Interim Results
Balfour Beatty PLC
11 August 2004
11 August 2004
BALFOUR BEATTY PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 26 JUNE 2004
STRONG UNDERLYING GROWTH AUGMENTED BY
FIRST-HALF SETTLEMENTS
Highlights
Continued growth in underlying pre-tax profits and earnings per share
Financial settlement and handover of rail maintenance contracts
Strong operating cash performance
Order book increased by 12% to £6.5 billion since year-end
Two new PPP concession preferred bidder awards
Interim dividend increased by 10% to 2.85p
Post Half Year
Disposal of Andover Controls for $403 million (£226 million)
Acquisition of 50% interest in Gammon in Hong Kong
Financial Summary
+--------------------------------------------+---------+---------+---------+
| | 2004| 2003| Change|
| | | | |
+--------------------------------------------+---------+---------+---------+
|Turnover including joint ventures and | | | |
|associates | £1,992m| £1,751m| 14%|
+--------------------------------------------+---------+---------+---------+
|Pre-tax profit | | | |
|- before goodwill amortisation | | | |
|and exceptionals | £68m| £51m| 33%|
|- after goodwill | £61m| £42m| 45%|
|amortisation and exceptionals | | | |
+--------------------------------------------+---------+---------+---------+
|Earnings per share | 10.7p| 8.0p| 34%|
|- adjusted* | 7.5p| 4.8p| 56%|
|- basic | | | |
+--------------------------------------------+---------+---------+---------+
|Financing | | | |
|- Net cash before PPP subsidiaries | | | |
|(non-recourse) | £121m| £104m| 16%|
|- Net borrowings on PPP | £(238m)| £0m| |
|subsidiaries (non-recourse) | | | |
+--------------------------------------------+---------+---------+---------+
* before the amortisation of goodwill, exceptional items and the premium arising
on buy-back of preference shares
'Our first half year results reflect significant underlying profit growth.
Operating cash performance was once again very satisfactory. This year, due to a
number of settlements, most notably in UK rail maintenance, a higher proportion
of our profits than normal will fall in the first half year. We anticipate that
2004 will be a year of good progress in line with current expectations.'
Sir David John, Chairman Mike Welton, Chief Executive
11 August 2004
BALFOUR BEATTY PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 26 JUNE 2004
BALFOUR BEATTY
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 strength, with a significant cash position 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 concessions and other long-term growth opportunities.
RESULTS
Balfour Beatty plc, the international engineering, construction and services
group, today announced pre-tax profits for the six months to 26 June 2004 of £68
million (2003: £51 million) prior to goodwill amortisation of £9 million (2003:
£9 million) and net exceptional profits of £2 million (2003: nil).
These results reflect significant underlying profit growth. They also include
recognition of the settlement agreed with Network Rail following early
termination of our UK maintenance contracts and some other settlements
previously anticipated for the second half year.
Profit before tax, but after goodwill amortisation and exceptional items, was
£61 million (2003: £42 million). Exceptional profits are the net of the gain
from the release of provisions set up in 2003 and the losses on sale of our
businesses in Turkey and the Philippines.
Earnings per share, before goodwill amortisation, exceptional items and the
premium arising on the buy-back of preference shares, were up by 34% at 10.7p
(2003: 8.0p).
Net cash stood at £121 million (2003: £104 million) before taking account of the
consolidation of £238 million of non-recourse net debt held in Connect Roads,
the PPP road concession company of which Balfour Beatty became sole shareholder
in January 2004, and in the 100%-owned Sunderland Street Lighting concession.
Operating cash performance was, once again, very satisfactory.
Turnover, at £1,992 million (2003: £1,751 million), increased by 14%.
Since the end of the accounting period, the Group has completed the sale of
Andover Controls. Andover's sales and operating profit before goodwill
amortisation for the six months to 26 June 2004 were £48 million and £7 million
respectively.
The Board has declared an increased interim dividend of 2.85p per ordinary share
(2003: 2.60p).
KEY EVENTS
Mansell, the UK construction and construction services business acquired at the
end of December, is being successfully integrated into the Group and is
performing at anticipated levels.
Further important steps were taken to strengthen the business's long-term growth
potential. The sale of Andover Controls in the US for $403 million and the
acquisition of a 50% share of Gammon, Hong Kong's leading construction and
construction services contractor, for £33 million have been completed since the
end of June and will be accounted for in the second half of the year.
