Interim Results

Balfour Beatty PLC 16 August 2000 BALFOUR BEATTY PLC INTERIM RESULTS FOR HALF-YEAR ENDING 1 JULY 2000 FURTHER SIGNIFICANT PROGRESS - Pre-tax, pre-exceptional profits of £35 million (1999: £16 million) - £12 million net exceptional profit from cable disposals - Pre-exceptional earnings per share of 3.9p (1999: 0.9p) - £135 million net cash and strong operating cash flow - Record order book set to increase further - Recent US rail and security system acquisitions strengthen core businesses - Prospects in principal markets healthy and improving Building, Building Management and Services - Operating profits improve to £14 million - Preferred bidder for five-year, £500 million BT premises management Civil and Specialist Engineering and Services - Operating profits improve to £10 million - Further profit progress in US engineering Rail Engineering and Services - Maintenance profits fall as principal contracts renegotiated - Preferred bidder for £600 million UK rail maintenance contracts Investments and Developments - Operating profits improve to £18 million - UCL Hospital and Aberdeen Waste Water concessions secured 'We will continue to strengthen our core businesses and are evaluating further potential acquisitions and investments in growth markets. We believe that our momentum in improving efficiency and business processes will continue to contribute to profit improvement. 'Trading conditions in the short term continue to be broadly positive, although there remains a shortage of major project work in the UK pending the delivery of the planned investment programmes. We anticipate that the group will make further progress in the second half of this year, and will be well positioned for next year.' Viscount Weir, Chairman ooo00000ooo BALFOUR BEATTY PLC RESULTS FOR THE HALF-YEAR TO 1 JULY 2000 Balfour Beatty plc, the international engineering, construction and services group, today announced pre-tax profits before exceptional items for the six months to 1 July 2000 of £35 million (1999: £16 million). Results for the first half of 1999 included losses in the cable operations which were sold during the period. Turnover in our ongoing operations increased slightly from £1,112 million to £1,178 million. Operating profits from the Group's continuing businesses amounted to £48 million (1999: £48 million) and reflected improved performances by the great majority of our operations offset by the anticipated decline in UK rail maintenance profits as the initial contracts entered into in 1996 are renegotiated. Profits from Barking Power were also lower in the period as a result of planned maintenance outages, now completed. First-half pre-tax profits were further increased to £47 million by an exceptional profit of £12 million. This reflected the net of the profit arising from the sale, in March, of the Brand-Rex data cable business and an exceptional loss reflecting negotiations, nearing completion, between Balfour Beatty and General Cable to reach full and final settlement of all outstanding matters, including the completion balance sheet, relating to last year's disposal of the Energy Cable business. Half-year net cash stood at £135 million. During the period, the Group received £140 million from the sale of Brand-Rex; spent £50 million on the acquisitions of Marta, Metroplex and Integral Technologies; and repurchased £8 million worth of ordinary and convertible preference shares, which process will continue, as appropriate, in the second half of the year. Operating cash performance remained strong. As a result, Group interest in the period was a net receivable of £2 million, while the increased interest charge on non-recourse borrowings of joint ventures and associates reflected progress in developing concessions won under the UK Government's Private Finance Initiative. Earnings per share before exceptional items were 3.9p (1999: 0.9p), rising to 6.7p after exceptional items. The Board has approved that an interim dividend of 2.0p per ordinary share be paid and will review the level of the final dividend at the appropriate time. In his statement to shareholders, Balfour Beatty Chairman, Lord Weir, said: Corporate Activity 'During the first half of the year, further significant progress was made in refining the focus of the Group's activities, in improving Balfour Beatty's market position and business mix and in rebasing the Group's management and overhead structure. Acquisitions and Disposals 'In March, Brand-Rex, the data and speciality cable business, was sold to Caradon plc for a total consideration of £145 million. This substantially completes the disposal of the Group's cablemaking interests and we are now fully focused on our core engineering, construction and services markets. 