Interim Results

Balfour Beatty PLC 14 August 2002 14 August 2002 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR ENDING 29 JUNE 2002 CONTINUING PROGRESS IN BUILDING SHAREHOLDER VALUE Financial Highlights • Pre-tax profits* up by 17% at £48 million (2001: £41 million) • Earnings per share* up by 15% at 6.3p (2001: 5.5p) • £41 million period-end net cash - strong operating cash flow • Record period-end order book of £4.8 billion • Interim dividend increased to 2.35p (2001: 2.2p) * before exceptional items and goodwill amortisation Operational Highlights • Worldwide rail profits improve significantly • Major orders secured in US infrastructure, UK utilities and road maintenance • Preferred bidder status achieved for acquisition of 49% of Romec • Formal opening of new PPP health facilities in Edinburgh and Durham • Acquisitions perform well - Kentons and Knox Kershaw strengthen core businesses • Board and management structure strengthened Outlook 'It is pleasing to be able to report further good progress in Balfour Beatty's profits and earnings in the first half of 2002. Once again operating cash flow was strong. 'We are confident in delivering further progress in 2002 and retaining our forward momentum thereafter. 'We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences.' Viscount Weir, Chairman Mike Welton, Chief Executive 14 August 2002 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR ENDING 29 JUNE 2002 Balfour Beatty plc, the international engineering, construction and services group, today announced pre-tax profits before exceptional items and prior to the amortisation of goodwill for the six months to 29 June 2002 of £48 million (2001: £41 million). Earnings per share before exceptional items and goodwill amortisation were 6.3p per Ordinary Share (2001: 5.5p). Operating profits before goodwill amortisation and exceptional items were £65 million (2001: £59 million). Net cash stood at £41 million (2001: £63 million) after expenditure of £34 million on acquisitions. The half-year order book stood at £4.8 billion (30 June 2001: £3.9 billion). Turnover increased to £1.68 billion (2001: £1.44 billion). The Board has declared an increased interim dividend of 2.35p per Ordinary Share (2001: 2.2p). In their statement to shareholders, Chairman, Viscount Weir, and Chief Executive, Mike Welton, said: 'It is pleasing to be able to report further good progress in Balfour Beatty's profits and earnings in the first half of 2002. Once again operating cash flow was strong. 'We are confident in delivering further progress in 2002 and retaining our forward momentum thereafter. 'We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences.' CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT It is pleasing to be able to report further good progress in Balfour Beatty's profits and earnings in the first half of 2002. The first half of the year has been a particularly successful period for the Group in securing major orders. These include long-term contracts for road maintenance and gas and water utilities in the UK and rail and large-scale infrastructure work in the USA, including a $1.4 billion toll road in Texas. Final contracts are expected to be exchanged shortly which will bring the Group a 49% share of a £1.3 billion, seven-year project to manage and maintain Consignia's entire estate of some 3,000 buildings. The Group continued to develop its growth business sectors through acquisition. During the period, we acquired the UK utility services contractor, Kentons, for a consideration of £28 million and Knox Kershaw, a US rail maintenance and equipment contractor, for $6 million, both of which are performing to expectations. We also made a further stage payment for the acquisition of Integral Technologies, the US security systems business. Business Sectors Building, Building Management and Services Profits in this sector at £21 million showed a slight decline against the same period last year following the 50% advance of the previous year. Performances in the UK-based operating companies were, in each case, broadly comparable with those of last year. While the UK market for building construction remained generally flat, our building and building services businesses performed well and the trend to increased building management outsourcing continued. Although less strong than in the first half of 2001, our US markets were stable. Andover Controls, the Group's US-based building management control company, performed well, although profits were somewhat lower than in the first half of last year. In April, Haden Building Management was appointed preferred bidder for the acquisition of a 49% interest in Romec, the business responsible for managing and maintaining Consignia's nationwide estate of