Interim Results

Balfour Beatty PLC 13 August 2003 13 August 2003 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR TO 28 JUNE 2003 Financial Summary • Pre-tax profits* up 6% at £51 million (2002: £48 million) • Earnings per share* up by 29% at 8.1p (2002: 6.3p) • Strong operating cash performance • Period-end net cash at £104 million (29 June 2002: £41 million) • Interim dividend increased by 11% to 2.60p (2002: 2.35p) • Increased pension contribution at first-half cost of £6 million * Before goodwill amortisation of £9 million (2002: £8 million), which reconciles with profit before tax and after goodwill amortisation of £42 million (2002: £40 million). Basic earnings per share were up by 37% at 5.9p (2002: 4.3p). Operational Highlights • Record order book up 33% from June 2002 at £6.4 billion • Financial close for two London Underground PPP concessions • Four other PPP/PFI concessions converted to contract • Over £1.5 billion of new contracting work secured through PPP • Preferred bidder on major new UK rail renewal and power upgrade contracts • Principal market prospects encouraging 'It is pleasing to be able to report another period of growth in Balfour Beatty's profits and earnings. Once again, operating cash flow was highly satisfactory with a very strong working capital performance. 'During the first half of the year, the Group's markets have generally been strong, although the US market has been weaker than last year. Public sector expenditure on major UK building and transport infrastructure projects has continued to grow and PPP/PFI has continued to provide a good selection of opportunities in our areas of expertise. 'We remain clearly focused on sustained increases in shareholder value and are confident of delivering further progress in the second half of 2003 and beyond.' Sir David John, Chairman Mike Welton, Chief Executive 13 August 2003 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR TO 28 JUNE 2003 OVERVIEW Balfour Beatty is a world-class engineering, construction and services group, well positioned in infrastructure markets which offer significant growth potential. Its partnerships with public and private customers generate secure, long-term income. Its financial position, with significant net cash and with strong operating cash flows, offers continuing flexibility to add additional capacity and expertise to the business mix and to make appropriate investments in PPP/PFI projects and other long-term growth opportunities. FIRST-HALF RESULTS Balfour Beatty plc, the international engineering, construction and services group, today announced pre-tax profits for the six months to 28 June 2003 up 6% at £51 million (2002: £48 million) before goodwill amortisation of £9 million (2002: £8 million). These results were achieved after an increase of £6 million in pension charges, which impacted the building, engineering and rail sector results. Earnings per share before goodwill amortisation were 8.1p (2002: 6.3p), reflecting a significantly reduced tax charge arising from the release of Advanced Corporation Tax (ACT) credits. Net cash stood at £104 million (29 June 2002: £41 million). The half-year-end order book stood at £6.4 billion (29 June 2002: £4.8 billion), of which £1.2 billion arose from orders placed by Metronet. Turnover increased to £1,751 million (2002: £1,685 million). The Board has declared an increased interim dividend of 2.60p per ordinary share (2002: 2.35p). In their statement to shareholders, Chairman, Sir David John, and Chief Executive, Mike Welton, said: 'It is pleasing to be able to report another period of growth in Balfour Beatty's profits and earnings. Once again, operating cash flow was highly satisfactory with a very strong working capital performance. 'Since the end of 2002, we have been successful in converting our preferred bidder status on six PPP/PFI projects, including the two Metronet PPP concessions, to contract. These projects involve aggregate construction and services contracts to Balfour Beatty companies worth over £1.5 billion. We have also been successful in securing major new contracts for road construction, widening and maintenance, won substantial works for Heathrow Terminal 5 and been appointed preferred bidder, by Network Rail, for large-scale projects in rail power systems and rail renewals. 'During the first half of the year, the Group's markets have generally been strong, although the US market has been weaker than last year. Public sector expenditure on major UK building and transport infrastructure projects has continued to grow and PPP/PFI has continued to provide a good selection of opportunities in our areas of expertise.' FINANCE First-half net cash at £104 million reflected good underlying operating cash generation and continuing working capital improvements. There was a significantly reduced tax charge arising from the release of ACT credits. ACT credit release will continue to benefit earnings in the second half of the year and we anticipate that it will continue to do so in subsequent years. BUSINESS SECTORS Building, Building Management and Services Sales in this sector represent approximately 33% of the Group total. Operating profits pre-goodwill amortisation in this sector at £19 million were £2 million lower than for the same period in 2002. Most of the businesses in the sector performed well, broadly in line with the previous year. However, profits in Andover Controls, the