Preliminary Results

RNS Number : 3463O

Balfour Beatty PLC

05 March 2009

 



5 March 2009

BALFOUR BEATTY PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

STRONG PROGRESS,

 DEMONSTRATING THE RESILIENCE OF OUR BUSINESS MODEL

Financial Summary

	2008	2007	Increase
Revenue including joint ventures and associates¹	£9,486m	£7,488m	+27%
Group revenue¹	£8,261m	£6,466m	+28%
Pre-tax profit¹
- before exceptional items and amortisation	£249m	£201m	+24%
- after exceptional items and amortisation	£270m	£157m	+72%
Earnings per share
- adjusted²	39.9p	35.0p	+14%
- basic	42.9p	35.1p	+22%
Financing
- net cash before PPP subsidiaries (non-recourse)	£440m	£374m
- net borrowings of PPP subsidiaries (non-recourse)	£(143)m	£(61)m

¹	continuing operations
²	before exceptional items and amortisation of intangible assets, and including the pre-exceptional results of discontinued operations in 2007
³	from continuing operations, before exceptional items and amortisation of intangible assets

Highlights

• Pre-tax profit³ up 24% to £249 million

• Adjusted earnings per share² up 14% to 39.9p

• Cash generated from operations was £297 million

• Average net cash in the year of £239 million

• Order book of £12.8 billion at year-end

• Recent acquisitions performing well 

• Final dividend of 7.7p, full-year dividend up 11% at 12.8p

'Balfour Beatty produced another excellent financial performance in 2008, together with further progress in the Group's strategic development.

'We are strong both operationally and financially and the majority of our work is with public sector and regulated customers, who are long-term investors in infrastructure.

'While the difficult economic environment will have some impact on our businesses and creates greater uncertainty, we anticipate making progress in 2009.'

Steve Marshall, Chairman

Ian Tyler, Chief Executive

5 March 2009 

BALFOUR BEATTY PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

OVERVIEW

2008 was another year of very good progress, driven by the strength of our business with public sector and regulated customers and the performance of acquisitions. The majority of revenues derived from public and regulated customers in the year.  

Our order book was £12.8 billion at the end of 2008, benefiting from acquisitions and exchange, with £4.9 billion of further work at preferred bidder stage.  

Our cash position remains strong, with average net cash in the year of £239 million.  Year-end net cash stood at £440 million (2007: £374 million), before taking account of the consolidation of £143 million of non-recourse net debt held in PPP subsidiaries (2007: £61 million).  

We continued to enhance our earnings potential through the acquisition of: 

• Balfour Beatty Communities, the market leader in the military accommodation PPP concession market in the US; 

• Barnhart, a leading Californian construction management company; 

• Dean & Dyball, a leading UK regional contractor; 

• Blackpool International Airport; and 

• Schreck-Mieves, the German rail engineering company.

Our professional services, facilities management and utilities businesses all grew strongly in the year.

  Balfour Beatty now has over £9 billion in revenues, including joint ventures and associates, and a leading presence in selected key markets. We are strong both operationally and financially. Our scale and the resilience of our business model will serve us well in this difficult economic environment.  We have a clear strategy for the development of the business and a proven track record of delivery.

RESULTS

Pre-tax profits³ were up 24% at £249 million (2007: £201 million).  

Adjusted earnings per ordinary share² were up 14% at 39.9p (2007: 35.0p). Basic earnings per ordinary share were 42.9p (2007: 35.1p).  

The Board is proposing a final dividend of 7.7p per ordinary share, making a total dividend of 12.8p for the year, an increase of 11%.

Operating profits from continuing operations² in the building sector increased by 26%, in the engineering sector by 27%, in the rail sector by 3% and in the investments sector by 94%, which includes the impact of the acquisition of Balfour Beatty Communities.

Operating cash flow was, once again, strong and ahead of operating profits. Year-end net cash stood at £440 million (2007: £374 million), before taking account of the consolidation of £143 million of non-recourse net debt held in PPP subsidiaries (2007: £61 million). Strong cash flow and the proceeds of an equity placing offset the impact of net acquisition expenditure of £302 million. 

In May 2008, we raised £182 million by successfully completing a placing of new ordinary shares, maintaining our policy of carrying no net debt on the balance sheet and enabling us to continue to take advantage of acquisition opportunities.  During the previous eight years, Balfour Beatty's substantial acquisition programme had been funded from operating cash flow and the proceeds of disposals.  

The year-end order book stood at £12.8 billion (2007: £11.4 billion), with £4.9 billion of further work at preferred bidder stage.

BUSINESS SECTOR PERFORMANCE

Building, Building Management and Services

Profit from operations in the building sector, before exceptional items and amortisation, rose by 26% to £88 million (2007: £70 million). 

This reflected full year contributions from Balfour Beatty Construction US, which was acquired at the end of March 2007, and Cowlin and Covion, which were acquired in the second half of 2007, together with the impact of the acquisitions of Dean & Dyball and Barnhart in 2008.  

There was very satisfactory organic growth in Balfour Beatty's established businesses. Performance was held back by a write-down on a large UK building services project pending resolution of income recovery negotiations, and the write-off of a receivable from a property developer. 

Our facilities management business, now renamed Balfour Beatty WorkPlace, grew strongly.

Balfour Beatty Construction US performed strongly and Heery International had another good year.

Major projects were secured in the UK from BAA, the Olympic Delivery Authority, BT and in the health and education sectors; and in the US from the Navy, Army and Air Force. 

The building sector order book was £6.7 billion by the end of 2008 (2007: £6.1 billion).

The high-quality order book and continued infrastructure expenditure, along with the full-year impact of acquisitions, should drive growth in 2009. While declining volumes and increased competition in some private sector markets will have some impact in the sector, we anticipate making further progress in the year.

  Civil and Specialist Engineering and Services

Profit from continuing operations in the civils sector, before exceptional items and amortisation, rose by 27% to £104 million (2007: £82 million). 

We had an excellent year in the UK roads sector, both in delivery - for example, the M1 junctions 6a-10 widening project - and in securing major new schemes including the M74, A421 and A46 projects. Connect Plus, in which we are a 40% shareholder, was appointed preferred bidder on the M25 widening scheme.  

Balfour Beatty Management, our professional and technical services business, continued to grow strongly. 

Our utility business also made good progress during the year and further developed its overseas power transmission business, winning new contracts in Canada and New Zealand.  Early in 2009, we were selected as a preferred provider to support National Grid's U.S. electricity transmission capital investment programme, the first time we have won work with a major UK infrastructure owner in a different geography.

In December, we announced we were partnering with AREVA, a world leader in nuclear power, to ensure effective delivery of a fleet of EPR nuclear reactors in the UK.

Overseas, performance in Gammon, which operates in Hong Kong and Singapore, was steady. In the US, profitability has continued to improve.  

There has been a considerable slowdown in Dubai. Our businesses performed well in 2008, with a particular emphasis on infrastructure projects.  Our result in Dubai, however, was affected by a cautious view of project recoveries and cash flows.  

Major projects were secured in the UK for the Highways Agency, the Scottish Office and Network Rail; in the US for the Texas Department of Transportation and the water industry in California; and in South-East Asia for the Hong Kong Government.  

The sector order book increased by 11% to £4.9 billion at the end of 2008.

Our markets in the sector continue to offer significant opportunity.  In Dubai, the significant slowdown will depress revenues and cash performance in that market in 2009. Despite this, we have a very strong order book and expect another year of good progress in the sector.  

Rail Engineering and Services

There was steady progress in the rail sector in 2008 with profit from operations, before exceptional items and amortisation, rising by 3% to £41 million (2007: £40 million), and revenues exceeding £1 billion for the first time.  

There was another good result from our international high-speed rail electrification and power supply business and further improvement in our US business. In the UK, profit was slightly down compared to last year, principally due to some settlements received in 2007.  

The acquisition of Schreck-Mieves added a leading position in the trackwork market to our business in Germany and enhances our ability to deliver major, multi-disciplinary projects.

Major projects secured in the year included rail systems work for the Gotthard Base Tunnel in Switzerland and the high-speed Madrid-Levante line in Spain, contributing to a 33% increase in the order book to £1.2 billion at the end of 2008.

In the medium term, the outlook for rail is very positive, as a result of both new requirements and the replacement of ageing infrastructure. In the short term, we anticipate further modest progress in 2009.

Investments

Our PPP concession and non-PPP investment portfolio has grown both organically and through acquisition to become a very significant part of the Group's business and a major driver of shareholder value.

Profit from continuing operations in the investments sector, before exceptional items and amortisation, increased by 94% to £31 million (2007: £16 million). 