'We intend to expand our core capabilities through the acquisition of businesses which add geographic or technical capability to our existing areas of expertise. In this context, earlier this year we acquired Marta and Metroplex, two US trackwork specialists, for a combined consideration of up to US$65 million. We also purchased Integral Technologies, a US building security systems and products company, for a consideration of up to US$50 million. 'Marta and Metroplex provide Balfour Beatty with a stronger presence in the US rail market where there is excellent growth potential and where the procurement process matches our established capability in multi-disciplinary rail projects and engineering. 'Integral Technologies is a leading US supplier of digital imaging solutions, and now forms part of Andover Controls. This will widen the range of services which we can offer in the international building, building management and services market and will help Andover to increase its share of the fast-growing and technology-driven security controls market. Management 'In February, Paul Lester, the Group Managing Director with responsibility for UK Construction, and Jim Cohen, the Group Managing Director with responsibility for Rail Engineering and Services and for Investments and Developments, joined the Board. Malcolm Eckersall, the Group Managing Director for Civil and Specialist Engineering and Services, joined Balfour Beatty in January this year and was appointed to the Board in June. In September, the two current head office establishments, which have already been the subject of considerable rationalisation, will be fully merged in a new single, lower-cost headquarters. Business Sectors 'In Building, Building Management and Services, profits advanced by 8% to £14 million. Our aim in this market sector is to be the most efficient service provider and thus respond to the market's increased emphasis on the cost effective design, construction, equipping, maintenance and management of premises. All the constituent businesses in this sector made progress. Business process improvements and better supply chain efficiency continued to improve profits in our building construction and building services companies. Order books grew, as did the proportion of our business arising from partnering arrangements with our existing customer base, and from projects involving more than one of our operating companies. 'Most notable amongst a number of commercial successes was the award to Haden Building Management, in joint venture, of preferred bidder status for a premises management and maintenance outsourcing contract for BT worth a total of approximately £500 million over five years. The trend towards outsourcing project and asset management and asset ownership is growing, as is the demand for integrated building management control systems. Heery International, Haden Building Management and Andover Controls are all particularly well placed to take advantage of these trends. 'In Civil and Specialist Engineering and Services, profits improved by 11% to £10 million. In this sector, our aim is to selectively exploit our proven capability for complex project management and execution and our engineering and service specialisations. 'Progress continued in North America, where our civil engineering business, which is now among the top 10 companies in its field in the US, improved profits. We expect to benefit from the positive impetus created by the Transport Equity Act for the 21st Century (TEA 21). The market for major infrastructure projects in the UK remains weak. Good profit progress was made both in the Group's specialist contracting services and in road maintenance operations. Devonport Management Limited, in which the Group has a 25% share, also improved its profits. 'Balfour Beatty's single remaining cable business, the Dubai Cable Company, contributed £1 million of operating profit. 'In Rail Engineering and Services, profits fell from £12 million to £6 million as the anticipated decline in margin towards the end of the four-year old RT1a maintenance contracts continued. Results for Rail in the first half of 1999 benefited from the timing of contract settlements in the period, as a result of which two-thirds of the annual Rail profit accrued in the first half of 1999. We maintained our programme of investment in the new technology and equipment required to deliver performance under the next generation of contracts. Recently, the Company was awarded preferred bidder status for three of its existing maintenance areas (East Coast Main Line, East Anglia and Kent) in the new contract forms. This business, which is still under final negotiation, will be worth over £600 million over the next five years. 'Balfour Beatty offers a broad range of services to the international rail market including not only maintenance but also trackwork, major engineering projects, overhead and third rail electrification, renewals and the manufacture and supply of switches and crossings. The Marta and Metroplex acquisitions have brought an order book of approximately US$150 million and a strong presence in the growing US rail market. Balfour Beatty's work on the electrification of the main line from Boston to New Haven for Amtrak in the USA was substantially completed. 