building control systems business, were lower due to the impact of slower US market conditions, particularly in the first quarter. Haden Building Management's profits benefited from a first significant contribution from its 49% share in Romec, the facilities management company, which has a £1.3 billion, multi-year contract to manage and maintain the Royal Mail's UK premises. The order book in the building sector was augmented by substantial station refurbishment work for Metronet on the London Underground, major PFI construction and maintenance programmes for Blackburn Hospital and Rotherham Schools and the construction and fit-out management contract for Heathrow Terminal 5. Civil and Specialist Engineering and Services Sales in this sector represent approximately 39% of the Group total. Operating profits pre-goodwill amortisation in this sector at £7 million showed no change over the same period in 2002. Performance in the UK businesses continued to be satisfactory, with particularly good progress being made in major projects, the regional civil engineering business and in power networks. Profits from the Group's share in Devonport Dockyard also increased. In the recently-acquired utilities business, results were affected by integration costs and the nature of the work released under certain contracts which is now under review. In the US, some unplanned costs continued to be incurred on certain projects on the Eastern seaboard, although the trend is now improving and all but two are now substantially complete. During the first half-year, substantial claims were lodged with the respective owners. Some settlements are anticipated during the remainder of 2003. During the first half of the year, some £460 million of infrastructure work for Metronet on the LUL PPP was added to the order book, as were the major new M25 widening works, the M77 motorway in Scotland and the multi-year contract for the maintenance of Highways Agency Area 4 to a total additional value of over £300 million. Rail Engineering and Services Sales in this sector represent approximately 23% of the Group total. Operating profits pre-goodwill amortisation in this sector at £16 million matched those for the first half of 2002. Performance in maintenance and other UK activities and in Europe was good, while results in the US were lower pending final settlements on some completed projects. Progress on the Group's many major projects, including the West Coast Main Line in the UK and major power systems projects in Italy, Malaysia and Portugal, was good. The development of future workflows progressed satisfactorily as the company achieved preferred bidder status on the inner London portion of Network Rail's upgrade of its Southern Region Power System and for UK rail renewals work likely to be worth in excess of £450 million over the next five years. Additionally, approximately £500 million of trackwork was added to the order book on financial close for the Metronet LUL PPPs. In partnership with Network Rail, Balfour Beatty introduced the first iteration of the 'New Maintenance Programme' in the Anglia region. Under these arrangements, decisions on engineering and prioritisation pass to Network Rail. The outcome for Balfour Beatty is that in return for satisfactory performance levels, we can expect acceptable margins within the new risk profile. This model will be implemented by Network Rail across the entire UK network, with Balfour Beatty's Kent contract early in the roll-out programme. It has been agreed that the Wessex contract, due to expire in March 2004, is to be transferred later this year, under mutually acceptable arrangements, to Network Rail's full direct control. Investments and Developments Operating profits pre-goodwill amortisation in this sector rose by £3 million to £24 million in the period. Lower profits from Barking Power reflected the impact of the administration of TXU Europe, one of that business's principal customers. As a result, over 25% of the station's output is now sold on the spot market. By contrast, income from the Group's PFI concessions rose sharply with existing concessions continuing to perform well overall, including a first significant contribution from the newly-completed Edinburgh Royal Infirmary and three months' income from the Group's interest in Metronet which reached financial close in early April 2003. New concessions for Rotherham Schools, the M77 motorway in Scotland, Blackburn Hospital, Sunderland street lighting, as well as two London Underground PPP projects have been converted to contract from preferred bidder status since the end of 2002. We continue to prequalify and bid for large-scale schemes, principally in the healthcare, transport and education sectors. THE HATFIELD RAIL CRASH In July, manslaughter charges and charges under the Health and Safety at Work Act were brought against former employees of Balfour Beatty Rail Infrastructure Services (BBRIS) and that company itself in respect of the tragic rail accident which occurred at Hatfield in October 2000. We see no justification for manslaughter charges to be brought against our maintenance business or its former employees. The company will firmly defend itself against these allegations and provide the fullest support to its ex-employees in respect of the charges against them. THE BOARD AND SENIOR MANAGEMENT Viscount Weir, Chairman of the Board since 1996 and a director since 1977, retired from