There was good underlying concession performance and a first contribution from Balfour Beatty Communities in the US. Acquired in April 2008, Balfour Beatty Communities is a major addition to our investments business and performed well, in line with our expectations at the time of acquisition. The acquisition secured a reliable, long-term profit and cash flow from a high-quality portfolio of PPP military housing concessions, as well as an experienced and successful management team to develop our presence in the growing US PPP market.

We reached financial close on Phase 1 of the £150m Islington Schools for the Future PPP concession. In Singapore, Gammon Capital, our PPP joint venture in South East Asia, reached financial close for the new Institute of Technical Education (ITE) College West.

Preferred bidder status was achieved by Connect Plus, a consortium in which we have a 40% shareholding, for the PPP contract to provide additional capacity and maintain the M25. We were also appointed selected bidder for the £200 million Southwark Schools for the Future programme. 

The strong performance of Barking Power continued, driven by the beneficial impact of electricity prices on its revenue and also boosted by insurance recoveries following a generator outage in 2007.

Our strategy to extend our infrastructure investment business beyond the UK PPP market, which began with the acquisition of Exeter International Airport in 2007, continued in May 2008 with the acquisition of Blackpool International Airport. As is the case with Exeter, Blackpool is a well-located regional airport with significant long-term growth potential. 

In total, at 31 December 2008, we had committed equity and subordinated debt of £516m across 47 PPP concessions, four of which were at preferred bidder stage.

Financial close is anticipated on three preferred bidder PPP projects in the UK - the M25 widening and two other schemes - in the first half of 2009.  

There is a healthy pipeline of UK projects and we expect increased bidding activity in 2009, especially for schools projects.

In the US military housing market, the long-term nature of our contracts provides strong visibility of earnings and there are further business development opportunities both within and outside the military accommodation PPP market. 

While the current economic environment presents challenges for project financing, we remain confident about the future and anticipate further growth.

EXCEPTIONAL ITEMS & AMORTISATION OF INTANGIBLE ASSETS

The Group has recorded a net exceptional gain after tax of £33 million (2007: £7 million). The single biggest component of this was a £60 million gain from a reduction in past service pension liabilities in certain sections of the Balfour Beatty Pension Fund. This resulted from measures to limit future increases in salary used for defined benefit pension purposes. This change is part of the work being performed to manage the impact on the Group of the liabilities that arise from the pension schemes.  

During the year £6 million of reorganisation costs were incurred, largely resulting from the acquisition and integration of businesses.  

The tax impact of these items is a net charge of £15 million, in addition to which there was a one-off write-off of deferred tax balances of £6 million in the year, as a result of changes in tax legislation from the 2008 Finance Act relating to the phased withdrawal of industrial building allowances.

Charges for the amortisation of intangible assets have increased to £27 million (2007: £9 million) due to the impact of acquisitions, with a related tax credit of £7 million (2007: £3 million).

OTHER FINANCIAL INFORMATION

Average cash in the second half of the year was £254m, although year-end cash was significantly greater at £440m.  The year-end position benefited from favourable movements in exchange rates from holding significant cash balances in the US in US dollars, although as the US dollar cash position is broadly hedged, this will be offset, assuming exchange rates stay at the year-end level, by a £70 million outflow in September 2009 when the hedges mature.

Investment income, net of finance costs, reduced from £23m in 2007 to £19m in 2008, before exceptional items. An increase in interest income from net investment hedging of £6m was more than offset by a reduction of £8 million in the net return on pension scheme assets and liabilities.  

We expect a further reduction in net investment income in 2009, as a result of a reduced pension return, a reduction in our hedging programme and lower interest rates.

The pension deficit reduced in the year to £261 million, impacted by a £60 million gain from reduction in past service liabilities, net actuarial losses of £62 million and employer contributions net of the service cost of £25 million.

STRATEGY

Our goal is to deliver consistent, long-term growth to our shareholders.

We do this by striving to remain, or to become, the leading provider of high-quality infrastructure in each of our markets.

Construction is a local business and knowledge of local labour and material supply is critical. We believe one of our main differentiators is the depth and breadth of our expertise, gained from operating in mature economies in the UK, mainland Europe, the US, Middle East and Far East, combined with our local knowledge in each market. 

Over time, our aim is to move towards a business model where our business activities in the US have the same scale and depth as the UK, while continuing to develop businesses in other parts of the world.  Following our recent acquisitions, the US now accounts for approximately one quarter of the Group's revenues and profits³.  

We constantly evaluate our strategy and analyse what makes us successful in order to select the business areas in which to concentrate our financial and management capital.  In 2006, we set out four principal areas of strategic focus that we believed would help drive medium and long-term growth and help us deliver our goals, and these still remain priorities. We have made substantial progress in each area:

UK infrastructure - Following our acquisitions of Birse in 2006 and Cowlin in 2007, we acquired Dean & Dyball, a well-established contractor in southern England and Wales, in March 2008. Together with Mansell, which we acquired in 2003, this has substantially enhanced our regional coverage across the UK and we have successfully integrated these businesses into the Group. 

Professional services - Balfour Beatty Management, our UK-based professional services business, and Heery International in the US, continue to grow. In the UK, Balfour Beatty Management plays an important role, supporting cross-Group activities for a number of our sophisticated, major customers. As customers' demand for a higher-level, integrated presence at the top of their supply chain increases, professional services will become a much more significant part of the Group.

Infrastructure investment - We are a leader in the UK private finance and PPP market, currently with 25 concessions and a further four at preferred bidder stage.

Following the acquisition of Balfour Beatty Communities (formerly GMH Military Housing) in 2008, we are a market leader in the most developed PPP market in the US - military housing - and are well-positioned to exploit the Group's expertise by undertaking privatisation projects in other sectors.  By the end of 2008, Balfour Beatty Communities was responsible for 17 military housing privatisation projects covering family housing at 44 military bases and one unaccompanied personnel project.  Since we acquired the business, it has added five projects to its portfolio.   

We reached financial close on our first PPP project in Singapore.

We will continue to apply the skills we have acquired in PPP to the wider non-PPP infrastructure market, in particular where there are attractive opportunities to take management control and improve the quality of assets in markets and sectors that are familiar to us. The acquisition of Blackpool International Airport in May 2008 is the latest example of this.

International markets - The acquisitions of Balfour Beatty Construction US in 2007 and of Balfour Beatty Communities and Barnhart in 2008 were major steps in implementing our strategy of building a high-quality, domestic business in the US, with the capacity to integrate financing, professional and technical services, project delivery and long-term facilities management.  

THE BOARD AND SENIOR MANAGEMENT

We have made a number of significant executive appointments to provide the platform for continuing successful growth:

Anthony Rabin became Deputy Chief Executive in March 2008, having held the position of Finance Director since 2002. He is responsible for the management and development of our infrastructure investment businesses.

Duncan Magrath succeeded Anthony as Finance Director, having been Deputy Finance Director since 2006.

Andrew McNaughton was appointed Chief Operating Officer, with effect from 1 January 2009, reporting to Ian Tyler and taking over responsibility for all our construction, engineering and rail activities outside the US.  

Within our US construction and engineering business, Jim Moynihan, who has responsibility for Heery, Balfour Beatty Infrastructure and Balfour Beatty Rail, and Robert van Cleave, chairman and CEO of Balfour Beatty Construction US, report to Ian Tyler.  Bruce Robinson, president and CEO of Balfour Beatty Communities, reports to Anthony Rabin.

We also made two non-executive appointments:

Hubertus Krossa was appointed to the Board as a non-executive Director in September 2008. His extensive international operating experience, combined with his knowledge of the UK business environment, will be of great value to us. 

 Graham Roberts was appointed to the Board as a non-executive Director from 1 January 2009, and will become chairman of the Audit Committee from 5 March 2009. Graham is finance director of The British Land Company PLC and brings valuable financial and commercial experience to the Board.  

SAFETY AND ENVIRONMENT

Safety has always been an important part of how we do business and remains at the top of our agenda, encompassing both the safety of our own people and the communities in which we operate. Our new safety commitment - Zero Harm by 2012 - is being communicated to all our employees, partners, sub-contractors and customers around the world. Our aim is no risk of death or serious injury to our workforce and no risk of injuries of any kind to the public.

We have made good progress in safety and our Accident Frequency Rate (AFR) in 2008 was down to 0.20. We can do better and aim to eliminate completely the risk of doing serious harm. Zero Harm is, ultimately, about managing and designing risk out of everything we do.

