Final Results

Balfour Beatty PLC 08 March 2006 8 March 2006 BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2005 ANOTHER YEAR OF PROGRESS IN BUILDING SHAREHOLDER VALUE Financial Summary +--------------------------------------------+---------+---------+---------+ | | 2005 | Pro | 2004 | | | | forma+| | | | | 2004 | | +--------------------------------------------+---------+---------+---------+ |Revenue including joint ventures and | Â£4,938m | Â£4,239m | Â£4,239m | |associates | | | | +--------------------------------------------+---------+---------+---------+ |Pre-tax profit from continuing operations | | | | +--------------------------------------------+---------+---------+---------+ |- before exceptional items | Â£134m | Â£107m | Â£122m | +--------------------------------------------+---------+---------+---------+ |- after exceptional items | Â£141m | Â£106m | Â£120m | +--------------------------------------------+---------+---------+---------+ |Earnings per share | | | | +--------------------------------------------+---------+---------+---------+ |- adjusted* | 24.1p | 22.1p | 22.5p | +--------------------------------------------+---------+---------+---------+ |- basic | 24.9p | 58.7p | 57.4p | +--------------------------------------------+---------+---------+---------+ |Financing | | | | +--------------------------------------------+---------+---------+---------+ |- net cash before PFI/PPP subsidiaries | | | | |(non-recourse) | Â£315m | Â£311m | Â£311m | +--------------------------------------------+---------+---------+---------+ |- net borrowings of PFI/PPP subsidiaries | | | | |(non-recourse) | Â£(14)m| Â£(244)m| Â£(244)m| +--------------------------------------------+---------+---------+---------+ * before exceptional items and the premium arising on the buy-back of preference shares, and including the results of discontinued operations + including the impact of IAS 32 and IAS 39 on 2004 numbers Highlights - Comparable pre-tax, pre-exceptional profits up by 25%+ to Â£134 million - Strong operating cash performance - Comparable adjusted earnings per share* up by 9%+ to 24.1p - Order book increased by 12% to Â£7.6 billion - Three PPP concessions reach financial close - US civil engineering returns to profit - Directors' valuation for PFI assets of Â£289 million - Final dividend of 4.6p, full-year dividend up 23% at 8.1p 'We have record order books and a number of preferred bidder positions. Our major markets are healthy and continue to offer substantial opportunity. We are clear about our priorities for the continued development of the business in both the medium and long term and have the proven management capability to deliver. We are confident that we can continue to make progress in 2006.' Sir David John, Chairman Ian Tyler, Chief Executive BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2005 INTERNATIONAL FINANCIAL REPORTING STANDARDS These annual results are the Group's first to be presented under International Financial Reporting Standards (IFRS). While the new standards have little impact on the results in Balfour Beatty's contracting sectors (Building, Engineering and Rail), two of the new standards, IAS 32 and IAS 39, relating to financial instruments, fundamentally affect the way we account for our interests in PFI/ PPP concessions and for our preference shares. The results presented in the formal accounts reflect the application of these standards to 2005 results but not to those for 2004, with a consequent impact on comparability. In order to provide appropriate period-to-period comparisons, in addition to the formal accounts we have provided 'pro forma' 2004 results, including the impact of IAS 32 and IAS 39, following this statement. RESULTS Balfour Beatty, the international engineering, construction and services group, today announced pre-tax profits from continuing operations before exceptional items for the 12 months to 31 December 2005 up 25% at Â£134 million (2004: Â£107 million*). Adjusted earnings per ordinary share before exceptional items were up 9% at 24.1p (2004: 22.1p*), reflecting an increased tax charge following Advance Corporation Tax credits in 2004. Basic earnings per share stood at 24.9p. The Board recommends a final dividend of 4.6p per ordinary share, making a total dividend for the year of 8.1p (2004: 6.6p), an increase of 23%. There were a number of exceptional items, resulting in a net exceptional profit of Â£4 million. Profit for the year (after tax and exceptional items) amounted to Â£106 million. In 2004, the comparable figure of Â£246 million* included a Â£160 million profit from the sale of Andover Controls. Operating cash flow was, once again, strong and in line with profits. Year-end net cash stood at Â£315 million (2004: Â£311 