'The Company's work on the rail projects associated with the upgrading of the East and West Coast Main Lines in the UK continued. The Group's major project management skills, allied to its railway engineering capability, offers a clearly differentiated service for the complex rail projects required to further develop and improve the UK's rail system. 'The Rail Regulator has recently issued a draft determination for the next five-year control period. The initial view of the supply industry is that the draft efficiency targets appear onerous, particularly having regard to the safety and performance standards required in the rail industry. A vigorous debate will be necessary during the consultation period to ensure that the final Periodic Review determination is equitable for the industry as a whole. 'In Investments and Developments, profits increased by £2 million to £18 million. A planned maintenance programme temporarily depressed profits at Barking, but income from completed PFI concessions increased. The Group's PFI portfolio, which reflects its early and successful entry into this market, is developing well, with high quality returns as reward for professional risk the key objective. 'Both the £80 million Aberdeen Waste Water Scheme and the £225 million University College London Hospital were recently converted from preferred bidder status into concessions. Construction progress was good on the hospital schemes at Edinburgh and Durham. Metronet, the consortium of which Balfour Beatty is a member, was shortlisted for one of the deepline concessions in London Underground's Public Private Partnership and has also prequalified for the sub-surface lines contract. 'The UK PFI and PPP markets are developing steadily, with more than £20 billion of deals predicted over the next three years by the UK Government. Outlook 'Balfour Beatty's order book at £2.8 billion has improved slightly from its record levels at the end of 1999 and will be further enhanced in the near future by the conversion of preferred bidder awards into firm contracts. The UK Government's July Spending Review and associated Transport Development Plan indicated substantial increases in spending in a number of our core UK markets. Rail, road maintenance and new road construction figured strongly in those plans and are areas in which Balfour Beatty has well-recognised experience and capability. We expect continuing growth in many of our other principal markets, most notably internationally in rail; US infrastructure; privately financed projects; asset management; and building control systems. 'We will continue to strengthen our core businesses and are evaluating further potential acquisitions and investments in growth markets. We believe that our momentum in improving efficiency and business processes will continue to contribute to profit improvement. 'Trading conditions in the short term continue to be broadly positive, although there remains a shortage of major project work in the UK pending the delivery of the planned investment programmes. We anticipate that the Group will make further progress in the second half of this year, and will be well positioned for next year.' Enquiries to:- Mike Welton, Chief Executive Ian Tyler, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7629 6622 www.balfourbeatty.com ooo00000ooo The Interim Report for the period to 1 July 2000 will be posted on 17 August 2000 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 2000 dividend of 2.0p net will be paid on 2 January 2001 to ordinary shareholders on the register on 3 November 2000. Dividend warrants will be posted on 29 December 2000, payable on 2 January 2001. A preference dividend of 5.375p gross (4.8375p net at current tax rate) will be paid on 1 January 2001 in respect of the six months ending 31 December 2000 to preference shareholders on the register on 17 November 2000. Dividend warrants will be posted on 29 December 2000, payable on 1 January 2001. ooo00000ooo BALFOUR BEATTY PLC GROUP PROFIT AND LOSS ACCOUNT For the half-year ended 2000 1999 1999 1 July 2000 first half first half year based on unaudited figures Notes £m £m £m TURNOVER INCLUDING SHARE OF JOINT VENTURES AND ASSOCIATES 2 1,215 1,636 2,904 Less: Share of turnover of joint ventures (25) (51) (97) Share of turnover of associates (79) (82) (172) ----- ----- ----- GROUP TURNOVER 1,111 1,503 2,635 -------------------------------- Continuing operations 1,074 1,003 2,070 Discontinued operations 37 500 565 -------------------------------- ===== ===== ===== OPERATING PROFIT INCLUDING SHARE OF JOINT VENTURES AND ASSOCIATES Group operating