loss after charging goodwill of £17m) and Optical Fibres (£4m profit). 4. TAXATION 1999 1998 1998 first half first half year as restated as restated £m £m £m United Kingdom (15) 6 18 Overseas 1 4 2 --- --- --- Tax (credit)/charge (14) 10 20 === === === Exceptional items have reduced the Group's tax charge by £18m in the first half 1999, £5m in the first half 1998 and £1m in 1998. 5. DIVIDENDS PER PREFERENCE SHARE 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 1999 on 1 July 1999 to holders of these shares on the register on 21 May 1999. A preference dividend of 5.375p gross (4.8375p net at current tax rate) per preference share will be paid in respect of the six months ending on 31 December 1999 on 1 January 2000 to holders of these shares on the register on 19 November 1999 by direct credit or, where no mandate has been given, by warrants posted on 29 December 1999 payable on 1 January 2000. 6. LOSS PER ORDINARY SHARE The calculation of the loss per ordinary share is based on the loss for the period, after charging preference dividends, divided by the weighted average number of ordinary shares in issue during the period of 421m (1998 first half: 420m). There were no dilutive potential ordinary shares at 3 July 1999. Adjusted earnings per ordinary share before exceptional items have been disclosed to give a clearer understanding of the Group's underlying trading performance. 7. DIVIDENDS PER ORDINARY SHARE The interim dividend will be paid on 4 January 2000 to ordinary shareholders on the register on 5 November 1999 by direct credit or, where no mandate has been given, by warrants posted on 29 December 1999 payable on 4 January 2000. 8. RECONCILATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1999 first half £m At 1 January 1999 - as previously reported 207 Prior year adjustments (8) --- At 1 January 1999 - as restated 199 Retained loss for the period (394) Exchange adjustments 4 Goodwill 295 Reduction in fixed asset revaluation surplus (2) --- At 3 July 1999 102 === Prior year adjustments comprise provisions for onerous contracts of £14m offset by the write-back of exceptional items now charged in 1999 amounting to £9m with attributable tax relief of £3m. 9. NOTES TO THE CASH FLOW STATEMENT 1999 1998 1998 first half first half year £m £m £m (a) Net cash flow from operating activities: Group operating profit before exceptional items 16 53 79 Depreciation 21 40 78 Exceptional items - cash expenditure (29) (30) (34) Working capital (increase)/decrease (104) (99) 46 Other 1 (1) 1 --- --- --- Net cash flow from operating activities (95) (37) 170 === === === (b) Reconciliation of net cash/(borrowings) and minority redeemable capital: Opening net borrowings and minority redeemable capital (129) (180) (180) Cash inflow/(outflow) before use of liquid resources and financing 128 (153) (60) Disposal of businesses - borrowings at date of disposal 5 58 108 Exchange adjustments (3) 10 3 --- --- --- Closing net cash/(borrowings) and minority redeemable capital 1 (265) (129) === === === At 3 July 1999, net borrowings of joint ventures and associates supported by the Group were £5m (1998: full year £5m, half year £5m). The interim financial statements were approved by the directors on 17 August 1999. Comparative figures (as restated - see note 1 above) have been extracted from the 1998 BICC plc Annual Report & Accounts on which the auditors gave an unqualified report and which have been filed with the Registrar of Companies.

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