some 3,000 buildings. This transaction involves the award of a £1.3 billion, seven-year contract with Consignia and a share of a range of other work for existing external customers. Civil and Specialist Engineering and Services Profits in this sector rose by £1 million to £7 million. There were improved performances in Major Projects and in Power Networks and strong profit contributions from Kennedys and Kentons, the newly-acquired utility services businesses. Results continued, however, to be impacted by cost recognition on projects being undertaken by Balfour Beatty Construction Inc in the US, which, in line with our normal accounting approach, have been subject to further write-downs. No account has been taken of any potential future settlements. A number of major new contracts were secured. These included a $1.4 billion toll road project in Texas and a $110 million water tunnel in Rhode Island in the USA. In the UK, over £450 million of long-term local authority road maintenance work was secured, together with system rehabilitation contracts for Yorkshire Water worth over £120 million. The latter work is to be shared equally between John Kennedy and Kentons. Together with Balfour Beatty Power Networks, the Group now has UK utility services businesses for gas, water and electricity, with annual sales of approximately £280 million and an order book of over £500 million. These markets are set to grow as outsourcing becomes more prevalent and spend programmes for asset renewal increase. Rail Engineering and Services Profits in this sector at £16 million showed a marked improvement over the first half of last year (2001: £7 million). The companies which we have acquired in rail electrification and power systems in Europe and in trackwork and maintenance in the USA significantly improved their performance. Also, the UK maintenance business returned to modest profitability following the losses incurred during the final period of the previous contract regime last year. New models for the management and execution of maintenance work in the UK are currently being explored with Railtrack and other contracting organisations. The development of future workflows progressed satisfactorily. In the US, over $300 million of new rail and rail-related contracts were won. These included a multi-disciplinary turnkey design and build project for the re-establishment of the Greenbush Line Rail Corridor for the Massachusetts Bay Transportation Authority in Boston, USA, and the rail maintenance contract for the Alameda Corridor in Los Angeles, the first US heavy haul freight maintenance contract awarded to an independent contractor. More recently, we also secured a major contract for the first stage of the electrification of the Milan-Turin line. In the UK, preferred bidder status was achieved for both the £200 million permanent way and electrification infrastructure package for Thameslink 2000 in London and the £46 million contract for the trackwork, traction power and associated mechanical and electrical works for Heathrow Airport Terminal 5. Investments and Developments Profits in this sector at £21 million were £2 million lower in the first half-year (2001: £23 million). Profits in Barking Power Ltd, in which the Group has a 25.5% interest, fell, as planned maintenance somewhat reduced its availability to the market in the period. Its availability should return to more normal levels in the second half of the year. However, profits in Balfour Beatty Capital Projects, the Group's vehicle for PPP investments, rose as concession income grew. Bid costs also increased. It should be noted that certain bid costs which have previously been written off under Balfour Beatty's accounting policies were capitalised, as required by the new accounting standard, UITF 34. Balfour Beatty has hitherto taken a conservative approach in writing off all bid costs, including those incurred after appointment as preferred bidder, and has then taken them back to profit upon recovery at financial close. In consequence, the impact of applying this standard is negligible on both the Group's historic results and those for 2003 onwards. However, on financial close, approximately £3 million of anticipated income in respect of the Metronet concessions and Blackburn Hospital will be deferred to future years. Negotiations to bring Metronet's two London Underground Public Private Partnership concession contracts and the Blackburn Hospital project to financial close continued. Bidding activity is strong, with a number of major road and hospital projects being pursued as well as some smaller projects in other markets. During the first half of the year, the first phase of the new Edinburgh Royal Infirmary was successfully handed over to the Trust and