In the PPP sector, preferred bidder status was achieved for the Birmingham
Hospital and North Lanarkshire Schools concessions. These successes, together
with the acquisition of Atkins' interest in Connect Roads, will bring our
committed equity in PPP concessions to over £200 million.
A satisfactory settlement was reached with Network Rail in respect of their
decision to take UK maintenance in-house and all operational responsibilities in
this regard reverted to them in early July. This settlement is accounted for in
the first-half results.
New five-year contracts were awarded by Network Rail for UK rail renewals work,
which, combined with our trackwork under the London Underground PPP, gives us a
UK track replacement business with annual sales of around £200 million.
Significant new contracts were secured in the transport sector in the US, for UK
road building and for civil engineering works on the London Underground.
During the period, our order book has grown from the 2003 year-end position of
£5.8 billion to £6.5 billion.
DISPOSALS AND ACQUISITIONS
In January, we acquired Atkins' 32.2% interest in Connect Roads, our principal
PPP roads concession vehicle, for the sum of £13 million through the exercise of
pre-emption rights. A secondary market in PPP assets is now developing and we
will continue to review our options in that light.
In May, we announced the sale of Andover Controls, our US-based building
management controls and security systems company, to Schneider Electric of
France for $403 million.
Balfour Beatty has sustained Andover's market position in recent years through
expenditure on product development and by acquisition. In the last two years,
there has been accelerating consolidation in the US building controls industry.
Andover, operating as a separate entity in this market, would have become
increasingly vulnerable to its major competitors and faced increasingly
difficult strategic challenges. In these circumstances, it became clear that
Andover's highest future value to Balfour Beatty would be realised through
disposal.
The sale, completed in July, achieved at a multiple in excess of 15 times
historic earnings, provides substantial additional resources with which to
further strengthen the Group's business mix.
Late in May, we announced our intention to acquire Skanska's 50% interest in
Gammon, the market leader for construction and construction services in Hong
Kong. This transaction was completed in early August 2004 for a consideration of
£33 million, following a period of due diligence. This acquisition gives us a
strong, established base in a regional market with excellent growth potential,
with a very substantial partner in Jardine Matheson. Balfour Beatty's existing
civil, electrical and mechanical Hong Kong contracting businesses are in the
process of being fully integrated into the Gammon organisation.
BUSINESS SECTORS
Operating profits are stated before the amortisation of goodwill and exceptional
items
Building, Building Management and Services - Turnover £751 million
Operating profits from the continuing businesses in this sector were in line
with 2003 at £13 million. Mansell produced a satisfactory first six-month
contribution and traded at anticipated levels. Our other construction,
electrical and mechanical engineering businesses in this sector are now oriented
very largely towards major projects. They have leading market positions and very
substantial future workloads, but first-half results reflected a number of major
projects being in their mobilisation or early construction phases.
In our services businesses, our joint venture, Romec, which maintains all the
Royal Mail's premises, performed well. By contrast, the UK business of Heery
International had a difficult first half year with one-off losses incurred on
contracts in both the UK and Spain.
Civil and Specialist Engineering and Services - Turnover £683 million
Operating profits in this sector, at £8 million (2003: £7 million), were 14%
ahead of the same period in 2003.
Performance in UK civil, specialist and power engineering was satisfactory. The
forward order book was augmented by the £171 million A46 from Newark to
Widmerpool. This is the fourth Early Contractor Involvement project we have won,
amounting in total to over £600 million of future work. The £150 million
contract for the inspection of civil assets and an associated works programme
for bridges, structures and deep tube tunnels for the Metronet consortium was
also secured.
In Balfour Beatty Construction Inc in the US, further costs were incurred on the
residual portions of some historic heavy marine engineering contracts. No major
claim settlements were received in the first half year, although final payment
on one project has been agreed since. The Central Division has been integrated
with National Engineering & Contracting, which was acquired in 2001. Performance
in the divisions serving California and Texas was good and substantial new
contracts were won in these businesses and in Pennsylvania and Ohio.
In Balfour Beatty Utilities, performance improved following last year's
integration of Kennedy and Kentons and as a result of an improving mix of
business under its contract with Transco. RCS, the road management and
maintenance company, also produced improved profits from successful long-term
contracts for the Highways Agency and a range of Local Authorities.
Rail Engineering and Services - Turnover £375 million
Operating profits in the Rail Engineering and Services sector advanced by 44% to
£23 million in the first half (2003: £16 million). The underlying performance of
the on-going businesses was satisfactory, although first-half demand in the
domestic German market showed some signs of weakness.