million) before taking account of the consolidation of Â£14 million non-recourse net debt (2004: Â£244 million) held in PPP/PFI subsidiaries. The year-end order book increased by 12% to Â£7.6 billion (2004: Â£6.8 billion), with well in excess of Â£1 billion of further work at preferred bidder stage. * Including the impact of IAS 32 and IAS 39 on 2004 numbers BUSINESS SECTOR PERFORMANCE Building, Building Management and Services Profit from operations, before exceptional items, in this sector improved by 3% to Â£35 million (2004: Â£34 million). There was another good performance from Mansell and satisfactory progress in other operating companies, including Balfour Beatty Construction, whose profits recovered strongly in the second half of the year following some contract losses in the first half largely as a result of exceptional raw material cost inflation between contract and project execution. We continued to add to our order book with good-quality work, including major PPP schools projects in Scotland and Nottinghamshire, social housing and office accommodation contracts and major mechanical and electrical works in the public and private sectors. The first phases of University College London Hospital and Blackburn Hospital were handed over on time and progress was good on all major schemes. Civil and Specialist Engineering and Services Profit from operations, before exceptional items, in this sector more than tripled to Â£49 million (2004: Â£16 million). This excellent performance reflected the return to profit of our US civil engineering business as well as good progress elsewhere, particularly in RCS, the road manager and maintainer, and Balfour Beatty Power Networks. Order books grew substantially, with a number of major contract wins in the gas and water sectors for Balfour Beatty Utilities. These included the contract to renew all the gas mains in Greater Manchester for National Grid and major new contracts and contract renewals for Anglian Water, United Utilities, Severn Trent Water, Yorkshire Water and South West Water. There were other major wins for road maintenance in Scotland and Essex, the A421 road scheme in Bedfordshire and infrastructure work for Gammon in Hong Kong, including a major portion of the new Kowloon Southern Rail Link and the Venetian Hotel and Casino complex in Macau. Rail Engineering and Services Profit from operations, before exceptional items, in this sector fell by 27% to Â£32 million (2004: Â£44 million). Performance was affected by the loss of rail maintenance profits arising from Network Rail's decision to take this discipline in-house in 2004. The fine incurred by Balfour Beatty Rail Infrastructure Services in respect of the Hatfield rail accident of 2000, following its plea of guilty to charges under the Health and Safety at Work Act, was provided for in previous years. In the UK, otherwise, performance was steady, helped by settlement income on old renewals contracts and good progress on the West Coast Main Line, London Underground track renewals and work at Heathrow Terminal 5. Performance improved in Germany, where the major electrification project from Ingolstadt to Nuremburg and the Berlin Tunnel contract were completed, and continued to be good in Italy. There were, however, continued difficulties on a major signalling contract in the US and further losses have been sustained. The order book was augmented by new contract wins on the West Coast Main Line electrification programme in the UK and for a major rail link in Australia. Activity levels under major track renewal contracts for Network Rail and under the London Underground PPP were satisfactory. Investments and Developments Profit from operations, before exceptional items, in this sector improved by 18% to Â£20 million (2004: Â£17 million). After taking into account PFI/PPP net finance income and subordinated debt interest income, profits stood at Â£42 million (2004: Â£42 million). Operating concession performance was satisfactory. During 2005, new concessions came on stream for the M77/GSO in Scotland, major schools schemes in North Lanarkshire and Bassetlaw, Nottinghamshire, and the South Tyneside street lighting scheme. We anticipate that our Â£521 million hospital scheme in Birmingham will reach financial close in the near future. Preferred bidder status was achieved for the Pinderfields and Pontefract and Northern Batched hospitals schemes. The operational performance of Metronet was broadly satisfactory. Detailed plans are in hand to address the delays which have occurred on some aspects of the capital expenditure programme, most particularly in stations upgrade. We are at a preliminary stage of this very complex, long-term project. There will, inevitably, be many challenges for Metronet