OUTLOOK

Our high-quality order book, the full-year impact of acquisitions and continued infrastructure expenditure by public and regulated customers should drive progress in 2009.  We anticipate reaching financial close on three preferred bidder PPP projects in the UK in the first half of 2009. We operate in a number of markets which are likely to benefit from additional infrastructure projects arising from economic stimulus packages.

The majority of our work will continue to be with public sector and regulated customers. We are seeing a general slowdown in private sector work, and more of a slowdown in the Middle East, which represents a modest part of our business.  While the difficult economic environment will have some impact on our businesses and creates greater uncertainty, we anticipate making progress in 2009.

-ENDS-

Enquiries:        

Balfour Beatty

Ian Tyler, Chief Executive

Duncan Magrath, Finance Director

Duncan Murray, Director of Corporate Communications

Tel: [phone]

Pelham PR

Andy Cornelius

Gavin Davis

Tel: [phone]

* * * * * * * *

This document contains forward looking statements which have been made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.

Notes to Editors:

Balfour Beatty is a world-class engineering, construction, services and investment business, well-positioned in infrastructure markets which offer significant long-term growth. We work in partnership with sophisticated customers who value the highest levels of quality, safety and technical expertise. Our skills are applied in appropriate combinations to meet individual customer need. Balfour Beatty's 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 and other long-term growth opportunities.

www.balfourbeatty.com

High resolution photographs are available to the media free of charge at www.newscast.co.uk (Tel. [phone]).

A presentation to analysts and investors will be made at RBS, 250 Bishopsgate, London, EC2 at 9.30 am.

There will be a live webcast of this presentation on www.balfourbeatty.com and the slides presented will be available on the website from 9.30 am.

The financial information set out on the following pages (which was approved by the Board on 4 March 2009) does not constitute the Company's statutory accounts for the year ended 31 December 2008, but is extracted from those accounts except for the 30 June segmental information presented in Note 22 which is extracted from the unaudited half-year financial reports.  

The Company's statutory accounts for the year ended 31 December 2008 comprise the Annual review 2008 and the Directors' report and accounts 2008. The Annual review 2008 is expected to be posted to shareholders on 10 April 2009, together with the Directors' report and accounts 2008 for those shareholders who have requested a paper copy.  

Both documents comprising the Annual report and accounts 2008 will be available on the Company's website www.balfourbeatty.com from the date these are posted to shareholders.  Paper copies of these documents will also be available from the Company's registered office from this time.  

The Company's AGM is scheduled to be held at the Victoria Park Plaza, 239 Vauxhall Bridge Road, London SW1V 1EQ at 11am on Thursday 14 May 2009.

The Company's statutory accounts for the year ended 31 December 2008 comply with the Disclosure and Transparency Rules of the Financial Services Authority in respect of the requirement to produce an annual financial report. Those financial statements are the responsibility of, and were approved by the Directors, on 4 March 2009. The Directors confirm that to the best of their knowledge:

(i)	the Company's financial statements for the year ended 31 December 2008, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
(ii)	the Business and financial review, which is incorporated into the Directors' report in those financial statements, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face

On behalf of the Board

I P Tyler

Chief Executive

D J Magrath

Finance Director

Group income statement
For the year ended 31 December 2008
		2008				2007
	Notes	Before exceptional items*	Exceptional items* (Note 5)	Total		Before exceptional items*	Exceptional items* (Note 5)	Total
		£m	£m	£m		£m	£m	£m
Continuing operations
Revenue including share of joint ventures and associates		9,486	-	9,486		7,488	-	7,488
Share of revenue of joint ventures and associates	12	(1,225)	-	(1,225)		(1,022)	-	(1,022)
Group revenue		8,261	-	8,261		6,466	-	6,466
Cost of sales		(7,628)	-	(7,628)		(5,959)	(33)	(5,992)
Gross profit		633	-	633		507	(33)	474
Net operating expenses
- amortisation of intangible assets		-	(27)	(27)		-	(9)	(9)
- other**		(478)	51	(427)		(394)	(6)	(400)
Group operating profit		155	24	179		113	(48)	65
Share of results of joint ventures and associates	12	75	(3)	72		65	6	71
Profit from operations		230	21	251		178	(42)	136
Investment income **	3	43	-	43		42	-	42
Finance costs	4	(24)	-	(24)		(19)	(2)	(21)
Profit before taxation		249	21	270		201	(44)	157
Taxation	6	(66)	(8)	(74)		(53)	65	12
Profit for the year from continuing operations		183	13	196		148	21	169
Loss for the year from discontinued operations		-	-	-		2	(20)	(18)
Profit for the year attributable to equity shareholders		183	13	196		150	1	151
* and amortisation of intangible assets (Note 11)
** Other operating expenses and investment income comparative amounts have been re-presented as discussed in Note 1.1.

		2008	2007
	Notes	pence	pence
Basic earnings per ordinary share
- continuing operations	7	42.9	39.3
- discontinued operations	7	-	(4.2)
		42.9	35.1
Diluted earnings per ordinary share
- continuing operations	7	42.7	39.0
- discontinued operations	7	-	(4.2)
		42.7	34.8
Dividends per ordinary share proposed for the year	8	12.8	11.5

Group statement of recognised income and expense
For the year ended 31 December 2008
		Notes	2008 £m	2007 £m
Actuarial (losses)/gains on retirement benefit obligations			(76)	2
Cash flow hedges	- fair value revaluations		(1)	-
PPP cash flow hedges	- fair value revaluations		(107)	(7)
	- reclassified and reported in net profit		-	7
PPP financial assets	- fair value revaluations		102	(26)
	- reclassified and reported in net profit		-	(3)
Changes in fair value of net investment hedges			(105)	(4)
Currency translation differences			217	7
Tax on items taken directly to equity			25	5
Net income/(expense) recognised directly in equity			55	(19)
Profit for the year from continuing operations			196	169
Loss for the year from discontinued operations			-	(18)
Total recognised income for the year attributable to equity shareholders		16	251	132

Group balance sheet
At 31 December 2008
		Notes	2008 £m	2007 £m
Non-current assets
Intangible assets	- goodwill	10	975	694
	- other	11	223	59
Property, plant and equipment			296	215
Investments in joint ventures and associates		12	469	381
Investments			55	57
PPP financial assets			151	62
Deferred tax assets			132	125
Derivative financial instruments			3	3
Trade and other receivables			74	77
			2,378	1,673
Current assets
Inventories			125	72
Due from customers for contract work			383	338
Derivative financial instruments			2	1
Trade and other receivables			1,193	881
Cash and cash equivalents	- PPP subsidiaries		2	3
	- other		461	391
			2,166	1,686
Total assets			4,544	3,359
Current liabilities
Trade and other payables			(2,168)	(1,718)
Due to customers for contract work			(540)	(415)
Derivative financial instruments			(66)	(6)
Current tax liabilities			(23)	(7)
Borrowings	- PPP non-recourse loans		-	(3)
	- other		(12)	(16)
			(2,809)	(2,165)
Non-current liabilities
Trade and other payables			(152)	(135)
Derivative financial instruments			(40)	(6)
Borrowings	- PPP non-recourse loans		(145)	(61)
	- other		(9)	(1)
Deferred tax liabilities			(10)	(7)
Liability component of preference shares			(87)	(87)
Retirement benefit obligations		15	(261)	(286)
Provisions			(166)	(128)
			(870)	(711)
Total liabilities			(3,679)	(2,876)
Net assets			865	483
Equity
Called-up share capital		14	239	216
Share premium account		16	54	52
Equity component of preference shares		16	16	16
Special reserve		16	139	164
Share of joint ventures' and associates' reserves		16	230	178
Other reserves		16	79	9
Retained profits/(accumulated losses)		16	104	(152)
Equity attributable to equity holders of the parent			861	483
Minority interests		16	4	-
Total equity		16	865	483

Group cash flow statement
For the year ended 31 December 2008
	Notes	2008 £m	2007 £m
Cash flows from operating activities
Cash generated from operations	17.1	297	277
Income taxes paid		(18)	(24)
Net cash from operating activities		279	253
Cash flows from investing activities
Dividends received from joint ventures and associates		53	83
Interest received		27	26
Acquisition of businesses, net of cash and cash equivalents acquired		(302)	(198)
Purchase of property, plant and equipment		(93)	(80)
Purchase of investments		-	(11)
Investment in and loans made to joint ventures and associates		(9)	(50)
Investment in PPP financial assets		(81)	(39)
Settlement of financial derivatives		(48)	4
Disposal of businesses, net of cash and cash equivalents disposed		-	92
Disposal of property, plant and equipment		17	9
Disposal of investments		2	-
Net cash used in investing activities		(434)	(164)
Cash flows from financing activities
Proceeds from issue of ordinary shares		186	5
Purchase of ordinary shares		(13)	(4)
Proceeds from new loans		81	42
Repayment of loans		(18)	(1)
Repayment of finance leases		(2)	-
Buy-back of preference shares		-	(8)
Ordinary dividends paid		(54)	(42)
Interest paid		(12)	(7)
Preference dividends paid		(11)	(11)
Net cash from/(used in) financing activities		157	(26)
Net increase in cash and cash equivalents		2	63
Effects of exchange rate changes		72	8
Cash and cash equivalents at beginning of year		379	308
Cash and cash equivalents at end of year	17.2	453	379