A proportion of the profits recognised in this half year arose upon financial
settlement arising from the transfer of maintenance contracts to Network Rail.
The detailed terms of this settlement are subject to a confidentiality agreement
with the customer.
Performance in the other UK rail businesses was satisfactory. In April, new
five-year contracts with Network Rail commenced for UK rail renewals, under
which Balfour Beatty's anticipated annual volumes will potentially increase by
over 50% to in excess of £110 million per annum.
In early August, we agreed, subject to due diligence, to acquire the UK Solid
State Interlocking (SSI) signalling resources of Bombardier. This small
acquisition will further expand the complementary range of capabilities which
Balfour Beatty offers in rail engineering and services.
Investments and Developments - Turnover £135 million
Operating profits in this sector rose by 29% to £31 million (2003: £24 million)
and pre-tax profits rose by 55% to £17 million (2003: £11 million). This
reflected continuing good performance from those concessions which are already
operational. There was also a full six-month contribution from our equity
interest in the London Underground Metronet concessions and increased profits
from Connect Roads following our acquisition of the outstanding shares.
Metronet is performing in line with expectations, contributing half-year
operating profits of £10 million (2003: £4 million).
In Barking Power Ltd, profits improved, partially as a result of higher spot
electricity market prices. The settlement of Barking Power's claim against the
administrators of TXU Europe now seems unlikely to be achieved before 2005.
We were appointed preferred bidder for two major new PPP concessions. Consort
Healthcare won the £520 million Birmingham Hospital in January. Financial close
is planned for the first quarter of 2005. In June, Transform Schools won the
£140 million, 30-year North Lanarkshire Schools concession. This scheme, which
is expected to reach financial close in October, will generate up to £100
million of long-term services work.
Balfour Beatty Capital Projects continues to evaluate and bid for a number of
large schemes, principally in the education and health sectors. The Government's
new initiative, 'Building Schools for the Future', is now under way and the
recent announcement that 14 new PPP hospital schemes are to be released to the
market is also very encouraging.
BOARD SUCCESSION
Mike Welton, the Group's Chief Executive, has decided to retire from the company
and resign from the Board at the end of the year. He will be succeeded by Ian
Tyler, who has been Chief Operating Officer of Balfour Beatty since July 2002,
having joined the Group as Finance Director from Hanson plc in 1996, where he
was Finance Director of its subsidiary, ARC.
Mike Welton has been Chief Executive of Balfour Beatty since January 1996. In
the period since, the Group has achieved consistent growth in profits and
earnings and has become the leading engineering, construction and services
company in the UK. Mike and Ian have worked closely together throughout this
period and Ian is ideally positioned to take the company on in its next stage of
development. Mike Welton will leave with the Board's sincere gratitude and good
wishes.
OUTLOOK
Prospects in our key markets continue to be positive. Our UK infrastructure
markets, already strong, have been further underpinned by the Government's
interim spending review. Those sections of the PPP concession market on which we
focus continue to grow. Further outsourcing of non-core services remains on the
agenda of many of our public and private sector customers.
In the US, we have a new management team with developing plans to build on our
strong core business base. Closure of the heavy marine engineering business will
follow residual project completions. In Asia, we have acquired a substantial
footprint upon which to build long-term growth.
Following the sale of Andover Controls, we are in an excellent position to
improve, carefully, the mix and coverage of our business portfolio.
This year, due to a number of settlements, most notably in UK rail maintenance,
a higher proportion of our profits than normal will fall in the first half year.
We anticipate that 2004 will be a year of good progress in line with current
expectations.
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).
A presentation to analysts and investors will be made at ABN AMRO,
250 Bishopsgate, London, EC2 at 9.30 am.
A recording of this presentation will be available on www.balfourbeatty.com on
11 August 2004.
The slides presented to the analysts and investors are also available on
www.balfourbeatty.com.
* * * * * * * *
The Interim Report for the six months to 26 June 2004 together with the
Independent Review Report of Deloitte & Touche LLP will be posted on 13 August
2004 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 2004 dividend of 2.85p net will be paid on 4 January 2005 to
ordinary shareholders on the register on 29 October 2004, by direct credit or,
where no mandate has been given, by cheques posted on 30 December 2004 payable
on 4 January 2005. The ordinary shares will be quoted ex-dividend on 27 October
2004.
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 2004 on 1 January 2005 to holders of these
shares on the register on 26 November 2004 by direct credit or, where no mandate
has been given, by cheques posted on 29 December 2004 payable on 1 January 2005.