to address in conjunction with London Underground as the scope of the major system upgrades becomes clearer. Barking Power performed strongly with excellent availability and strong open market electricity prices. In two separate transactions, the Group's shareholding in Consort's Edinburgh Royal Infirmary PFI concession was increased from 42.5% to 73.9% and a 15% interest in three of Connect Roads' projects, previously 100% owned, was sold. For the first time, we have produced a Directors' valuation of the Group's PFI portfolio, based largely on a discounted cash flow methodology. At a blended average discount rate of 8.2%, the valuation at 31 December 2005 was Â£289 million (2004: Â£243 million). EXCEPTIONAL ITEMS There was a net exceptional profit of Â£4 million. Balfour Beatty's share of the distributions made by the administrators of TXU in respect of Barking Power Ltd and a gain on the sale of a 15% interest in three of Connect Roads' PFI concessions were partially offset by the costs of settlement of a legacy legal issue in the US; an adjustment to the carrying value of our interest in Romec; a goodwill impairment charge in respect of Balfour Beatty Rail Inc; exceptional finance costs in respect of retirement of fixed rate debt and the purchase of preference shares; and tax on exceptional items. STRATEGIC PRIORITIES The Board and management of Balfour Beatty are committed to continue to deliver the reliable, responsible growth which our shareholders have enjoyed over recent years. During 2005, we have undertaken an in-depth analysis of our current business and established a clear strategic context for the future development of the Group. We are confident that, in the short term, appropriate growth will be delivered from the momentum inherent in our existing mix of businesses. However, double digit compound growth is not an inherent characteristic of most of our markets, which grow in line with GDP at 2-4%. To secure medium and longer-term growth at our target levels, we will develop further in areas adjacent to our existing areas of core capability. Our analysis clearly demonstrates that market leadership is critical to sustained success. We have positions of leadership in many of our markets, excellent people, a strong portfolio of long-term customer relationships, well-developed supply chains and a very substantial order book - a powerful basis on which to build. We also have the cash resources to invest in growth and to ensure that we continue to have a dynamic organisation. UK Infrastructure The majority of the businesses in which we make our best and most reliable margins are in UK infrastructure markets. Many of those markets have positive growth momentum. The building market is set to grow substantially on the back of PPP/PFI and a buoyant social housing market. In the gas, water and electricity markets, expenditure is strong and growing. The regional civil engineering market, in which we have strong but not comprehensive coverage, is also buoyant. We will expand further our presence in UK infrastructure markets. Growing in Professional and Technical Services There is a clear trend amongst our key customers to demand a broader and more proactive role from us than that represented by our established construction and maintenance services. We will develop a more substantial upstream capability in project and programme management and technical consulting services. The creation of Balfour Beatty Management in 2002 has been an excellent start in developing this process. Extending our Reach in Private Finance Our UK PPP/PFI business has substantial skills and in-built growth momentum, much of it already contained in our existing portfolio. The potentially rapid development of PPP markets outside the UK, particularly in the US and Germany, and the emergence of new UK investment opportunities outside PPP offers further scope for growth. We will take our PPP skills beyond their current boundaries. These three areas of growth, successfully addressed, offer us ample scope to continue the growth momentum of recent years in the medium term. Growing in Overseas Markets The development of our engineering and construction businesses outside the UK is an important part of our strategy, but not an urgent priority. This affords us the opportunity to move carefully and sure-footedly in developing our presence in the markets outside the UK which offer us the best long-term growth potential. In growing in overseas markets, we will apply four key criteria. The markets must be large enough to make a substantial difference; offer an acceptable business environment and one which does not punish foreign ownership; and have substantial numbers of sophisticated customers who will pay for superior levels of