Notes
1	Basis of accounting
	The annual financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 1985 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee and adopted by the European Union relevant to its operations and effective for accounting periods beginning on 1 January 2008.   IAS 1 Presentation of Financial Statements (Revised 2007); IAS 23 Borrowing Costs (Revised 2007); IFRS 3 Business Combinations (revised 2008); IFRS 8 Operating Segments; IFRIC 12 Service Concession Arrangements; IFRIC 13 Customer Loyalty Programmes; IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 16 Hedges of a Net Investment in a Foreign Operation; IFRIC 17 Distributions of Non-Cash Assets to Owners; IFRIC 18 Transfers of Assets from Customers; Amendment to IFRS 2 Share-Based Payment: Vesting Conditions and Cancellations; Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-controlled Entity or Associate; Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation; Amendments to IAS 27 Consolidated and Separate Financial Statements; Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items and Amendment to IAS 39 Reclassification of Financial Assets: Effective Date and Transition were either in issue but not yet effective or not yet endorsed by the European Union at 4 March 2009.
	The presentational currency of the Group is sterling.
1.1	Change in classification of retirement benefit costs
	In order to better reflect the operating performance of the Group, certain pension related income and costs have been reclassified within the income statement in the current year as permitted by IAS 19. The net amount of the interest cost for the unwind of the pension obligations and the expected return on scheme assets has been reclassified out of net operating expenses to investment income. 2007 comparative amounts have been re-presented to reflect this change as detailed in Note 22.

2	Segment analysis - continuing operations
	For the year ended 31 December 2008
	Performance by activity:	Building, building management and services £m	Civil and specialist engineering and services £m	Rail engineering and services £m	Investments £m	Corporate costs £m	Total £m
	Revenue including share of joint ventures and associates	4,635	3,243	1,055	553	-	9,486
	Share of revenue of joint ventures and associates	(137)	(656)	(39)	(393)	-	(1,225)
	Group revenue	4,498	2,587	1,016	160	-	8,261
	Group operating profit	84	85	39	(19)	(34)	155
	Share of results of joint ventures and associates	4	19	2	50	-	75
	Profit from operations before exceptional items and amortisation	88	104	41	31	(34)	230
	Exceptional items	(1)	(5)	-	(5)	59	48
	Amortisation of intangible assets	(14)	(3)	(1)	(9)	-	(27)
	Profit from operations	73	96	40	17	25	251
	Investment income						43
	Finance costs						(24)
	Profit before taxation						270
	Performance by geographic origin:			Europe	North America	Other*	Total
				£m	£m	£m	£m
	Group revenue			5,981	2,216	64	8,261
	Profit from operations before exceptional items and amortisation			147	59	24	230
	Exceptional items			51	(3)	-	48
	Amortisation of intangible assets			(10)	(17)	-	(27)
	Profit from operations			188	39	24	251
	For the year ended 31 December 2007**
	Performance by activity:	Building, building management and services £m	Civil and specialist engineering and services £m	Rail engineering and services £m	Investments £m	Corporate costs £m	Total £m
	Revenue including share of joint ventures and associates	3,640	2,668	785	394	1	7,488
	Share of revenue of joint ventures and associates	(113)	(556)	(10)	(343)	-	(1,022)
	Group revenue	3,527	2,112	775	51	1	6,466
	Group operating profit	70	59	39	(25)	(30)	113
	Share of results of joint ventures and associates	-	23	1	41	-	65
	Profit from operations before exceptional items and amortisation **	70	82	40	16	(30)	178
	Exceptional items	(26)	(9)	2	-	-	(33)
	Amortisation of intangible assets	(6)	(3)	-	-	-	(9)
	Profit from operations	38	70	42	16	(30)	136
	Investment income **						42
	Finance costs						(21)
	Profit before taxation						157
	Performance by geographic origin:			Europe	North  America	Other*	Total
				£m	£m	£m	£m
	Group revenue			4,958	1,471	37	6,466
	Profit from operations before exceptional items and amortisation **			132	18	28	178
	Exceptional items			(27)	(6)	-	(33)
	Amortisation of intangible assets			(4)	(5)	-	(9)
	Profit from operations **			101	7	28	136
	* Other principally comprises the Group's operations in Dubai and Hong Kong.
	** Re-presented (Note 1.1)

3	Investment income
		2008 £m	2007* £m
	PPP subordinated debt interest receivable	12	11
	PPP interest on financial assets	7	2
	Income arising from derivatives designated as hedges of net investments in foreign operations	6	-
	Net investment income on pension scheme assets and liabilities	5	13
	Other interest receivable and similar income	13	16
		43	42
	* Investment income has been re-presented to include the interest cost for the unwind of the pension obligations and the expected return on scheme assets, which have been reclassified out of net operating expenses.  Refer to Note 15 for a breakdown of the Group pension related net investment income recognised.

4	Finance costs
			2008 £m	2007 £m
	Preference shares	- finance cost	12	12
	PPP non-recourse	- bank loans and overdrafts	6	2
	Finance costs arising from derivatives designated as hedges of net investments in foreign operations		-	1
	Other interest payable	- bank loans and overdrafts	5	3
		- other loans	1	1
			24	19
	Exceptional items	- premium on repurchase of preference shares	-	2
			24	21
	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 2008 on 1 July 2008 to holders of these shares on the register on 30 May 2008. A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable preference share was paid in respect of the six months ended 31 December 2008 on 1 January 2009 to holders of these shares on the register on 21 November 2008.