These shares will be quoted ex-dividend on 24 November 2004.
Group profit and loss account Notes 2004 2003 2003
For the half-year ended 26 June 2004 -------- first first half year
half as as
based on un-audited figures restated restated
£m £m £m
-------- -------- --------
Turnover including share of joint ventures and
associates 2 1,992 1,751 3,678
Share of turnover of joint ventures (137) (146) (297)
Share of turnover of associates (142) (94) (220)
-------- -------- --------
Group turnover 1,713 1,511 3,161
-------- -------- --------
-------- -------- --------
Continuing operations 1,647 1,464 3,058
Acquisitions 18 - -
Discontinued operations 48 47 103
-------- -------- --------
Group operating profit 44 23 71
-------- -------- --------
Group operating profit before exceptional items 49 31 83
and goodwill amortisation
Operating exceptional items 3 3 - 3
Goodwill amortisation (8) (8) (15)
-------- -------- --------
Share of operating profit of joint ventures 11 21 47
Share of operating profit of associates 21 13 29
-------- -------- --------
Operating profit including share of joint 76 57 147
ventures and associates -------- -------- --------
Operating profit before exceptional items and goodwill 82 66 161
amortisation
Operating exceptional items 3 3 - 3
Goodwill amortisation (9) (9) (17)
-------- -------- --------
-------- -------- --------
Continuing operations 68 52 131
Acquisitions 2 - -
Discontinued operations 6 5 16
-------- -------- --------
Exceptional items
Loss on sale of operations 3 (3) - -
Provision for loss on sale of operations 3 2 - (10)
Profit on sale of fixed assets 3 - - 12
-------- -------- --------
Profit on ordinary activities before interest 75 57 149
Net interest payable and similar charges:
Group 4 (3) (1) (1)
Share of joint ventures' interest 4 (5) (9) (18)
Share of associates' interest 4 (6) (5) (12)
-------- -------- --------
Profit on ordinary activities before taxation 61 42 118
-------- -------- --------
Profit on ordinary activities before
exceptional items and goodwill
amortisation 68 51 130
Exceptional items 3 2 - 5
Goodwill amortisation (9) (9) (17)
-------- -------- --------
Tax on profit on ordinary activities 5 (17) (10) (29)
-------- -------- --------
Profit for the period 44 32 89
Dividends:
Preference 6 (7) (7) (15)
Ordinary (12) (11) (25)
Premium paid on buy-back of preference shares (5) (5) (5)
-------- -------- --------
Transfer to reserves 20 9 44
-------- -------- --------
Adjusted earnings per ordinary share 10.7 p 8.0 p 20.6 p
Goodwill amortisation (2.2)p (2.2)p (4.1)p
Exceptional items after attributable taxation 0.3 p - p 1.4 p
Premium paid on buy-back of preference shares (1.3)p (1.0)p (1.0)p
-------- -------- --------
Basic earnings per ordinary share 7 7.5 p 4.8 p 16.9 p
-------- -------- --------
Diluted earnings per ordinary share 7 7.4 p 4.8 p 16.7 p
-------- -------- --------
Dividends per ordinary share 8 2.85 p 2.6 p 6.0 p
-------- -------- --------
Group balance sheet Notes 2004 2003 2003
At 26 June 2004 -------- first first half year
half as as
based on un-audited figures restated restated
------------------------------ £m £m £m
-------- -------- --------
Fixed assets
Intangible assets - goodwill 302 263 306
Tangible assets - PFI/PPP constructed assets 262 - -
- other 150 140 158
Investments 36 39 36
Investments in joint ventures:
-------- -------- --------
Share of gross assets 652 789 866
Share of gross liabilities (579) (704) (777)
-------- -------- --------
73 85 89
Investments in associates 60 40 47
-------- -------- --------
883 567 636
-------- -------- --------
Current assets
Stocks 127 121 109
Debtors - due within one year 816 705 759
- due after one year 66 64 60
Cash and deposits - PFI/PPP subsidiaries 39 - -
- other 197 190 202
-------- -------- --------
1,245 1,080 1,130
Creditors: amounts falling due within one year
Borrowings
- non-recourse PFI/PPP term loans (13) - -
- other (9) (9) (7)
Other (1,243) (1,174) (1,195)
-------- -------- --------
Net current liabilities (20) (103) (72)
-------- -------- --------
Total assets less current liabilities 863 464 564
Creditors: amounts falling due after more than one year
Borrowings