quality, safety and innovation. The markets must also offer us the opportunity to achieve market leadership without undue risk. Our key target markets will be the United States, Western Europe and South-East Asia, the latter based on our strong presence in Hong Kong. ACQUISITIONS, INVESTMENTS AND DISPOSALS In February 2005, we acquired JCM Group, a project management company in Southern California, for approximately $10 million, which has further strengthened Heery International Inc's already strong US market position. In order to strengthen our UK infrastructure operations, in August, we acquired Pennine Group, the UK ground engineering specialist for Â£8 million. We are already a leader in the piling sector, through Stent, and the acquisition of Pennine gives us a strong complementary presence in ground engineering and provides a comprehensive range of foundations solutions for UK and overseas markets. Growth prospects in the UK and export opportunities are attractive and the integration process has been successful. Also in August, we acquired SBB, the German rail signalling specialist. Renamed Balfour Beatty Rail Signal, the company strengthens our offer to Deutsche Bahn and broadens our signalling capability following the acquisition in 2004 of Bombardier's solid-state interlocking signalling business in the UK. On 12 December, we announced that we were considering making an offer for Mowlem plc. On 18 January 2006, we announced our decision not to proceed with an offer. We also announced that we had reached a binding agreement, subject to due diligence, with Carillion plc that, following their acquisition of Mowlem, we would acquire two of Mowlem's businesses. These are Charter, a construction management, design and build and construction services company based in Texas, and Edgar Allen, a UK rail track systems and components manufacturer. The combined consideration for these businesses will be approximately Â£20 million. In December, Balfour Beatty Capital Projects increased its shareholding in Consort's Edinburgh Royal Infirmary PFI concession from 42.5% to 73.9% for a consideration of Â£31 million. This transaction reflects Balfour Beatty's confidence that the project will continue to deliver attractive returns and will further consolidate our position as the market-leading developer and investor in healthcare PFIs. At the same time, in a separate transaction, we sold 15% of three of the concessions in Connect Roads for Â£13.5 million. During the year, financial close was achieved on PPP/PFI projects for schools in North Lanarkshire and Bassetlaw, and for South Tyneside street lighting. These projects represent a total equity investment by Balfour Beatty of Â£18 million. The four PPP projects we have at preferred bidder stage involve equity investments totalling Â£54 million. SAFETY It is gratifying to be able to report a further 23% reduction in the Group's accident frequency rate following the 17% and 14% reductions achieved in 2003 and 2004 respectively. However, we treat further improvements as a high priority and our Group-wide system for reporting and tracking health, safety and environmental incidents of all types is now fully bedded in and enabling far better performance benchmarking, trend identification and action plan development. A wide range of other initiatives is being progressed. OUTLOOK We have record order books and a number of preferred bidder positions. Our major markets are healthy and continue to offer substantial opportunity. We are clear about our priorities for the continued development of the business in both the medium and long term and have the proven management capability to deliver. We are confident that we can continue to make progress in 2006. ENDS Enquiries to:- Ian Tyler, Chief Executive Anthony Rabin, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * 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, sustainable income. Its financial position, with significant net cash and with strong operating cash flows, offers continuing flexibility to add additional capacity and expertise to the business mix and to make appropriate investments in PPP and other long-term growth opportunities. * * * * * * * * High resolution photographs are available to the media free of charge at www.newscast.co.uk (tel +44 (0)20 7608 1000). A presentation to analysts and investors will be made at ABN AMRO, 250 Bishopsgate, London, EC2 at 10.30 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 10.30 am. Group income statement For the year ended 31 December 2005 2005 2004 --------------------------------- --------------------------------- Before Exceptional Before Exceptional exceptional items exceptional items items (Note 5) Total items (Note 5) Total Notes Â£m Â£m Â£m Â£m