5	Exceptional items and amortisation of intangible assets
				2008	2007
				£m	£m
5.1	Credited to/(charged against) profit from operations
	Net operating expenses	- reduction in pension past service liabilities		60	-
		- post-acquisition integration, reorganisation and other costs		(6)	(6)
		- adjustment to Birse Group goodwill		(3)	-
	Cost of sales	- Metronet - contract losses		-	(33)
	Share of joint ventures and associates	- Metronet - contract profits		-	6
		- tax adjustments		(3)	-
				48	(33)
5.2	Charged against finance costs
		- premium on buy-back of preference shares		-	(2)
	Credited to/(charged against) profit before taxation			48	(35)
5.3	(Charged against)/credited to taxation
		- tax on items above		(15)	11
		- tax credit on recognition of Birse Group losses		3	-
		- industrial buildings allowances		(3)	-
		- recognition of US deferred tax assets		-	51
	Credited to profit from continuing operations			33	27
5.4	Credited to/(charged against) profit from discontinued operations
		- profit on sale of operations		-	57
		- Metronet	- impairment of investment	-	(87)
			- tax thereon	-	10
	Exceptional items credited to profit for the year			33	7
	Amortisation of intangible assets			(27)	(9)
	Tax thereon			7	3
	Credited to profit for the year			13	1
5.1	In 2008 the Group has implemented measures to limit the increase in pension benefits of certain groups of in-service members of the Balfour Beatty Pension Fund giving rise to a reduction in past service liabilities of £60m (2007: £nil).     Reorganisation and integration costs of £6m (2007: £6m) have been incurred, £3m relating to Balfour Beatty Communities (formerly GMH Military Housing) and £2m relating to Dean & Dyball. Further costs of £1m have been incurred in the US on the reorganisation of the central division of Balfour Beatty Infrastructure Inc (formerly Balfour Beatty Construction Inc) (2007: £1m). The 2007 exceptional items also included costs incurred on the reorganisation and integration of Balfour Beatty Construction Group Inc (formerly Centex Construction) (2007: £3m) and the reorganisation of Balfour Beatty Rail Inc (2007: £2m).    On the acquisition of Birse Group, tax losses were acquired which did not satisfy the criteria for recognition in the balance sheet at the date of acquisition. A portion of these losses is now recognisable and the benefit is recorded as part of the Group's tax charge in exceptional items. IAS 12 stipulates that in addition to recognising the tax benefit the carrying amount of goodwill recognised on the acquisition is reduced, with the reduction treated as an expense.    In 2007, as a result of the request by Metronet Rail BCV Ltd to the Arbiter for an Extraordinary Review of the incurred and forecast costs, his subsequent interim award, and the consequent appointment to both Metronet Rail BCV Ltd and Metronet Rail SSL Ltd (collectively 'Metronet') of a PPP Administrator, provision was made for an estimate of the costs resulting from the administration of Metronet, including the impact on its contract with Trans4m Ltd, in which the Group owns 25% of the ordinary share capital and with which certain Group subsidiaries contracted, and other direct contracts with Group subsidiaries. These costs included, where relevant, provision for winding down contracts, outstanding receivables and settlement of other trading items.     Following enactment of the UK Finance Act 2008, tax depreciation allowances on industrial buildings are being reduced to nil on a phased basis. Joint ventures and associates of the Group have recognised a £4m deferred tax charge (2007: £nil) which is required under IAS 12 to establish a deferred tax liability. This liability will be released to the income statement as the relevant assets are depreciated for accounting purposes. In addition, a £1m deferred tax credit (2007: £nil) has been recognised following agreement with HMRC as to the basis of taxing certain PPP concessions.
5.2	The exceptional items charged against finance costs are the premium of £0.1m (2007: £2m) arising on the repurchase for cancellation of 0.3m (2007: 5.0m) preference shares at a cost of £0.4m (2007: £8m).
5.3	The exceptional items credited to/(charged against) profit from operations have given rise to a net tax charge of £12m (2007: £11m credit). In addition, subsidiaries of the Group have recognised a £3m deferred tax charge (2007: £nil) to establish a deferred tax liability, in relation to industrial building allowances which is required under IAS 12. This liability will be released to the income statement as the relevant buildings are depreciated for accounting purposes.    In 2007, as a result of the acquisition of Balfour Beatty Construction Group Inc (formerly Centex Construction), the benefits of tax losses and other tax assets arising from temporary differences in the USA crystallised and were recognised in full in accordance with IAS 12, giving rise to an exceptional gain of £51m.
5.4	In 2007, approval of the sale of the Group's 24.5% interest in its associate, Devonport Management Ltd, was obtained from the Ministry of Defence on 26 June, at which time this investment became held for sale. On 28 June 2007, the Group completed the sale of this investment for a total cash consideration of £86m, resulting in a gain on disposal of £57m, which was credited to profit from discontinued operations. The carrying value of this investment at the date of sale was £27m. Costs associated with the disposal amounted to £2m. As a result of the appointment to Metronet of a PPP Administrator, the Group's investments in the Metronet concessions, including profits recognised in previous periods, were written down to £nil.

6	Taxation
			2008			2007
			Before exceptional items* £m	Exceptional items* £m	Total £m	Total £m
	UK current tax
	- corporation tax for the year at 28.5% (2007: 30%)		23	(3)	20	22
	- double tax relief		(2)	-	(2)	(6)
	- ACT write off		4	-	4	-
	- adjustments in respect of previous periods		-	-	-	(2)
			25	(3)	22	14
	Foreign current tax
	- foreign tax on profits for the year		13	(1)	12	11
	- adjustments in respect of previous periods		-	-	-	2
			13	(1)	12	13
	Total current tax		38	(4)	34	27
	Deferred tax
	- UK		7	17	24	5
	- foreign tax		21	(5)	16	(44)
	Total deferred tax		28	12	40	(39)
	Total tax charge/(credit)		66	8	74	(12)
	* and amortisation of intangible assets
	The Group tax charge above does not include any amounts for joint ventures and associates (see Note 12) or discontinued operations, whose results are disclosed in the income statement net of tax.   In addition to the Group tax charge above is £25m of tax credited (2007: £5m credited) directly to equity, comprising a current tax credit of £6m (2007: £1m credit), a deferred tax credit of £23m (2007: £3m charge), and a charge in respect of joint ventures and associates of £4m (2007: £7m credit). Further, in 2007 there was a credit of £10m which related to tax on discontinued operations.   The weighted average applicable tax rate is 32% (2007: 33%) based on profit before taxation, exceptional items and amortisation of intangible assets, excluding the results of joint ventures and associates.

 

 

7	Earnings per ordinary share
		2008		2007
		Basic £m	Diluted £m	Basic £m	Diluted £m
	Earnings
	- continuing operations	196	196	169	169
	- discontinued operations	-	-	(18)	(18)
		196	196	151	151
	Exceptional items	(33)		(7)
	Amortisation of intangible assets	20		6
	Adjusted earnings	183		150
	Comprising:
	- continuing operations	183		148
	- discontinued operations	-		2
		183		150
		m	m	m	m
	Weighted average number of ordinary shares	457.6	459.5	430.0	433.7
		pence	pence	pence	pence
	Earnings per ordinary share
	- continuing operations	42.9	42.7	39.3	39.0
	- discontinued operations	-	-	(4.2)	(4.2)
		42.9	42.7	35.1	34.8
	Exceptional items	(7.2)		(1.6)
	Amortisation of intangible assets	4.2		1.5
	Adjusted earnings per ordinary share	39.9		35.0
	Comprising:
	- continuing operations	39.9		34.4
	- discontinued operations	-		0.6
		39.9		35.0
	The calculation of basic earnings is based on profit for the year attributable to equity shareholders. The calculation of the weighted average number of shares was affected by the issue of 43,320,411 ordinary shares on 20 May 2008, and has been adjusted for the conversion of share options for the calculation of diluted earnings per ordinary share. 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 each year. Adjusted earnings per ordinary share, before exceptional items and amortisation of intangible assets, and including the pre-exceptional results of discontinued operations in 2007, has been disclosed to give a clearer understanding of the Group’s underlying trading performance.

8	Dividends on ordinary shares
		2008		2007
		Per share pence	Amount £m	Per share pence	Amount £m
	Proposed dividends for the year:
	Interim - current year	5.1	24	4.6	20
	Final - current year	7.7	37	6.9	30
		12.8	61	11.5	50
	Recognised dividends for the year:
	Final - prior year		30		22
	Interim - current year		24		20
			54		42
	An interim dividend of 5.1p (2007: 4.6p) per ordinary share was paid on 10 December 2008. Subject to approval at the Annual General Meeting on 14 May 2009, the final 2008 dividend will be paid on 6 July 2009 to holders of ordinary shares on the register on 24 April 2009 by direct credit or, where no mandate has been given, by cheque posted on 3 July 2009 payable on 6 July 2009. These shares will be quoted ex-dividend on 22 April 2009.

9	Acquisitions
	The Group has made the following acquisitions during the year:
		Acquisition date	Subsidiary	Percentage acquired	Cash consideration	Deferred consideration	Costs	Fair values of net assets/(net liabilities) acquired	Goodwill arising on acquisition
	9.1	18 March 2008	Dean & Dyball Ltd	100%	£44m	£1m	£1m	£(1)m	£47m
	9.2	30 April 2008	Balfour Beatty Communities LLC	100%	£176m $350m	-	£4m $7m	£146m	£34m
	9.3	5 May 2008	Regional & City Airports (Blackpool) Ltd	95%	-	£1m	£2m	£(3)m	£6m
	9.4	4 June 2008	Douglas E Barnhart Inc	100%	£61m $121m	-	£2m $4m	£25m	£38m
	9.5	26 June 2008	Leonard Wood Family Communities LLC (i)	(ii)	£2m $3m	-	-	£2m	-
	9.6	31 July 2008	Schreck-Mieves Gmbh (i)	100%	£25m €32m	-	-	£15m	£10m
	9.7	21 August 2008	Branlow Limited (i)	100%	£7m	£1m	-	£1m	£7m
	9.8	7 November 2008	Colledge Trundle & Hall Limited (i)	100%	£3m	-	-	£1m	£2m
	9.9	23 December 2008	Lackland Family Housing LLC (i)	(ii)	£3m $5m	-	-	£3m	-
					£321m	£3m	£9m	£189m	£144m
	(i) As at 31 December 2008 the fair values of acquired assets, liabilities and goodwill for these businesses have been determined on a provisional basis, pending finalisation of the post-acquisition review of the fair value of the acquired net assets. (ii) Leonard Wood Family Communities LLC and Lackland Family Housing LLC are PPP military accommodation businesses in which the Group acquired a joint venture interest where the Group share of the results is limited to a pre-agreed preferred return on funds invested subject to the performance of the LLC.
9.1	Dean & Dyball Ltd is a leading UK regional civil engineering and building business. The goodwill arising is attributable to the acquisition strengthening the Group’s UK regional civil engineering and building businesses.
9.2	Balfour Beatty Communities LLC (formerly GMH Military Housing) was the military PPP accommodation business of GMH Communities Trust, a US real estate investment trust. The goodwill arising is attributable to the acquisition extending the Group’s position in the UK PPP and facilities management markets to the USA.
9.3	Regional & City Airports (Blackpool) Ltd owns and operates Blackpool International Airport. The goodwill arising is attributable to the acquisition strengthening the Group’s non-PPP infrastructure investment portfolio.
9.4	Douglas E Barnhart Inc is a US programme and construction management business. The goodwill arising is attributable to the acquisition complementing the Group’s US project and programme management business.
9.5	Leonard Wood Family Communities LLC is a PPP military accommodation business located in Pulaski, USA.
9.6	Schreck-Mieves GmbH is a German railway engineering and construction company. The provisional goodwill arising is attributable to the acquisition strengthening the Group’s European railway engineering business.
9.7	Branlow Ltd is a UK based ground engineering company. The provisional goodwill arising is attributable to the acquisition extending the scope of the Group’s ground engineering business into the micropiling market.
9.8	Colledge Trundle & Hall Ltd is a UK system integrator in the intelligent building control sector. The provisional goodwill arising is attributable to the acquisition extending the Group’s capabilities within the UK facilities management market.
9.9	Lackland Family Housing LLC is a PPP military accommodation business located in San Antonio, USA.