- non-recourse PFI/PPP term loans (264) - (3)
- other (67) (77) (68)
Other (118) (72) (95)
Provisions for liabilities and charges (177) (120) (167)
-------- -------- --------
237 195 231
-------- -------- --------
Capital and reserves
Called-up share capital 212 210 212
Share premium account 148 327 328
Special reserve 185 - -
Other reserves (308) (342) (309)
-------- -------- --------
Shareholders' funds 11 237 195 231
-------- -------- --------
Equity interests 100 45 81
Non-equity interests 137 150 150
-------- -------- --------
-------- -------- --------
237 195 231
-------- -------- --------
Group cash flow statement Notes 2004 2003 2003
For the half-year ended 26 June 2004 -------- first first half year
half as as
based on un-audited figures restated restated
------------------------------ £m £m £m
-------- -------- --------
Net cash inflow from operating activities 12 117 116 170
Dividends from joint ventures and associates 2 3 11
Returns on investments and servicing of finance (11) (11) (16)
Taxation (16) (15) (25)
Capital expenditure and financial investment (55) (29) (39)
Acquisitions and disposals of businesses (13) (4) (21)
Ordinary dividends paid (11) (10) (22)
-------- -------- --------
Cash inflow before use of liquid resources and financing 13 50 58
Management of liquid resources (21) - (32)
Financing:
Issue of ordinary shares 1 2 5
Purchase of ordinary shares (1) - (1)
Buy-back of preference shares (18) (16) (16)
New loans 8 - 3
Repayment of loans (6) (5) (11)
Capital element of finance lease payments (2) (2) (3)
-------- -------- --------
(Decrease)/increase in cash in the period (26) 29 3
-------- -------- --------
Group statement of total recognised gains and 2004 2003 2003
losses first first half year
For the half-year ended 26 June 2004 half as as
restated restated
based on un-audited figures £m £m £m
------------------------------ -------- -------- --------
Profit for the period:
Group
Group operating profit 44 23 71
Loss on sale of operations (3) - -
Provision for loss on sale of operations 2 - (10)
Profit on sale of fixed assets - - 12
Net interest payable and similar charges (3) (1) (1)
Tax (10) (4) (14)
-------- -------- --------
30 18 58
Share of joint ventures 4 9 19
Share of associates 10 5 12
Exchange adjustments (2) 1 (1)
-------- -------- --------
Total recognised gains and losses for the period 42 33 88
-------- -------- --------
Notes
1 Basis of presentation
The interim financial statements have been prepared on the basis of the
accounting policies set out in the 2003 Balfour Beatty plc Annual Report and
Accounts except as noted below.
The Group has adopted UITF Abstract 38 'Accounting for ESOP trusts' and the
amendments to UITF Abstract 17 'Employee share schemes' and comparative figures
have been restated accordingly. Previously, investments in Balfour Beatty plc
ordinary shares of 50p each acquired by the Group's discretionary trust, the
Balfour Beatty Employee Share Ownership Trust, to satisfy awards under the
Balfour Beatty Performance Share Plan, were recognised as a fixed asset
investment, net of provisions. The cost of shares acquired was charged to the
profit and loss account over the qualifying period. In accordance with UITF 38
and UITF 17, own shares held by the Group's employee discretionary trust are
recorded as a deduction in arriving at shareholders' funds and the fair value of
the shares at the date of award is charged to the profit and loss account over
the qualifying period. This restatement has reduced operating profit in 2003
first half by £0.6m and has had no impact on operating profit in full year 2003.
Shareholders' funds as at 28 June 2003 and 31 December 2003 were increased by
£0.9m and £1.3m respectively. The Group has also adopted UITF Abstract 37
'Purchases and sales of own shares' and comparative figures have been restated
accordingly reducing basic earnings per ordinary share in 2003 first half and
full year by 1.0p. The difference between the carrying amount of preference
shares bought back and the consideration paid has been reported as an
appropriation of profit.
Andover Controls, sold on 13 July 2004, has been classified as discontinued (see
note 13).