the Group at the AGM in May. He has accepted an invitation to become Life President of Balfour Beatty plc. He has been succeeded by Sir David John, previously Chairman of BOC plc and currently Chairman of Premier Oil and BSI Group. Also in May, Christopher Reeves retired from the Board after 21 years as a director. Udo Stark also retired from the Board to pursue other business interests and has been succeeded by Dr Hans Christoph von Rohr, Chairman of the German Institute for Market Economy and Competition. In January, David Wathen was appointed as President and Chief Executive Officer responsible for the Group's North American Operations. PENSIONS As indicated in March, although we believe that the assets and liabilities of the various Group funds are broadly in balance on an actuarial basis, changes in market conditions since the last formal reviews in 2001 have led us to decide to increase contributions to the Group pension funds with retrospective effect from the beginning of the year. For the full-year, we anticipate an £11 million increase in the pension charge to profit and loss, which has been fully anticipated in our budgets and has been proportionately taken into the half-year accounts. OUTLOOK UK expenditure on public buildings, public infrastructure and physical asset maintenance, both through privately financed projects and public procurement, continues to grow. The commercial building market, by contrast, is flat. A major new road programme, concentrating on widening projects, was announced in July. Rail renewal and project spending continues to be significant, both for Network Rail and London Underground. However, Network Rail's maintenance activity is in the process of radical change. In our markets outside the UK, we see continuing major infrastructure investment programmes in the US, Italy, the Middle East and Hong Kong, with some growth now also anticipated in German rail expenditure. The US building and security control market continues to be less buoyant than in previous years. In building and in rail, we anticipate trading for the year to be broadly in line with that of last year, while in engineering and in investments we believe we will make significant progress. We remain clearly focused on sustained increases in shareholder value and are confident of delivering further progress in the second half of 2003 and beyond. ENDS Enquiries to:- Mike Welton, Chief Executive Anthony Rabin, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0)20 7608 1000). * * * * * * * * The Interim Report for the six months to 28 June 2003 will be posted on 15 August 2003 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 and the Report can be viewed on the Company's website at www.balfourbeatty.com. The interim 2003 dividend of 2.60p net will be paid on 2 January 2004 to ordinary shareholders on the register on 31 October 2003, by direct credit or, where no mandate has been given, by cheques posted on 30 December 2003 payable on 2 January 2004. The ordinary shares will be quoted ex-dividend on 29 October 2003. 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 2003 on 1 January 2004 to holders of these shares on the register on 21 November 2003 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2003 payable on 1 January 2004. These shares will be quoted ex-dividend on 19 November 2003. -------------------------------------------------------------------------------- Group profit and loss account 2003 2002 2002 For the half-year ended 28 June first half first half year 2003 based on unaudited figures Notes £m £m £m -------------------------------------------------------------------------------- Turnover including share of 2 1,751 1,685 3,441 joint ventures and associates Share of turnover of joint (146) (65) (191) ventures Share of turnover of (94) (81) (150) associates -------------------------------------------------------------------------------- Group turnover 1,511 1,539 3,100 -------------------------------------------------------------------------------- Group operating profit 23 28 58 -------- -------- -------- Group operating profit before 31 36 88 exceptional items and goodwill amortisation Exceptional items 3 - - (9) Goodwill amortisation (8) (8) (21) -------------------------------------------------------------------------------- Share of operating profit of 21 17 42 joint ventures Share of operating profit of 13 12 19 associates -------------------------------------------------------------------------------- Operating profit including 57 57 119 share of joint ventures and -------- -------- -------- associates Operating profit before 66 65 149 exceptional items and goodwill amortisation Exceptional items 3 - - (9) Goodwill amortisation (9) (8) (21) -------- -------- -------- -------------------------------------------------------------------------------- Profit before interest 57 57 119 Net interest payable and similar charges: Group (1) (2) - Share of joint ventures' (9) (11) (24) interest Share of associates' interest (5) (4) (7) -------------------------------------------------------------------------------- Profit before taxation 42 40 88 Taxation 4 (10) (14) (35) -------------------------------------------------------------------------------- Profit for the period 32 26 53 Dividends: Preference 5 (7) (8) (16) Ordinary (11) (10) (22) -------------------------------------------------------------------------------- Transfer to reserves 