profit before exceptional items 28 16 41 Share of operating profit of joint ventures 13 9 23 Share of operating profit of associates 8 13 26 ---- ---- ---- 49 38 90 Exceptional items charged against operating profit (including 1999 first half £2m, year £5m continuing operations) 4 - (9) (12) ---- ---- ---- 49 29 78 -------------------------------- Continuing operations 48 48 93 Discontinued operations 1 (19) (15) --------------------------------- EXCEPTIONAL ITEMS Fundamental restructuring costs 4 - (2) (2) Profit/(loss) on sale of operations 4 12 (423) (446) Provision for loss on sale of Telecommunication Cable businesses 4 - 26 26 ---- ---- ---- PROFIT/(LOSS) BEFORE INTEREST 61 (370) (344) Net interest receivable/(payable): Group 2 (10) (12) Share of joint ventures' interest (11) (7) (17) Share of associates' interest (5) (5) (10) --- --- --- PROFIT/(LOSS)BEFORE TAXATION 47 (392) (383) Taxation 5 (10) 14 4 --- --- --- PROFIT/(LOSS)AFTER TAXATION 37 (378) (379) Minority interests - 1 1 --- --- --- PROFIT/(LOSS)FOR THE PERIOD 37 (377) (378) Dividends: Preference 6 (9) (9) (17) Ordinary (8) (8) (17) --- --- --- TRANSFER TO/(FROM) RESERVES 20 (394) (412) === === === p p p ADJUSTED EARNINGS PER ORDINARY SHARE 3.9 0.9 5.1 Exceptional items after attributable taxation and minority interests 2.8 (92.5) (98.9) ---- ---- ---- EARNINGS/(LOSS) PER ORDINARY SHARE 7 6.7 (91.6) (93.8) ==== ==== ==== DILUTED EARNINGS/(LOSS) PER ORDINARY SHARE 7 6.7 (91.6) (93.8) ==== ==== ==== DIVIDENDS PER ORDINARY SHARE 8 2.0 2.0 4.0 === === === GROUP BALANCE SHEET 2000 1999 1999 At 1 July 2000 first half first half year based on unaudited figures Notes £m £m £m FIXED ASSETS Intangible assets - goodwill 63 3 3 Tangible assets 118 158 161 Investments in joint ventures: -------------------------------- Share of gross assets 389 322 352 Share of gross liabilities (351) (284) (316) -------------------------------- 38 38 36 Investments in associates 39 17 37 --- --- --- 258 216 237 --- --- --- CURRENT ASSETS Businesses in the course of disposal - 18 - Stocks 61 95 81 Debtors - due within one year 555 623 555 - due after one year 94 94 88 Cash and deposits 179 226 158 ----- ----- ----- 889 1,056 882 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Borrowings (23) (107) (51) Other (839) (793) (834) ----- ----- ----- NET CURRENT ASSETS/(LIABILITIES) 27 156 (3) ----- ----- ----- TOTAL ASSETS LESS CURRENT LIABILITIES 285 372 234 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Borrowings (21) (118) (23) Other (32) (23) (44) PROVISIONS FOR LIABILITIES AND CHARGES (86) (128) (84) ---- ---- ---- 146 103 83 ==== ==== ==== CAPITAL AND RESERVES 9 145 102 82 MINORITY EQUITY INTERESTS 1 1 1 ---- ---- ---- 146 103 83 ==== ==== ==== Capital and reserves include non-equity shareholders' funds of £171m (1999:£177m). GROUP CASH FLOW STATEMENT 2000 1999 1999 For the half-year ended 1 July first half first half year 2000 based on unaudited figures Notes £m £m £m Net cash flow from operating activities 10 4 (95) (14) Dividends from joint ventures and associates 2 8 13 Returns on investments and servicing of finance (16) (26) (30) Taxation 1 (10) (4) Capital expenditure and financial investment (17) (36) (43) Acquisitions and disposals of businesses 89 312 310 Ordinary dividends paid (8) (25) (25) ---- ---- ---- CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 55 128 207 ==== ==== ==== STATEMENT OF TOTAL RECOGNISED 2000 1999 1999 GAINS AND LOSSES first half first half year For the half-year ended 1 July £m £m £m 2000 based on unaudited figures Profit/(loss) for the period 37 (377) (378) Exchange adjustments (2) 4 2 Reduction in fixed asset revaluation surplus - (2) (2) Prior year adjustment - (8) (8) --- --- --- TOTAL RECOGNISED GAINS AND LOSSES FOR THE PERIOD 35 (383) (386) === === === NOTES 1. BASIS OF PRESENTATION The interim financial statements have been prepared on the basis of the accounting policies set out in the 1999 Balfour Beatty plc (formerly BICC plc) Annual Report and Accounts. The requirements of FRS 15 'Tangible Fixed Assets' have been implemented in preparing the interim financial statements. The Group has decided not to adopt a policy of revaluation and has taken advantage of the transitional arrangements of FRS 15 and retained the book amount of previously revalued assets. The Brand-Rex cable businesses sold in 2000 and the Energy Cable and Telecommunication Cable businesses sold in 1999 have been classified as discontinued. 