North Durham Hospital, which has been in full clinical operation since last year, was formally opened by the Prime Minister. The Board As a result of the Group's substantial growth in size and scope in the recent past and our determination to continue to grow shareholder value, the new post of Chief Operating Officer, reporting to the Chief Executive, has been created. Ian Tyler, previously Finance Director, takes up this position with effect from today and has been succeeded by Anthony Rabin, who has over the last five years been very successful in growing Capital Projects, our PFI business. Alistair Wivell, who has successively improved the performance and profits of Balfour Beatty Construction over the last decade, also joins the Board today as Group Managing Director with responsibility for Building, Building Management and Services. In that capacity, he succeeds Paul Lester, who left the company in June to take up the position of Chief Executive of VT Group plc with our thanks and good wishes. During the first half of the year, it was announced that Sir David Wright, who is currently Group Chief Executive of British Trade International, will join the Board as a non-executive Director on 1 January 2003. Outlook We are confident of delivering further progress in 2002 and retaining our forward momentum thereafter. In Building and in Engineering, we anticipate continued progress with the usual bias in profit recognition towards the second half of the year, particularly in the latter. In Rail, we anticipate a continuation of the good results achieved in the first half of the year, particularly from our international businesses. In Investments, concession income should continue to grow and Barking Power Station's availability to improve. We have now created strong market positions in UK utilities contracting and in UK facilities maintenance and management to add to similar, existing positions in worldwide rail, Public Private Partnerships, major UK infrastructure contracting and building and building services. These markets continue to offer good growth opportunities. We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences. ENDS Enquiries to:- Mike Welton, Chief Executive Ian Tyler, Chief Operating Officer Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0)20 7608 1000). * * * * * * * * The Interim Report for the six months to 29 June 2002 will be posted on 16 August 2002 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 130 Wilton Road, London, SW1V 1LQ. The interim 2002 dividend of 2.35p net will be paid on 2 January 2003 to ordinary shareholders on the register on 1 November 2002, by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 2 January 2003. The ordinary shares will be quoted ex-dividend on 30 October 2002. A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending 31 December 2002 on 1 January 2003 to holders of these shares on the register on 22 November 2002 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 1 January 2003. These shares will be quoted ex-dividend on 20 November 2002. Group profit and loss account 2002 2001 2001 For the half-year ended 29 June 2002 first half first half year based on unaudited figures Notes £m £m as restated £m Turnover including share of joint ventures and associates 2 1,685 1,436 3,071 Share of turnover of joint ventures (65) (53) (130) Share of turnover of associates (81) (112) (207) Group turnover 1,539 1,271 2,734 Continuing operations 1,520 1,269 2,731 Acquisitions 19 - - Discontinued operations - 2 3 Group operating profit 28 25 61 Group operating profit before goodwill amortisation 36 30 71 Goodwill amortisation (8) (5) (10) Share of operating profit of joint ventures 17 14 40 Share of operating profit of associates 12 15 23 Operating profit including share of joint ventures and 57 54 124 associates Operating profit before goodwill amortisation 65 59 136 Goodwill amortisation (8) (5) (12) Continuing operations 56 53 123 Acquisitions 1 - - Discontinued operations - 1 1 Exceptional items Net profit on sale of operations 4 - - 13 Profit before interest 57 54 137 Net interest payable and similar charges: Group (2) (1) (1) Share of joint ventures' interest (11) (12) (25) Share of associates' interest (4) (5) (8) Profit before taxation 40 36 103 Taxation 5 (14) (10) (27) Profit for the period 26 26 76 Dividends: Preference 6 (8) (8) (16) Ordinary (10) (9) (21) Transfer to reserves 8 9 39 Adjusted earnings per ordinary share 6.3 p 5.5 p 14.1 p Goodwill amortisation (2.0) p (1.1)p (2.9) p Exceptional items after attributable taxation - p - p 3.0 p Basic earnings per ordinary share 7 4.3 p 4.4 p 14.2p Diluted earnings per ordinary share 7 4.2 p 4.3 p 14.0 p Dividends per ordinary share 8 2.35 p 2.20 p 5.00 p Statement of total