2 Segment analysis
Turnover Operating profit before
----------------- exceptional items
--------------------
2004 2003 2003 2004 2003 2003
first first year first first half year
half half half as as
restated restated
£m £m £m £m £m £m
------- ------- ------- -------- -------- --------
Total Group, including share of
joint ventures
and associates
Building, building management and 751 531 1,093 13 13 28
services
Civil and specialist engineering 683 678 1,393 8 7 21
and services
Rail engineering and services 375 399 873 23 16 41
Investments and developments 135 96 216 31 24 54
------- ------- ------- -------- -------- --------
1,944 1,704 3,575 75 60 144
Discontinued operations 48 47 103 7 6 17
------- ------- ------- -------- -------- --------
1,992 1,751 3,678 82 66 161
------- ------- -------
Goodwill amortisation (9) (9) (17)
-------- -------- --------
Operating profit 73 57 144
Net interest payable (14) (15) (31)
-------- -------- --------
Profit before tax and exceptional items 59 42 113
-------- -------- --------
Goodwill amortisation arises in Building, building management and services £2.0m
(2003: first half £0.6m, full year £1.3m), Civil and specialist engineering and
services £2.3m (2003: first half £3.0m, full year £5.5m), Rail engineering and
services £4.3m (2003: first half £4.5m, full year £9.0m), Investments and
developments £0.1m (2003: first half and full year nil) and Discontinued
businesses £0.7m (2003: first half £0.7m, full year £1.5m). In 2003, goodwill
amortisation included £0.5m impairment charge in respect of Garanti Balfour
Beatty.
3 Exceptional Items
2004 2003 2003
first first year
half half
£m £m £m
-------- -------- --------
a) Credited to/(charged against) operating profit:
Cancellation of Network Rail maintenance contracts 3 - (7)
Compensation for loss of use of operating facility - - 10
-------- -------- --------
3 - 3
-------- -------- --------
b) Loss on sale of operations:
Loss on disposal of Garanti Balfour Beatty (2) - -
Loss on disposal of First Philippine Balfour Beatty Inc (1) - -
-------- -------- --------
(3) - -
-------- -------- --------
c) Provision for loss on sale of operations:
Loss arising from the disposal of the discontinued Cables
businesses - - (8)
Provision for loss on disposal of Garanti Balfour Beatty 2 - (2)
-------- -------- --------
2 - (10)
-------- -------- --------
d) Profit on sale of fixed assets:
Profit on sale of operating facility - - 12
-------- -------- --------
- - 12
-------- -------- --------
2 - 5
-------- -------- --------
a) The exceptional item credited to Group operating profit in 2004 arises in
respect of the resolution of certain matters previously provided for in 2003 in
relation to the cancellation of three Network Rail maintenance contracts.
Exceptional items charged against Group operating profit in 2003 also included
compensation received in respect of business disruption, following the
compulsory purchase of an operating facility. These exceptional items related to
the Rail engineering and services segment.
b) In 2004 a loss of £2m (previously provided in 2003) arose on the disposal of
the Group's 49.2% interest in Garanti Balfour Beatty Insaat Sanayi ve Ticaret AS
for a consideration of US$1. Also, a loss of £1m (comprising goodwill previously
written off to reserves) arose on the disposal of the Group's 40% interest in
First Philippine Balfour Beatty Inc for a consideration of US$3.5m. These
exceptional items related to the Civil and specialist engineering segment.
c) The provision for loss on sale of operations in 2003 comprised provision for
environmental and employee retirement costs relating to the discontinued Cables
businesses in North America sold in 1999 and provision for losses on the
disposal in 2004 of the Group's 49.2% interest in Garanti Balfour Beatty in
Turkey in the Civil and specialist engineering segment.
d) The profit on sale of fixed assets in 2003 arose on the compulsory purchase
of an operating facility. The profit related to the Rail engineering and
services segment.
e) Exceptional items increased the Group's tax charge in 2004 by £0.8m (2003:
£0.5m reduction).
4 Net interest payable and similar charges
2004 2003 2003
first first year
half half
£m £m £m
-------- -------- --------
Group Non-recourse PFI/PPP - interest payable 7 - -
- interest receivable (1) - -
-------- -------- --------
6 - -
Other - interest payable 5 7 12
- PFI/PPP subordinated (3) (1) (2)
debt interest receivable
- other interest receivable (5) (5) (9)
-------- -------- --------
3 1 1
Share of joint
ventures PFI/PPP concessions - interest on long-term (9) (9) (18)
finance assets
- other net interest payable 14 18 36
Share of PFI/PPP concessions - other net interest payable 4 2 7
associates
Other associates - net interest payable 2 3 5
-------- -------- --------
14 15 31
-------- -------- --------
5 Tax on profit on ordinary activities
2004 2003 2003
first first year
half half
£m £m £m
-------- -------- --------
UK current tax 8 6 25
UK advance corporation tax (4) (4) (13)
Foreign current tax 2 2 7
Deferred tax 4 - (5)
Share of UK joint ventures' tax 2 3 10
Share of UK associates' tax 5 3 5
-------- -------- --------
17 10 29
-------- -------- --------
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 2004 on 1 July 2004 to holders of these shares on the register on 28 May
2004. 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 2004 on 1 January 2005 to holders of these
shares on the register on 26 November 2004 by direct credit or, where no mandate
has been given, by cheques posted on 29 December 2004 payable on 1 January 2005.