	The fair value of the net assets acquired, consideration paid and goodwill arising on these transactions were:
		Balfour Beatty Communities  (formerly GMH Military Housing)			Other			Total
		Book value of assets acquired	Fair value adjust-ments	Fair value  of assets acquired	Book value of assets acquired	Fair value adjust- ments	Fair value  of assets acquired	Book value of assets acquired	Fair value adjust- ments	Fair value  of assets acquired
		£m	£m	£m	£m	£m	£m	£m	£m	£m
	Net assets acquired:
	Intangible assets - other	-	115	115	-	22	22	-	137	137
	Investments in joint ventures and associates	36	(9)	27	-	-	-	36	(9)	27
	Property, plant and equipment	-	-	-	45	4	49	45	4	49
	Working capital	9	(1)	8	7	(34)	(27)	16	(35)	(19)
	Provisions	-	-	-	(8)	-	(8)	(8)	-	(8)
	Deferred taxation	(1)	-	(1)	-	5	5	(1)	5	4
	Cash and cash equivalents	-	-	-	32	-	32	32	-	32
	Borrowings	-	-	-	(29)	-	(29)	(29)	-	(29)
	Retirement benefit obligations	-	-	-	(1)	-	(1)	(1)	-	(1)
	Minority interests	(3)	-	(3)	-	-	-	(3)	-	(3)
		41	105	146	46	(3)	43	87	102	189
	Goodwill			34			110			144
				180			153			333
	Satisfied by:
	Cash consideration			176			145			321
	Costs incurred			4			5			9
				180			150			330
	Deferred consideration and costs			-			3			3
				180			153			333
	Fair value adjustments comprise intangible assets recognised in respect of customer contracts and relationships, brand names, adjustments to harmonise accounting methods for the recognition of profit on long-term contracts and provision for onerous commitments.
	During 2008, £4m deferred consideration was paid in respect of acquisitions completed in earlier years. The acquired businesses earned revenues of £502m and profit from continuing operations of £2m (after charging exceptional items of £5m and amortisation of intangible assets of £12m) in the period since acquisition.

10	Intangible assets - goodwill
		Cost	Accumulated impairment losses	Carrying amount
		£m	£m	£m
	At 1 January 2008	730	(36)	694
	Foreign exchange and other adjustments	150	(13)	137
	Businesses acquired (see Note 9)	144	-	144
	At 31 December 2008	1,024	(49)	975

The carrying amounts of goodwill by business segment are as follows:

		Europe  2008  £m	North  America  2008  £m	Total  2008  £m	Europe  2007  £m	North  America  2007  £m	Total  2007  £m
	Building, building management and services	155	322	477	132	198	330
	Civil and specialist engineering and services	243	-	243	213	-	213
	Rail engineering and services	194	10	204	143	8	151
	Investments	5	46	51	-	-	-
	Group	597	378	975	488	206	694

	The recoverable amount of goodwill is based on value in use. Cashflow forecasts have been based on the expected workload of each cash generating unit (CGU) giving consideration to the current level of confirmed orders and anticipated orders. Cashflow forecasts for the next three years are based on the Group's 2009 budget and medium-term plan. Thereafter the key inputs in assessing the CGU are its revenue growth rate and discount rate. This growth rate has been applied to cash flows after three years into perpetuity and reflects published GDP growth rates for the economies that each CGU operates in. The cash flows assume a residual value based on a multiple of earnings before interest and tax.
	The cash flows have been discounted using a pre-tax discount rate in the range of 10.6%-12.2% (2007: 12.4% - 14.9%).  The discount rates are revised annually applying updated market inputs to the standard capital asset pricing model.

		2008			2007
		UK	North America	Mainland Europe	UK	North America	Mainland Europe
	Inflation rate	2.2%	2.3%	1.9%	2.2%	2.3%	1.9%
	GDP growth rate	1.1%	1.9%	1.0%	2.4%	2.5%	2.1%
	Nominal long-term growth rate applied	3.3%	4.2%	2.9%	4.6%	4.8%	4.0%

	Sensitivities:
	The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the revenue growth rate and the discount rate.
	Given the Group's sensitivity analysis, a reasonable change in a single assumption will not cause impairment in any of the Group's CGUs. However, significant adverse change in our key assumptions could result in an impairment in our Balfour Beatty Communities CGU as its fair value currently exceeds its carrying value only by approximately 20%. The carrying value of the goodwill of Balfour Beatty Communities is £46m.

11	Intangible assets - other
		Cost	Accumulated amortisation	Carrying amount
		£m	£m	£m
	At 1 January 2008	69	(10)	59
	Exchange adjustments	60	(6)	54
	Businesses acquired (see Note 9)	137	-	137
	Amortisation charge for the year	-	(27)	(27)
	At 31 December 2008	266	(43)	223
	Other intangible assets comprise customer contracts, military housing contracts, customer relationships and brand names.

12	Joint ventures and associates
	Share of results and net assets of joint ventures and associates
			2008
			Building, building management and services	Civil and specialist engineering and services	Rail engineering and services	Investments
						PPP	Infra- structure	Military housing	Total
			£m	£m	£m	£m	£m	£m	£m
	Revenue		137	656	39	293	100	-	1,225
	Operating profit before exceptional items		5	20	3	7	26	2	63
	Investment income		-	1	-	125	-	-	126
	Finance costs		-	-	-	(87)	(3)	-	(90)
	Profit before taxation and exceptional items		5	21	3	45	23	2	99
	Taxation		(1)	(2)	(1)	(14)	(6)	-	(24)
	Exceptional items		-	-	-	(1)	(2)	-	(3)
	Profit after taxation		4	19	2	30	15	2	72
	Intangible assets	- goodwill	-	29	3	-	24	-	56
		- other	-	-	-	2	-	-	2
	Property, plant and equipment		1	31	4	-	109	-	145
	PPP financial assets		-	-	-	1,663	-	-	1,663
	Military housing projects		-	-	-	-	-	48	48
	Net (borrowings)/cash		2	127	5	(1,368)	(20)	-	(1,254)
	Other net assets/(liabilities)		3	(118)	(3)	(44)	(29)	-	(191)
	Net assets		6	69	9	253	84	48	469

			2007
			Building, building management and services	Civil and specialist engineering and services	Rail engineering and services	Investments		Total
						PPP	Infra- structure
			£m	£m	£m	£m	£m	£m
	Revenue		113	556	10	275	68	1,022
	Operating profit before exceptional items		-	23	1	5	18	47
	Investment income		-	3	-	113	2	118
	Finance costs		-	-	-	(78)	(5)	(83)
	Profit before taxation and exceptional items		-	26	1	40	15	82
	Taxation		-	(3)	-	(11)	(3)	(17)
	Exceptional items		-	6	-	-	-	6
	Profit after taxation	- continuing operations	-	29	1	29	12	71
	Profit after taxation	- discontinued operations						3
	Profit after taxation							74
	Intangible assets	- goodwill	-	22	2	-	24	48
		- other	-	-	-	2	-	2
	Property, plant and equipment		2	17	1	-	112	132
	PPP financial assets		-	-	-	1,375	-	1,375
	Net (borrowings)/cash		(4)	92	5	(1,357)	(24)	(1,288)
	Other net assets/(liabilities)		5	(56)	(4)	192	(25)	112
	Net assets		3	75	4	212	87	381