recognised gains and losses 2002 2001 2001 For the half-year ended 29 June 2002 first half first half year based on unaudited figures £m £m as restated £m Profit for the period: Group 16 19 57 Share of joint ventures and associates 10 7 19 Exchange adjustments (1) (1) (3) Total recognised gains and losses for the period 25 25 73 Prior year adjustment (3) Total gains and losses recognised since the last annual 22 report Group balance sheet 2002 2001 2001 At 29 June 2002 first half first half year based on unaudited figures Notes £m as restated as restated £m £m Fixed assets Intangible assets - goodwill 271 173 250 Tangible assets 140 130 138 Investments 33 24 26 Investments in joint ventures: Share of gross assets 585 526 560 Share of gross liabilities (525) (471) (502) 60 55 58 Investments in associates 33 34 28 537 416 500 Current assets Stocks 97 102 86 Debtors - due within one year 702 583 663 - due after one year 87 84 79 Cash and deposits 169 201 177 1,055 970 1,005 Creditors: amounts falling due within one year Borrowings (39) (37) (20) Other (1,106) (962) (1,073) Net current liabilities (90) (29) (88) Total assets less current liabilities 447 387 412 Creditors: amounts falling due after more than one year Borrowings (89) (101) (94) Other (58) (34) (34) Provisions for liabilities and charges (107) (91) (99) 193 161 185 Capital and reserves 9 193 161 185 Capital and reserves include non-equity shareholders' funds of £166m (2001: first half £170m, year £166m). Group cash flow statement For the half-year ended 29 June 2002 2002 2001 2001 based on unaudited figures first half first half year Notes £m £m £m Net cash inflow from operating activities 10 46 24 117 Dividends from joint ventures and associates 6 6 14 Returns on investments and servicing of finance (12) (9) (12) Taxation (9) (1) (9) Capital expenditure and financial investment (9) (41) (55) Acquisitions and disposals of businesses (34) (8) (64) Ordinary dividends paid (9) (8) (19) Cash outflow before use of liquid resources and financing (21) (37) (28) Management of liquid resources 15 33 12 Buy-back of ordinary and preference shares - (1) (5) Issue of ordinary shares 1 - - Repayment of minority interests - (1) (1) New loans/(repayment of loans) 27 52 17 Increase/(decrease) in cash in the period 22 46 (5) Notes 1 Basis of presentation The interim financial statements have been prepared on the basis of the accounting policies set out in the 2001 Balfour Beatty plc Annual Report and Accounts except as noted below. The Group has adopted FRS 19 'Deferred Tax'. This has had no impact on first half 2002 or 2001 first half and year. Comparative figures have been restated to comply with UITF Abstract 34 'Pre-contract costs' (UITF 34). The Group previously charged pre-contact costs against operating profit when incurred and recognised pre-contract costs recoveries in operating profit when received. In accordance with UITF 34, pre-contract costs continue to be expensed as incurred until it is virtually certain that a contract will be awarded, from which time further pre-contract costs are recognised as an asset and charged as an expense over the period of the contract. Amounts recovered in respect of costs that have been written off are deferred and amortised over the life of the contract. This restatement reduced operating profits in the full year 2001 by £1m and had no impact on first half 2001. Shareholders' funds at 31 December 2001 were reduced by £3m net of tax of £1m. The effect on the first half 2002 results is to increase operating profit by £3m and to increase profit after taxation by £2m. The Group's interest in the Dubai Cable Company (Pte) Ltd, sold in July 2001 and Emform Ltd, sold in December 2001, have been classified as discontinued. 2 Segment analysis Turnover Operating profit before exceptional items 2002 2001 2001 2002 2001 2001 first half first half year first first year half half as £m £m £m £m £m restated £m Total Group, including share of joint ventures and associates Building, building management and services 542 527 1,074 21 22 44 Civil and specialist engineering and services 687 513 1,150 7 6 22 Rail engineering and services 394 314 698 16 7 24 Investments and developments 62 70 135 21 23 45 1,685 1,424 3,057 65 58 135 Discontinued operations - 12 14 - 1 1 1,685 1,436 3,071 65 59 136 Goodwill amortisation (8) (5) (12) Operating profit 57 54 124 Net interest payable (17) (18) (34) Profit before tax and exceptional items 40 36 90 Notes (continued) Goodwill amortisation arose in Building, building management and services £0.8m (2001: first half £0.8m, full year £1.5m), Civil and specialist engineering and services £2.1m (2001: first half £0.2m, full year £3.3m) and Rail engineering and services £5.2m (2001: first half £3.7m, full year £7.4m). 