14 8 15 -------------------------------------------------------------------------------- Adjusted earnings per ordinary 8.1 p 6.3 p 16.1 p share Goodwill amortisation (2.2) p (2.0)p (4.9) p Exceptional items after - p - p (2.2) p attributable taxation -------------------------------------------------------------------------------- Basic earnings per ordinary 6 5.9 p 4.3 p 9.0 p share -------------------------------------------------------------------------------- Diluted earnings per ordinary 6 5.9 p 4.2 p 8.9 p share -------------------------------------------------------------------------------- Dividends per ordinary share 7 2.60 p 2.35 p 5.40 p -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statement of total recognised gains and 2003 2002 2002 losses For the half-year ended 28 June 2003 first half first half year based on unaudited figures £m £m £m -------------------------------------------------------------------------------- Profit for the period: Group 18 16 33 Share of joint ventures 9 4 12 Share of associates 5 6 8 Exchange adjustments 1 (1) (1) -------------------------------------------------------------------------------- Total recognised gains and losses for the 33 25 52 period -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Group balance sheet 2003 2002 2002 At 28 June 2003 first half first half year based on unaudited figures Notes £m £m £m -------------------------------------------------------------------------------- Fixed assets Intangible assets - goodwill 263 271 266 Tangible assets 140 140 140 Investments 39 33 30 Investments in joint ventures: -------- -------- -------- Share of gross assets 789 585 662 Share of gross liabilities (704) (525) (584) -------------------------------------------------------------------------------- 85 60 78 Investments in associates 40 33 35 -------------------------------------------------------------------------------- 567 537 549 -------------------------------------------------------------------------------- Current assets Stocks 121 97 98 Debtors - due within one year 705 702 703 - due after one year 64 87 72 Cash and deposits 190 169 175 -------------------------------------------------------------------------------- 1,080 1,055 1,048 -------------------------------------------------------------------------------- Creditors: amounts falling due within one year Borrowings (9) (39) (29) Other (1,175) (1,106) (1,129) -------------------------------------------------------------------------------- Net current liabilities (104) (90) (110) -------------------------------------------------------------------------------- Total assets less current 463 447 439 liabilities Creditors: amounts falling due after more than one year Borrowings Other (77) (89) (79) Provisions for liabilities and (72) (58) (57) charges (120) (107) (110) -------------------------------------------------------------------------------- 194 193 193 -------------------------------------------------------------------------------- Capital and reserves 8 194 193 193 -------------------------------------------------------------------------------- Capital and reserves include non-equity shareholders' funds of £150m (2002: first half £166m, year £161m). -------------------------------------------------------------------------------- Group cash flow statement 2003 2002 2002 For the half-year ended 28 June first half first half year 2003 based on unaudited figures Notes £m £m £m -------------------------------------------------------------------------------- Net cash inflow from operating 9 116 46 142 activities Dividends from joint ventures 3 6 20 and associates Returns on investments and (11) (12) (20) servicing of finance Taxation (15) (9) (17) Capital expenditure and (29) (9) (35) financial investment Acquisitions and disposals of (4) (34) (67) businesses Ordinary dividends paid (10) (9) (21) -------------------------------------------------------------------------------- Cash inflow/(outflow) before use 50 (21) 2 of liquid resources and financing Management of liquid resources - 15 7 Financing Buy-back of preference shares (16) - (7) Issue of ordinary shares 2 1 1 (Repayment of loans)/new loans (7) 27 (3) -------------------------------------------------------------------------------- Increase in cash in the period 29 22 - -------------------------------------------------------------------------------- Notes 1 Basis of presentation The interim financial statements have been prepared on the basis of the accounting policies set out in the 2002 Balfour Beatty plc Annual Report and Accounts. 2 Segment analysis Turnover Operating profit before exceptional items ------------------------------------------------------------------------------------------------- 2003 2002 2002 2003 2002 2002 first half first half year first half first half year £m £m £m £m £m £m ------------------------------------------------------------------------------------------------- Total Group, including share of joint ventures and associates Building, building management and services Civil and specialist 578 542 1,123 19 21 46 engineering and services Rail engineering and 678 687 1,347 7 7 17 services Investments and 399 394 838 16 16 37 developments 96 62 133 24 21 49 ------------------------------------------------------------------------------------------------- 1,751 1,685 3,441 66 65 149 ------------------------------------------------------------------------------------------------- Goodwill amortisation (9) (8) (21) ------- ------- ------- Operating profit 57 57 128 Net interest payable (15) (17) (31) ------- ------- ------- Profit before tax and 42 40 97 exceptional items Goodwill amortisation arises in Building, building management and services £1.3m (2002: first half £0.8m, full year £1.8m), Civil and specialist engineering and services £3.0m (2002: first half £2.1m, full year £5.8m) and Rail engineering and services £4.5m (2002: first half £5.2m, full year £12.9m). 