These shares will be quoted ex-dividend on 24 November 2004.
7 Earnings per ordinary share
The calculation of earnings per ordinary share is based on the profit for the
period, after charging preference dividends and appropriations arising on the
buy-back of preference shares, divided by the weighted average number of
ordinary shares in issue during the period of 418.7m (2003: first half 414.6m,
full year 416.3m). The calculation of diluted earnings per ordinary share is
based on the profit for the period, after charging preference dividends and
appropriations arising on the buy-back of preference shares, divided by the
weighted average number of ordinary shares in issue adjusted for the conversion
of share options by 5m (2003: first half 4m, full year 3m). As in 2003, no
adjustment has been made in respect of the potential conversion of the
cumulative convertible redeemable preference shares, the effect of which would
have been antidilutive throughout the period. Adjusted earnings per ordinary
share before goodwill amortisation, exceptional items and appropriations arising
on the buy-back of preference shares 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 4 January 2005 to ordinary shareholders on
the register on 29 October 2004 by direct credit or, where no mandate has been
given, by cheques posted on 30 December 2004 payable on 4 January 2005. These
shares will be quoted ex-dividend on 27 October 2004.
9 Acquisitions
On 1 January 2004 the Group acquired the business and assets of the railway
division of ABB Gebaudetechnik AG based in Germany for a consideration of Euro
3.3m. The provisional fair value of net liabilities acquired was £1m and
provisional goodwill arising was £3m.
On 16 January 2004 and 23 January 2004 the Group acquired from Atkins its 32.2%
interests in Connect Roads Ltd and Connect M77/GSO Holdings Ltd respectively for
a total consideration of £13.3m cash. As a result, the Group's interests in the
companies increased to 100% and they have been accounted for as subsidiaries
from these dates. The provisional fair value of the net assets acquired,
consideration paid and provisional goodwill arising were:
Fair
value
of assets
£m
--------
Fixed assets 231
Debtors 73
Creditors and provisions (42)
Cash and deposits 41
Non-recourse project finance term loans (278)
--------
25
Investment in joint venture (17)
--------
8
--------
Consideration and costs 13
--------
Goodwill 5
--------
10 PFI/PPP subsidiaries
The Group has a 100% interest in three PFI/PPP concessions through its
shareholdings in SBB Street Lighting (Holdings) Ltd, Connect Roads Ltd and
Connect M77/GSO Holdings Ltd. The performance of these PFI/PPP concessions in
the first half 2004 (from 1 January 2004 or since becoming subsidiaries as
appropriate) and their balance sheets at 26 June 2004 are summarised below:
2004
first
half
£m
--------
Profit and loss account
Turnover 15
--------
Operating profit 8
Net interest payable (6)
--------
Profit on ordinary activities before taxation 2
Tax on profit on ordinary activities -
--------
Profit for the period 2
--------
Cash flow
Operating profit 8
Depreciation 4
Working capital decrease 39
--------
Net cash inflow from operating activities 51
Returns on investments and servicing of finance (7)
Taxation (1)
Capital expenditure and financial investment (35)
Dividends paid (6)
--------
Cash inflow before use of liquid resources and financing 2
Opening net borrowings/net borrowings at date of
acquisition (240)
--------
Closing net borrowings (238)
--------
Balance sheet
Tangible assets 262
Debtors 43
Creditors and provisions (46)
Cash and deposits 39
Non-recourse project finance term loans (277)
--------
Net assets 21
--------
11 Reconciliation of movements in shareholders' funds 2004 2003 2003
first first half year
half as as
restated restated
£m £m £m
-------- -------- --------
Profit for the period 44 32 89
Dividends (19) (18) (40)
Premium paid on buy-back of preference shares (5) (5) (5)
-------- -------- --------
20 9 44
Other recognised gains and losses (net) (2) 1 (1)
Goodwill - on business sold 1 - -
Issue of ordinary shares 1 2 5
Buy-back of preference shares - carrying value (13) (11) (11)
Movements relating to Balfour Beatty Employee Share
Ownership Trust (1) 2 2
-------- -------- --------
6 3 39
Opening shareholders' funds - as previously reported 230 193 193
Prior year adjustment 1 (1) (1)
-------- -------- --------
Closing shareholders' funds - as restated 237 195 231
-------- -------- --------
By special resolution on 13 May 2004, confirmed by the Court on 16 June 2004,
the share premium account was reduced by £181m and the £4m capital redemption
reserve fund was cancelled, effective on 25 June 2004. A special reserve of
£185m was created which becomes distributable to the extent of future increases
in share capital and share premium account.