13	PPP service company concession subsidiaries
	The Group has a 100% interest in four PPP service company concessions through its shareholdings in Connect Roads Sunderland Holdings Ltd, Connect Roads South Tyneside Holdings Ltd, Connect Roads Derby Holdings Ltd and Transform Schools (Knowsley) Holdings Ltd. The performance of the wholly-owned PPP service company concessions and their balance sheets are summarised below:
		2008 £m	2007 £m
	Income statement
	Group revenue	95	51
	Profit from operations	1	1
	Investment income	7	2
	Finance costs	(6)	(2)
	Profit before taxation	2	1
	Taxation	(1)	-
	Profit for the year	1	1
	Cash flow
	Profit from operations	1	1
	Decrease/(increase) in working capital	3	(3)
	Income taxes paid	-	-
	Net cash inflow/(outflow) from operating activities	4	(2)
	Net cash outflow from investing activities	(80)	(36)
	Net cash outflow from financing activities	(6)	(2)
	Net cash outflow	(82)	(40)
	Net borrowings at beginning of year	(61)	(21)
	Net borrowings at end of year	(143)	(61)
	Balance sheet
	PPP financial assets	151	62
	Derivative financial instruments	(39)	(5)
	Other net current assets	6	1
	Cash and cash equivalents	2	3
	Non-recourse term loans	(145)	(64)
	Net liabilities	(25)	(3)

14	Share capital
	On 20 May 2008, 43,320,411 ordinary shares were issued and placed with institutions at a price of 430p per share, raising £182m after issue costs.
	During the year ended 31 December 2008, 1,286,053 ordinary shares were issued following the exercise of savings-related share options and 334,927 ordinary shares were issued following the exercise of executive share options for an aggregate cash consideration of £4m.
	During the year ended 31 December 2008, 300,017 preference shares were repurchased for cancellation by the Company for a total cash consideration of £0.4m at an average cost of 135.8p.

15	Retirement benefit obligations
	The latest actuarial funding valuations of the Group’s principal defined benefit schemes have been updated by the actuaries to 31 December 2008 on the basis prescribed by IAS 19. In particular, scheme liabilities have been discounted using the rate of return on high quality corporate bonds rather than the expected rate of return on the assets in the scheme used in the funding valuations. On 5 April 2007 the Birse Group Retirement Benefit Scheme was merged with the Balfour Beatty Pension Fund. Details of these valuations and the disclosures prescribed by IAS 19 are set out in the Directors’ report and accounts 2008 along with the funding valuation reviews.
	During the current year the Group implemented measures to limit the increase in pensionable pay of certain groups of in-service defined benefit members, giving rise to a reduction in past service liabilities of £60m, which has been classified as an exceptional item.
	The principal assumptions used by the actuaries, the scheme details and IAS 19 disclosures for the Group’s principal defined benefit schemes are summarised below:
			2008			2007
			Balfour Beatty Pension Fund %	Railways Pension Scheme %	Mansell schemes %	Balfour Beatty Pension Fund %	Railways Pension Scheme %	Mansell schemes %
	Discount rate on obligations		6.45	6.45	6.45	5.85	5.85	5.85
	Expected return on plan assets		6.27	7.45	6.40	6.53	7.45	6.83
	Inflation rate		2.80	2.80	2.80	3.35	3.35	3.35
	Future increases in pensionable salary:	- certain members of the Balfour Beatty Pension Fund	2.80	-	-	4.85	4.85	4.85
		- other members	4.30	4.30	4.30	4.85	4.85	4.85
	Rate of increase in pensions in payment (or such other rate as is guaranteed)		2.80	2.80	2.80	3.35	3.35	3.35
			Number	Number	Number	Number	Number	Number
	Total number of members		35,764	3,275	3,264	36,406	3,308	3,321

 

	The mortality tables adopted for the 2008 and 2007 IAS 19 valuations are the 1992 series calendar year 2007 tables, with future improvements applicable to each member’s year of birth under the medium cohort effect from 2007.
		2008	2007
		Average life expectancy at 65 years of age	Average life expectancy at 65 years of age
	Members in receipt of pension
	– Male	20.3 years	20.2 years
	– Female	23.4 years	23.3 years
	Members not yet in receipt of pension (current age 50)
	– Male	21.3 years	21.2 years
	– Female	24.3 years	24.2 years

 

		2008						2007
	IAS 19 Deficit	Balfour Beatty Pension Fund		Railways Pension Scheme	Mansell schemes	Other schemes	Total	Balfour Beatty Pension Fund	Railways Pension Scheme	Mansell schemes	Other schemes	Total
		£m		£m	£m	£m	£m	£m	£m	£m	£m	£m
	Present value of funded obligations	(1,733)		(138)	(188)	(14)	(2,073)	(2,036)	(164)	(207)	(12)	(2,419)
	Fair value of plan assets	1,540		120	170	11	1,841	1,796	160	191	11	2,158
	Present value of unfunded obligations	-		-	-	(29)	(29)	-	-	-	(25)	(25)
	Liability in the balance sheet	(193)		(18)	(18)	(32)	(261)	(240)	(4)	(16)	(26)	(286)
	The movement in the retirement benefit obligations of the Group's defined benefit schemes for the year ended 31 December 2008 was as follows:
												£m
	At 1 January 2008											(286)
	Exchange adjustments											(5)
	Service cost											(45)
	Interest cost											(136)
	Expected return on plan assets											141
	Exceptional reduction in pension past service liabilities											60
	Contributions from employer		- deficit funding									38
			- regular funding									32
	Benefits paid											3
	Businesses acquired											(1)
	Actuarial gains and losses		- assets									370
			- liabilities									(432)
	At 31 December 2008											(261)
	The Balfour Beatty Pension Fund includes a defined contribution section with 6,870 members as at 31 December 2008 (2007: 4,984 members). Including £16m (2007: £10m) contributions paid and charged in the income statement in respect of this section and £12m (2007: £7m) pension costs in respect of other defined contribution schemes, the total net pension cost recognised in the income statement in the year was £73m (2007: £71m), with contributions paid of £98m (2007: £61m).

 

16	Movements in equity
	For the year ended 31 December 2008
		Called-up share capital	Share premium account	Equity component of preference shares	Special reserve	Share of joint ventures' and associates' reserves	Other reserves	Retained profits/ (accumulated losses)	Minority Interests	Total
		£m	£m	£m	£m	£m	£m	£m	£m	£m
	At 1 January 2008	216	52	16	164	178	9	(152)	-	483
	Net profit for the year	-	-	-	-	72	-	124	-	196
	Actuarial losses on retirement benefit obligations	-	-	-	-	(14)	-	(62)	-	(76)
	Other cash flow hedges
	- fair value revaluations	-	-	-	-	(3)	2	-	-	(1)
	PPP cash flow hedges
	- fair value revaluations	-	-	-	-	(73)	(34)	-	-	(107)
	PPP financial assets
	- fair value revaluations	-	-	-	-	100	2	-	-	102
	Changes in fair value of net investment hedges	-	-	-	-	-	(105)	-	-	(105)
	Currency translation differences	-	-	-	-	27	189	-	1	217
	Tax on items taken directly to equity	-	-	-	-	(4)	12	17	-	25
	Total recognised income for the year	-	-	-	-	105	66	79	1	251
	Ordinary dividends	-	-	-	-	-	-	(54)	-	(54)
	Joint ventures' and associates' dividends	-	-	-	-	(53)	-	53	-	-
	Issue of ordinary shares	23	2	-	-	-	161	-	-	186
	Repurchase of preference shares	-	-	-	-	-	-	-	-	-
	Movements relating to share-based payments	-	-	-	-	-	4	(8)	-	(4)
	Minority interest recognised on acquisition of subsidiary	-	-	-	-	-	-	-	3	3
	Transfers	-	-	-	(25)	-	(161)	186	-	-
	At 31 December 2008	239	54	16	139	230	79	104	4	865