Â£m Â£m Continuing operations Revenue including share +-------------------------------+ +-------------------------------+ of joint ventures and | | | | associates | 4,938 - 4,938 | | 4,239 - 4,239 | Share of revenue of | | | | joint ventures and | | | | associates 12 | (1,101) - (1,101)| | (749) - (749)| +-------------------------------+ +-------------------------------+ Group revenue 3,837 - 3,837 3,490 - 3,490 ================================= ================================= Group operating profit 72 (14) 58 58 (2) 56 Share of results of joint ventures and associates 12 43 30 73 36 - 36 --------------------------------- --------------------------------- Profit from operations 115 16 131 94 (2) 92 Investment income 3 56 - 56 56 - 56 Finance costs 4 (37) (9) (46) (28) - (28) --------------------------------- --------------------------------- Profit before taxation 134 7 141 122 (2) 120 Taxation 7 (32) (3) (35) (23) (5) (28) --------------------------------- --------------------------------- Profit for the year from continuing operations 102 4 106 99 (7) 92 Profit for the year from discontinued operations 6 - - - 8 160 168 --------------------------------- --------------------------------- Profit for the year 102 4 106 107 153 260 Preference dividends 4 - - - (13) - (13) Premium paid on buy-back of preference shares - - - (6) - (6) --------------------------------- --------------------------------- Profit for the year attributable to equity shareholders 102 4 106 88 153 241 ================================= ================================= 2005 2004 pence pence Basic earnings per ordinary share - continuing operations 8 24.9 17.3 - discontinued operations 8 - 40.1 -------- -------- 24.9 57.4 ======== ======== Diluted earnings per ordinary share - continuing operations 8 24.7 17.2 - discontinued operations 8 - 39.7 -------- -------- 24.7 56.9 ======== ======== Dividends per ordinary share proposed for the year 9 8.1 6.6 ======== ======== Group statement of recognised income and expense For the year ended 31 December 2005 2005 2004 Â£m Â£m Actuarial losses on retirement benefit obligations (14) (17) PFI/PPP cash flow hedges - net fair value gains/(losses) (17) - - reclassified and reported in net profit 1 - PFI/PPP financial assets - fair value revaluation 10 - - reclassified and reported in net profit (4) - Changes in fair value of net investment hedges (6) 7 Currency translation differences 8 (6) Tax on items taken directly to equity 9 3 -------- -------- Net expense recognised directly in equity (13) (13) Profit for the year from continuing operations 106 92 Profit for the year from discontinued operations - 168 -------- -------- Total recognised income for the year 93 247 ======== ======== Attributable to: Equity 93 234 Preference shareholders (2004 only) - 13 -------- -------- 93 247 ======== ======== Group balance sheet At 31 December 2005 Notes 2005 2004 Â£m Â£m Non-current assets Goodwill 11 284 279 Property, plant and equipment 167 149 Investments in joint ventures and associates 12 375 189 Investments 38 42 PFI/PPP financial assets 14 282 Deferred tax assets 83 87 Derivative financial instruments 2 - Trade and other receivables 35 41 ------------------------------- 998 1,069 ------------------------------- Current assets Inventories 61 50 Due from customers for contract work 217 218 Trade and other receivables 619 563 Cash and cash equivalents - PFI/PPP subsidiaries - 30 - other 345 388 ------------------------------- 1,242 1,249 ------------------------------- ------------------------------- Total assets 2,240 2,318 ------------------------------- Current liabilities Trade and other payables (1,038) (946) Due to customers for contract work (274) (264) Derivative financial instruments (4) - Current tax liabilities (30) (38) Borrowings - PFI/PPP non-recourse term loans - (13) - other (30) (15) ------------------------------- (1,376) (1,276) ------------------------------- Non-current liabilities Borrowings - PFI/PPP non-recourse term loans (14) (261) - other - (62) Liability component of preference shares (98) - Derivative financial instruments (2) - Trade and other payables (66) (58) Deferred tax liabilities (3) (2) Retirement benefit obligations (280) (254) Provisions (109) (103) ------------------------------- (572) (740) ------------------------------- ------------------------------- Total liabilities (1,948) (2,016) ------------------------------- ------------------------------- Net assets 292 302 =============================== Capital and reserves Called-up share capital 214 213 Share premium account 26 150 Equity component of preference shares 18 - Special reserve 175 181 Share of joint ventures' and associates' reserves 182 72 Other reserves 5 9 Accumulated losses (328) (323) ------------------------------- 292 302 +-----------------------------+ Equity | 292 166 | Preference shareholders' interests (2004 only) | - 136 | +-----------------------------+ ------------------------------- Equity/shareholders' funds 14 292 302 =============================== Group cash flow statement For the year ended 31 December 2005 Notes 2005 2004 Â£m Â£m Cash flows from operating activities Cash generated from operations 16(a) 167 148 Income taxes paid (28) (41) ------------------------------- Net cash from operating activities 139 107 ------------------------------- Cash flows from investing activities Dividends received from joint ventures and associates 12 8 Acquisition of businesses, net of cash and cash equivalents acquired (56) (17) Purchase of property, plant and equipment (57) (51) Investment in and loans made to joint ventures and associates (12) (11) Investment in financial assets (21) (65) Disposal of businesses, net of cash and cash equivalents disposed (15) 217 Disposal of property, plant and equipment 8 13 Disposal of investments 6 51 ------------------------------- Net cash (used in)/from investing activities (135) 145 ------------------------------- Cash flows from financing activities Proceeds from issue of ordinary shares 6 4 Purchase of ordinary shares (3) (2) Proceeds from new loans 6 6 Repayment of loans (80) (12) Finance lease principal repayments (2) (2) Buy-back of preference shares (11) (20) Ordinary dividends paid (28) (25) Interest received 64 47 Interest paid (27) (24) Premium paid on repayment of US Dollar term loan (9) - Preference dividends paid (13) (15) ------------------------------- Net cash used in financing activities (97) (43) ------------------------------- ------------------------------- Net (decrease)/increase in cash and cash equivalents (93) 209 Effects of exchange rate changes 3 (1) Cash and cash equivalents at 1 January 406 198 ------------------------------- Cash and cash equivalents at 31 December 16(b) 316 406 =============================== Notes 1 Basis of presentation The annual financial statements have been prepared for the first time 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 relevant to its operations and effective for accounting periods beginning on 1 January 2005. Accounting standards and interpretations in issue at the date of authorisation of the financial statements but not yet effective are not expected to have a material impact on the financial statements of the Group. An explanation of the transition from accounting principles generally accepted in the United Kingdom (UK GAAP) to IFRS is set out in Note 18. Balfour Beatty adopted IFRS with a transition date of 1 January 2004. Comparative figures for the year ended 31 December 2004 and the Group's balance sheet as at 31 December 2004 that were previously reported in accordance with UK GAAP, have been restated to comply with IFRS with the exception of IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' which have been applied prospectively from 1 January 2005, as permitted by IFRS 1 'First-time Adoption of IFRS'. These standards have a significant impact on the Group and particularly affect the accounting for the Company's convertible redeemable preference shares, the hedging activities of the Group's PFI/PPP concessions and their income which, in accordance with the International Financial Reporting Interpretations Committee (IFRIC)'s draft interpretations on service concessions, D12 to D14, is determined under IAS 39 to be an available-for-sale financial asset. The adoption of IAS 32 and IAS 39 has reduced the Group's net assets as follows: Â£m Net assets at 31 December 2004 302 Preference shares - liability element and deferred tax (113) Group derivatives (3) PFI/PPP concessions - derivatives (41) PFI/PPP concessions - financial assets 75 Goodwill adjustment arising from concession share purchase 7 ----------- Net assets at 1 January 2005 227 =========== 2 Segment analysis - continuing operations For the year ended 31 December 2005 Performance by Building, Civil and activity: building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total Â£m Â£m Â£m Â£m Â£m Â£m Group revenue 1,674 1,366 763 34 - 3,837 =================================================================== Group operating profit 32 39 32 (10) (21) 72 Share of results of joint ventures and associates 3 10 - 30 - 43 ------------------------------------------------------------------- Profit from operations before exceptional items 35 49 32 20 (21) 115 Exceptional items (8) - (12) 36 - 16 ------------------------------------------------------------------- Profit from operations 27 49 20 56 (21) 131 =========================================================== Investment income 56 Finance costs (46) -------- Profit before taxation 141 ======== Performance by geographic origin: North Europe America Other Total Â£m Â£m Â£m Â£m Group revenue 3,332 483 22 3,837 =========================================== Profit from operations before exceptional items 134 (20) 1 115 Exceptional items 28 (12) - 16 ------------------------------------------- Profit from operations 162 (32) 1 131 =========================================== For the year ended 31 December 2004 Performance by Building, Civil and activity: building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total Â£m Â£m Â£m Â£m Â£m Â£m Group revenue 1,468 1,144 800 78 - 3,490 =================================================================== Group operating profit 32 7 45 (9) (17) 58 Share of results of joint ventures and associates 2 9 (1) 26 - 36 ------------------------------------------------------------------- Profit from operations before exceptional items 34 16 44 17 (17) 94 Exceptional items - 1 (3) - - (2) ------------------------------------------------------------------- Profit from operations 34 17 41 17 (17) 92 =========================================================== Investment income 56 Finance costs (28) -------- Profit before 120 taxation ======== Performance by geographic origin: North Europe America Other Total Â£m Â£m Â£m Â£m Group revenue 3,107 377 6 3,490 =========================================== Profit from operations before exceptional items 137 (45) 2 94 Exceptional items 15 (18) 1 (2) ------------------------------------------- Profit from operations 152 (63) 3 92 =========================================== 3 Investment income 2005 2004 Â£m Â£m PFI/PPP non-recourse - interest on financial assets 36 34 PFI/PPP subordinated debt interest receivable 5 9 Other interest receivable and similar income 15 13 -------------------------- 56 56 ========================== 4 Finance costs 2005 2004 Â£m Â£m PFI/PPP non-recourse - other interest payable 19 18 Other interest payable - bank loans and overdrafts 1 2 - finance leases - 1 - other loans 4 7 -------------------------- 24 28 Preference shares - finance cost 13 - -------------------------- 37 28 Exceptional items - premium on buy-back of preference shares 3 - - net premium on repayment of US Dollar term loan 6 - -------------------------- 46 28 ========================== The finance cost and premium on buy-back of preference shares are treated as finance costs under IAS 32 from adoption on 1 January 2005, but were previously treated as appropriations of profit for the year. 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 2005 on 1 July 2005 to holders of these shares on the register on 27 May 2005. 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 2005 on 1 January 2006 to holders of these shares on the register on 25 November 2005. 5 Exceptional items 2005 2004 Â£m Â£m (a) Credited to/(charged against) profit from operations Group operating profit - litigation settlements and fines (8) - - profit on sale of interest in Connect Roads 6 - - impairment of investment in Romec Ltd (8) - - cancellation of Network Rail maintenance contracts - 7 - pension settlement gain - 8 - profit on sale of Hong Kong business - 1 - impairment of goodwill in Balfour Beatty Rail Inc (4) (18) -------------------------- (14) (2) Share of results of joint ventures and associates - TXU distributions to Barking Power Ltd 30 - -------------------------- 16 (2) (b) Charged to finance costs - premium on buy-back of preference shares (3) - - net premium on repayment of US Dollar term loan (6) - -------------------------- Credited to/(charged against) profit before taxation 7 (2) (c) Taxation thereon (3) (5) -------------------------- Credited to/(charged against) profit for the year from continuing operations 4 (7) (d) Credited to profit for the year from discontinued operations - profit on sale of operations - 160 -------------------------- Credited to profit for the year 4 153 ========================== In accordance with its IFRS accounting policies, the Group has presented and disclosed items of income and expense which are both material and non-recurring as 'exceptional items'. (a) The exceptional items charged against Group operating profit in 2005 arose from litigation and settlement costs of Â£8m which includes a payment to the US Government by Balfour Beatty Construction Inc, for its share of a settlement payment to resolve allegations arising from investigations into a joint venture contract awarded in 1995 and completed in 2000 and the costs awarded against Balfour Beatty Rail Infrastructure Services Ltd for admitted breaches of the Health and Safety at Work Act following the Hatfield derailment in October 2000, provision for the associated fine having been made in prior