12 Notes to the cash flow statement 2004 2003 2003
first first half year
half as as
restated restated
£m £m £m
-------- -------- --------
(a) Net cash flow from operating activities:
Group operating profit before exceptional items 41 23 68
Depreciation 23 19 43
Goodwill amortisation 8 8 15
Profit on sale of fixed assets - (2) (3)
Provision against own shares held 1 1 3
Exceptional items - cash (expenditure)/receipts (1) (4) 5
Working capital decrease 45 71 39
-------- -------- --------
Net cash inflow from operating activities 117 116 170
-------- -------- --------
(b) Analysis of movement in net (borrowings)/cash:
Opening net cash 124 67 67
Cash inflow before use of liquid resources and financing 13 50 58
Issue of ordinary shares 1 2 5
Purchase of ordinary shares (1) - (1)
Buy-back of preference shares (18) (16) (16)
Acquisitions - net(borrowings)/term deposits at date of
acquisition (239) - 5
Exchange adjustments 3 1 6
-------- -------- --------
Closing net (borrowings)/cash (117) 104 124
-------- -------- --------
(c) Reconciliation of cash flow to movement in net
(borrowings)/cash:
(Decrease)/increase in cash in the period (26) 29 3
Cash outflow from decrease in borrowings - 7 11
Cash outflow from increase in term deposits 21 - 32
-------- -------- --------
Change in net
(borrowings)/cash resulting from cash flows (5) 36 46
Acquisitions - net(borrowings)/term deposits at date of
acquisition (239) - 5
Exchange adjustments 3 1 6
-------- -------- --------
Movement in net (borrowings)/cash (241) 37 57
-------- -------- --------
(d) Analysis of net (borrowings)/cash:
US dollar fixed rate term loan 8.06% (2008)* (65) (73) (66)
Bank overdrafts and other short-term loans (9) (8) (5)
Finance leases (2) (5) (4)
Cash and deposits 120 172 147
Term deposits 77 18 55
-------- -------- --------
121 104 127
UK PFI/PPP project
finance - sterling floating rate term loan (5) - (3)
(2027)*
- sterling floating rate term loan (26) - -
(2011)*
- sterling floating rate term loan (98) - -
(2012)*
- sterling floating rate term loan (148) - -
(2034)*
- cash and deposits 2 - -
- term deposits 37 - -
-------- -------- --------
Net (borrowings) / cash (117) 104 124
-------- -------- --------
* Interest rate swaps have been taken out to convert the US dollar fixed rate
term loan to floating rate and the UK PFI/PPP project finance floating rate term
loans to various fixed rates.
13 Post balance sheet events
On 13 July 2004 the Group completed the sale of Andover Controls to Schneider
Electric for US$403m. The transaction will result in an exceptional gain, to be
reported in the second half 2004, provisionally estimated at £123m after tax as
follows:
£m
--------
Proceeds 226
Net assets sold (22)
Goodwill (including goodwill previously written off to (59)
reserves £37m)
Costs (12)
--------
133
Taxation (10)
--------
Net gain 123
--------
Andover Controls was acquired in stages: goodwill arising before 1 January 1998
amounting to £37m was charged against reserves in the year of acquisition and
that arising subsequently was capitalised. The profit on disposal is determined
by including all attributable goodwill and that element previously eliminated
against reserves is added back directly to equity. The disposal of Andover
Controls will therefore increase shareholders' funds by £160m.
On 6 August 2004 the Group acquired from the Skanska group its 50% shareholdings
in each of Gammon China Ltd, Gammon Asia Ltd and Gammon Construction Holdings
Ltd (the 'Gammon Skanska group') for a total consideration of HK$475m (£33m) in
cash.
The financial information set out above (which was approved by the Board on 10
August 2004) does not constitute the Company's statutory accounts within the
meaning of Section 240 of the Companies Act 1985. Comparative full year figures
have been extracted from the 2003 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.
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