2. SEGMENT ANALYSIS Operating profit before Turnover exceptional items 2000 1999 1999 2000 1999 1999 first first first first half half year half half year £m £m £m £m £m £m Building, building management and services 485 450 923 14 13 26 Civil and specialist engineering and services 461 453 922 10 9 24 Rail engineering and services 190 164 351 6 12 18 Investments and developments 42 45 114 18 16 30 ----- ----- ----- ----- ----- ----- 1,178 1,112 2,310 48 50 98 Discontinued operations 37 524 594 1 (12) (8) ---- ---- ---- ---- ---- ---- 1,215 1,636 2,904 49 38 90 ===== ===== ===== Net interest payable (14) (22) (39) --- --- --- Profit before tax and exceptional items 35 16 51 === === === 3. ACQUISITIONS On 28 May 2000 the Group acquired two US trackwork companies, Marta Track Constructors Inc and Metroplex Corporation for an initial consideration of US$50m and up to US$15m as an earnout over three years of which US$10m has been provided at 1 July 2000. On 30 June 2000 the Group acquired Integral Technologies Inc, a leading US developer of digital imaging solutions and products for the security and surveillance industry for US$30m and up to US$20m payable on an earnout basis of which US$10m has been provided at 1 July 2000. After provisional fair value adjustments and estimated contingent consideration as detailed above, total goodwill arising on these transactions was £60m. The results of acquisitions in the first half of 2000 were not material. 4. EXCEPTIONAL ITEMS In 2000, the profit on sale of discontinued operations arose on the disposal of the Brand-Rex cable businesses (£20m after charging goodwill of £53m previously written off to reserves) less further losses arising from the disposal in 1999 of the Energy Cable businesses and related costs (£8m). The Group has received a legal claim from a former US manufacturer's representative in respect of an alleged breach of contract resulting from the disposal of the Energy Cable business last year. Balfour Beatty is advised that it has substantive defences in respect of this matter and accordingly no provision has been made. In 1999, 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. Exceptional items in 1999 comprise the costs of rationalisation of the cables businesses (£7m as restated), the costs arising from approaches made to the Balfour Beatty plc Board by Wassall plc (£2m), the costs of reorganisation of head offices (£3m) and fundamental restructuring costs (£2m as restated). 5. TAXATION 2000 1999 1999 first half first half Year £m £m £m United Kingdom 9 (15) (9) Overseas 1 1 5 --- --- --- Tax charge/(credit) 10 (14) (4) === === === Exceptional items have had no effect on the Group's tax charge in the first half of 2000 (£18m reduction in the first half and full year 1999). 6. 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 2000 on 1 July 2000 to holders of these shares on the register on 19 May 2000. 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 2000 on 1 January 2001 to holders of these shares on the register on 17 November 2000 by direct credit or, where no mandate has been given, by cheques posted on 29 December 2000 payable on 1 January 2001. 7. EARNINGS PER ORDINARY SHARE The calculation of the earnings per ordinary share is based on the profit for the period, after charging preference dividends, divided by the weighted average number of ordinary shares in issue during the period of 421m (1999 first half: 421m). There were no dilutive potential ordinary shares at 1 July 2000. Adjusted earnings per ordinary share before exceptional items have been disclosed to give a clearer understanding of the Group's underlying trading performance. 8. DIVIDENDS PER ORDINARY SHARE The interim dividend will be paid on 2 January 2001 to ordinary shareholders on the register on 3 November 2000 by direct credit or, where no mandate has been given, by cheques posted on 29 December 2000 payable on 2 January 2001. 9. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2000 first half £m At 1 January 2000 82 Retained profit for the period 20 Exchange adjustments (2) Goodwill 53 Buy back of ordinary and preference shares (8) --- At 1 July 2000 145 === 10. NOTES TO THE CASH FLOW STATEMENT 2000 1999 1999 first half first half year £m £m £m (a) Net cash flow from operating activities: Group operating profit before exceptional items 28 16 41 Depreciation 14 21 39 Exceptional items - cash expenditure (13) (29) (46) Working capital increase (26) (104) (47) Other 1 1 (1) --- --- --- Net cash flow from operating activities 4 (95) (14) === === === (b) Reconciliation of net cash/ (borrowings): Opening net cash/(borrowings) and minority redeemable capital 84 (129) (129) Cash inflow before use of liquid resources and financing 55 128 207 Buy back of ordinary and preference shares (8) - - Disposal of businesses - borrowings at date of disposal 6 5 6 Exchange adjustments (2) (3) - --- --- --- Closing net cash 135 1 84 === === === The interim financial statements were approved by the directors on 15 August 2000. Comparative figures have been extracted from the 1999 Balfour Beatty plc (formerly BICC plc) Annual Report and Accounts on which the auditors gave an unqualified report and which have been filed with the Registrar of Companies.

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