3 Exceptional items In 2002, exceptional items charged against operating profit comprised costs arising from the aborted acquisition of JA Jones Inc. Exceptional items had no effect on the Group's tax charge in 2002. -------------------------------------------------------------------------------- 4 Taxation 2003 2002 2002 first half first half year £m £m £m -------------------------------------------------------------------------------- UK current tax Corporation tax 6 9 26 Share of joint ventures' taxation 3 1 6 Share of associates' taxation 3 2 4 Foreign current tax 2 2 6 Deferred taxation - - (7) Advance corporation tax written-back (4) - - -------------------------------------------------------------------------------- Tax charge 10 14 35 -------------------------------------------------------------------------------- Notes (continued) 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 2003 on 1 July 2003 to holders of these shares on the register on 30 May 2003. 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 2003 on 1 January 2004 to holders of these shares on the register on 21 November 2003 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2003 payable on 1 January 2004. These shares will be quoted ex-dividend on 19 November 2003. 6 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 414.6m (2002: first half 414.2m, full year 414.1m). 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 4m (2002: first half 7m, full year 5m). As in 2002, 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. 7 Dividends per ordinary share The interim dividend will be paid on 2 January 2004 to ordinary shareholders on the register on 31 October 2003 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2003 payable on 2 January 2004. These shares will be quoted ex-dividend on 29 October 2003. -------------------------------------------------------------------------------- 8 Reconciliation of movements in 2003 2002 2002 shareholders' funds first half first half year £m £m £m -------------------------------------------------------------------------------- Profit for the period 32 26 53 Dividends (18) (18) (38) -------------------------------------------------------------------------------- 14 8 15 Other recognised gains and losses (net) 1 (1) (1) Issue of ordinary shares 2 1 1 Buy-back of preference shares (16) - (7) -------------------------------------------------------------------------------- 1 8 8 Opening shareholders' funds 193 185 185 -------------------------------------------------------------------------------- Closing shareholders' funds 194 193 193 -------------------------------------------------------------------------------- Notes (continued) -------------------------------------------------------------------------------- 9 Notes to the cash flow statement 2003 2002 2002 first half first half year £m £m £m -------------------------------------------------------------------------------- (a) Net cash flow from operating activities: Group operating profit before exceptional 23 28 67 items Depreciation 19 19 40 Goodwill amortisation 8 8 19 Profit on disposal of fixed assets (2) - (1) Provision against own shares held 1 1 1 Exceptional items - cash expenditure (4) (2) (9) Working capital decrease/(increase) 71 (8) 25 -------------------------------------------------------------------------------- Net cash inflow from operating 116 46 142 activities -------------------------------------------------------------------------------- (b) Analysis of movement in net cash: Opening net cash 67 63 63 Cash inflow/(outflow) before use of liquid 50 (21) 2 resources and financing Buy-back of preference shares (16) - (7) Issue of ordinary shares 2 1 1 Acquisitions - debt at date of - (1) (1) acquisition Exchange adjustments 1 (1) 9 -------------------------------------------------------------------------------- Closing net cash 104 41 67 -------------------------------------------------------------------------------- (c) Reconciliation of cash flow to movement in net cash: Increase in cash in the period 29 22 - Cash outflow/(inflow) from decrease/ 7 (27) 3 increase in borrowings Cash inflow from decrease in term - (15) (7) deposits -------------------------------------------------------------------------------- Change in net cash resulting from cash 36 (20) (4) flows Acquisitions - debt at date of - (1) (1) acquisition Exchange adjustments 1 (1) 9 -------------------------------------------------------------------------------- Movement in net cash 37 (22) 4 -------------------------------------------------------------------------------- The financial information set out above (which was approved by the Board on 12 August 2003) does not constitute the Company's statutory accounts. Comparative full year figures have been extracted from the 2002 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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