3 Acquisitions In March 2002 the Group acquired Kenton Utility Service Management Ltd, a UK utility services contractor for a total consideration of £28m, including acquired debt and £6m deferred consideration. After provisional fair value adjustments goodwill arising on this transaction was £26m. Also in March 2002 the Group acquired the specialist rail plant and services business of Knox Kershaw Inc. in the USA for an initial consideration of US$5m and a further US$1m payable on an earnout basis. After provisional fair value adjustments goodwill arising on this transaction was US$1m. In addition, £9m deferred consideration was paid in the period in respect of acquisitions completed in 2000 and 2001. 4 Exceptional items In 2001, a net profit on sale of operations of £15m arose on the disposal of the Group's remaining interests in the cables businesses, including the Dubai Cable Company (Pte) Ltd, and related costs. Additionally, a £2m loss was recorded on the sale of the trade and assets of Emform Ltd. Exceptional items had no effect on the Group's tax charge in 2001. 5 Taxation 2002 2001 2001 first half first half year £m £m £m UK current tax 12 7 24 Foreign current tax 2 3 4 Deferred taxation - - (1) Tax charge 14 10 27 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 2002 on 1 July 2002 to holders of these shares on the register on 31 May 2002. A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending 31 December 2002 on 1 January 2003 to holders of these shares on the register on 22 November 2002 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 1 January 2003. These shares will be quoted ex-dividend on 20 November 2002. 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 414m (2000: first half 414m, full year 414m). The calculation of diluted 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 adjusted for the conversion of share options by 7m (2001: first half 5m, full year 5m). As in 2001, no adjustment has been made in respect of the conversion of the cumulative convertible redeemable preference shares which were antidilutive throughout the period. Adjusted earnings per ordinary share before goodwill amortisation and exceptional items have been disclosed to give a clearer understanding of the Group's underlying trading performance. 8 Dividends per ordinary share The interim dividend will be paid on 2 January 2003 to ordinary shareholders of these shares on the register on 1 November 2002 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 2 January 2003. These shares will be quoted ex-dividend on 30 October 2002. Notes (continued) 9 Reconciliation of movements in shareholders' funds 2002 2001 2001 first half first half year as restated as restated £m £m £m Profit for the period 26 26 76 Dividends (18) (17) (37) 8 9 39 Other recognised gains and losses (net) (1) (1) (3) Issue of ordinary shares 1 - - Buy-back of ordinary and preference shares - (1) (5) 8 7 31 Opening shareholders' funds - as previously reported 188 156 156 Prior year adjustment (3) (2) (2) Closing shareholders' funds 193 161 185 10 Notes to the cash flow statement 2002 2001 2001 first half first half year £m £m as restated £m (a) Net cash flow from operating activities: Group operating profit before exceptional items 28 25 61 Depreciation 19 16 35 Goodwill amortisation 8 5 10 Profit on disposal of fixed assets - (1) (1) Provision against own shares held 1 - 1 Exceptional items - cash expenditure (2) (2) (4) Working capital (increase)/decrease (8) (19) 15 Net cash inflow from operating activities 46 24 117 (b) Analysis of movement in net cash: Opening net cash 63 104 104 Cash outflow before use of liquid resources and financing (21) (37) (28) Buy-back of ordinary and preference shares - (1) (5) Issue of ordinary shares 1 - - Repayment of minority interests - (1) (1) Acquisitions - debt at date of acquisition (1) - (4) Exchange adjustments (1) (2) (3) Closing net cash 41 63 63 (c) Reconciliation of cash flow to movement in net cash: Increase/(decrease) in cash in the period 22 46 (5) Cash inflow from increase in borrowings (27) (52) (17) Cash inflow from decrease in term deposits (15) (33) (12) Change in net cash resulting from cash flows (20) (39) (34) Acquisitions - debt at date of acquisition (1) - (4) Exchange adjustments (1) (2) (3) Movement in net cash (22) (41) (41) The financial information set out above (which was approved by the Board on 13 August 2002) does not constitute the Company's statutory accounts. Comparative figures have been extracted from the 2001 Balfour Beatty plc Annual Report and Accounts which 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 The company news service from the London Stock Exchange

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