	For the year ended 31 December 2007
		Called-up  share capital	Share premium account	Equity component of preference shares	Special  reserve	Share of joint ventures' and associates' reserves	Other  reserves	Retained profits/ (accumulated losses)	Total
		£m	£m	£m	£m	£m	£m	£m	£m
	At 1 January 2007	215	43	16	169	243	5	(304)	387
	Net profit for the year	-	-	-	-	74	-	77	151
	Actuarial gains/(losses) on retirement benefit  obligations	-	-	-	-	3	-	(1)	2
	PPP cash flow hedges
	- fair value revaluations	-	-	-	-	(2)	(5)	-	(7)
	- reclassified and reported in net profit	-	-	-	-	7	-	-	7
	PPP financial assets
	- fair value revaluations	-	-	-	-	(26)	-	-	(26)
	- reclassified and reported in net profit	-	-	-	-	(3)	-	-	(3)
	Changes in fair value of net investment hedges	-	-	-	-	-	(4)	-	(4)
	Currency translation differences	-	-	-	-	-	7	-	7
	Tax on items taken directly to equity	-	-	1	-	7	2	(5)	5
	Total recognised income for the year	-	-	1	-	60	-	71	132
	Ordinary dividends	-	-	-	-	-	-	(42)	(42)
	Joint ventures' and associates' dividends	-	-	-	-	(83)	-	83	-
	Issue of ordinary shares	1	4	-	-	-	-	-	5
	Repurchase of preference shares	-	5	(1)	-	-	-	(5)	(1)
	Movements relating to share-based payments	-	-	-	-	-	4	(2)	2
	Transfers	-	-	-	(5)	(42)	-	47	-
	At 31 December 2007	216	52	16	164	178	9	(152)	483

17	Notes to the cash flow statement
			2008 £m	2007* £m
17.1	Cash generated from operations comprises:
	Profit from operations - continuing		251	136
	Exceptional reduction in pension past service liabilities		(60)	-
	Trading loss from discontinued operations		-	(1)
	Share of results of joint ventures and associates		(72)	(71)
	Depreciation of property, plant and equipment		65	50
	Amortisation of other intangible assets		27	9
	Pension deficit payments		(38)	(10)
	Movements relating to share-based payments		9	7
	Profit on disposal of property, plant and equipment		(4)	(3)
	Other non cash items		5	-
	Operating cash flows before movements in working capital		183	117
	Decrease in working capital		114	160
	Cash generated from operations		297	277
	* Re-presented (Note 1.1)
17.2	Cash and cash equivalents comprise:
	Cash and deposits		379	293
	Term deposits		82	98
	PPP cash balances		2	3
	Bank overdrafts		(10)	(15)
			453	379
17.3	Analysis of net cash:
	Bank overdrafts		(10)	(15)
	Other short-term loans		(2)	(1)
	Finance leases		(9)	(1)
	Cash and deposits		379	293
	Term deposits		82	98
			440	374
	PPP non-recourse project finance	- Sterling floating rate term loan (2008-2027)	(27)	(22)
		- Sterling floating rate term loan (2011-2030)	(13)	(9)
		- Sterling floating rate term loan (2012-2031)	(6)	(2)
		- Sterling floating rate term loan (2010-2034)	(99)	(31)
	PPP cash and cash equivalents		2	3
	Net cash		297	313
	A significant part of the PPP non-recourse project finance floating rate term loans has been swapped into fixed rate debt by the use of interest rate swaps.
17.4	Analysis of movement in net cash:
	Opening net cash		313	284
	Net increase in cash and cash equivalents		2	63
	Acquisitions - borrowings at date of acquisition		(29)	(36)
	Businesses sold - borrowings at date of disposal		-	35
	Proceeds from new loans		(81)	(42)
	Repayment of loans		18	1
	Repayment of finance lease		2	-
	Exchange adjustments		72	8
	Closing net cash		297	313
17.5	Borrowings
	During the year to 31 December 2008 the significant movements in borrowings were an increase of £81m in non-recourse borrowings funding the development of financial assets in PPP subsidiaries, the inclusion of £29m of borrowings in acquired companies and repayment of £18m of loans.

18	Contingent liabilities
	On 17 April 2008, the Office of Fair Trading ('OFT') published its Statement of Objections arising from a major investigation into tender activities across the entire UK construction sector. The Company has provided the OFT with its response to the Statement of Objections. Subject to ongoing co-operation, the Company has been granted leniency, which will reduce any fines ultimately levied; however the outcome remains uncertain.

19

Principal risks and uncertainties

The principal risks and uncertainties to which the Group is exposed are detailed in the Directors report and accounts 2008. These include: the impact of the external economic environment including government policy, increased customer expectations, commercial counterparty solvency and legal and regulatory requirements; strategic risks over bidding, acquisitions and investments; organisational and management risks including management of growth, human resources, business conduct, information technology and information security; financial and treasury risks including the pension deficit and costs; and delivery and operational risks including performance management, supply chain risk and health, safety and environmental risks.  The Group has a continued focus on the infrastructure sector in various markets.  The risk of changes in the expenditure of government and/or regulated bodies in any one country is mitigated by the geographical spread of countries in which the Group operates.  A significant proportion of the Group's revenue flows from contracts founded upon government policy and/or public funding. The current economic environment may cause some customers to delay or postpone their capital investment and asset maintenance plans which would impact the Group's order book. The difficult economic environment has increased competition in tenders for work in some private markets and resulted in delays in the completion of project financing.

20

Related party transactions

The Group has contracted with, provided services to, and received management fees from, certain joint ventures and associates amounting to £693m (2007: £1,020m).  These transactions occurred in the normal course of business at market rates and terms.  In addition the Group procured equipment and labour on behalf of certain joint ventures and associates which were charged at cost with no mark-up.  The amount due from joint ventures and associates from trading activities was £20m (2007: £38m). The amount due to joint ventures and associates from trading activities was £31m (2007: £52m).

21	Post balance sheet events
	On 23 February 2009 the Group acquired Dooley Construction Limited Partnership, a leading North Carolina USA firm in the interiors construction market, for a cash consideration of $40m.  As this company has been acquired recently and prepares its local accounts under US GAAP, at the date of authorisation of the accounts it is impracticable to determine the fair value of the net assets and goodwill acquired.

22		Re-presentation of net investment income on pension scheme assets and liabilities
	For the half-year ended 28 June 2008*
	Performance by activity:		Building, building management and services* £m	Civil and specialist engineering and services* £m	Rail engineering and services* £m	Investments* £m	Corporate Costs* £m	Total* £m
	Group operating profit as previously reported		38	33	10	(10)	(16)	55
	Net investment income on pension schemes re-presented in investment income		(1)	(1)	(1)	-	-	(3)
	Re-presented Group operating profit		37	32	9	(10)	(16)	52
	Share of joint ventures and associates		1	11	-	24	-	36
	Re-presented profit from operations before exceptional items and amortisation		38	43	9	14	(16)	88
	Re-presented investment income							19
	Finance costs							(12)
	Profit before taxation, exceptional items and amortisation							95
	* unaudited

 

	For the year ended 31 December 2007
	Performance by activity:		Building, building management and services £m	Civil and specialist engineering and services £m	Rail engineering and services £m	Investments £m	Corporate Costs £m	Total £m
	Group operating profit as previously reported		75	63	43	(25)	(30)	126
	Net investment income on pension schemes re-presented in investment income		(5)	(4)	(4)	-	-	(13)
	Re-presented Group operating profit		70	59	39	(25)	(30)	113
	Share of joint ventures and associates		-	23	1	41	-	65
	Re-presented profit from operations before exceptional items and amortisation		70	82	40	16	(30)	178
	Re-presented investment income							42
	Finance costs							(19)
	Profit before taxation, exceptional items and amortisation							201

 

	For the half-year ended 30 June 2007*
	Performance by activity:		Building, building management and services* £m	Civil and specialist engineering and services* £m	Rail engineering and services* £m	Investments* £m	Corporate Costs* £m	Total* £m
	Group operating profit as previously reported		30	20	12	(10)	(13)	39
	Net investment income on pension schemes re-presented in investment income		(3)	(2)	(2)	-	-	(7)
	Re-presented Group operating profit		27	18	10	(10)	(13)	32
	Share of joint ventures and associates		-	6	1	27	-	34
	Re-presented profit from operations before exceptional items and amortisation		27	24	11	17	(13)	66
	Re-presented investment income							20
	Finance costs							(10)
	Profit before taxation, exceptional items and amortisation							76
	* unaudited
		The re-presentation of the net investment income on pension scheme assets and liabilities only affects the Group’s European operations.

The financial information set out above (which was approved by the Board on 4 March 2009) does not constitute the Company's statutory accounts for the year ended 31 December 2008 or 31 December 2007, but is extracted from those accounts except for the information presented in Note 22 which has been re-presented based on segmental information extracted from the unaudited half-year financial reports. The Company's statutory accounts for the year ended 31 December 2007 have been filed with the Registrar of Companies and those for the year ended 31 December 2008 will be filed following the Annual General Meeting. The independent auditors' reports on those accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain any statements under Section 237(2) or (3) of the Companies Act 1985.

 

END

 

 

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