years; a profit of Â£6m on the disposal of a 15% interest in Connect Roads Ltd and Connect M77/GSO Holdings Ltd; an impairment charge of Â£8m in respect of the Group's investment in Romec Ltd; and a goodwill impairment charge of Â£4m in respect of Balfour Beatty Rail Inc. The exceptional item credited to profit from operations in share of results of joint ventures and associates in 2005 arises in Barking Power Ltd in which the Group holds a 25.5% interest. The Â£30m gain represents the Group's share, after charging taxation of Â£12m, of the first three distributions received by Barking Power Ltd from the administrator of TXU Europe following the damages agreement reached in December 2004 of Â£179m. Exceptional items credited to profit from operations in 2004 arose in respect of the resolution of certain matters (Â£7m) previously provided for in 2003 in relation to the cancellation of three Network Rail maintenance contracts; an Â£8m settlement gain on curtailment of the Railways Pension Scheme; a profit of Â£1m arising on the transfer of the Group's construction contracts in progress in Hong Kong to the Gammon Skanska Group following the acquisition of a 50% interest in that business; and a goodwill impairment charge of Â£18m in respect of Balfour Beatty Rail Inc. (b) The exceptional items charged against finance costs in 2005 are the premium of Â£3m arising on the repurchase for cancellation of 6.8m preference shares at a cost of Â£11m; and the net premium of Â£6m arising from the repayment of the US Dollar term loan. (c) The exceptional items in 2005 along with other prior year tax adjustments relating to exceptional items have given rise to a net tax charge of Â£3m. (d) The exceptional item credited to profit for the year from discontinued operations in 2004 comprised the gain arising on the disposal of Andover Controls amounting to Â£160m, after charging taxation of Â£12m. 6 Discontinued operations Andover Controls, sold in July 2004, has been classified as discontinued. The profit for the year from discontinued operations comprises the post-tax results of Andover Controls (2004: Â£8m) and the profit on sale of Andover Controls (2004: Â£160m). 7 Taxation 2005 2004 Â£m Â£m UK current tax - corporation tax for the year at 30% (2004:30%) 34 39 - double tax relief (6) (2) - adjustments in respect of previous periods (9) (8) ------------------------------ 19 29 ------------------------------ UK advance corporation tax - written back against current year UK current tax - (11) - adjustments in respect of other periods - (6) ------------------------------ - (17) ------------------------------ Foreign current tax - foreign tax on profits for the year 5 5 - adjustments in respect of previous periods 1 (1) ------------------------------ 6 4 ------------------------------ Total current tax 25 16 Deferred tax - UK 3 7 - foreign tax 2 - - adjustments in respect of previous periods 5 5 ------------------------------ Total deferred tax 10 12 ------------------------------ ------------------------------ Total tax charge 35 28 ============================== The tax charge above does not include any amounts for joint ventures and associates, whose results are disclosed in the income statement net of tax (see Note 12). In addition to the Group tax charge above are amounts credited directly to equity for current tax of Â£4m (2004: charge Â£2m) and deferred tax of Â£10m (2004: Â£5m), which less a charge in respect of joint ventures and associates of Â£5m (2004: Â£nil), totals Â£9m (2004: Â£3m). Further there is an amount of Â£nil (2004: Â£12m) which relates to tax on discontinued operations. The weighted average applicable tax rate is 35% (2004: 27%) based on profit before taxation and exceptional items, excluding the results of joint ventures and associates. The increase is caused by the effects of the introduction of IAS 32 and IAS 39 from 1 January 2005, and in addition there is no offset of Advance Corporation Tax recognised in 2005. 8 Earnings per share 2005 2004 ---------------------------------------------- Basic Diluted Basic Diluted Â£m Â£m Â£m Â£m Earnings - continuing operations 106 106 73 73 - discontinued operations - - 168 168 ---------------------------------------------- 106 106 241 241 ============ ============ Premium on buy-back of preference shares - 6 Exceptional items (4) (153) ------------ ----------- Adjusted earnings 102 94 ============ =========== m m m m Weighted average number of ordinary shares 424.2 428.7 419.4 423.6 ============================================== pence pence pence pence Earnings per share - continuing operations 24.9 24.7 17.3 17.2 - discontinued operations - - 40.1 39.7 ---------------------------------------------- 24.9 24.7 57.4 56.9 ============ ============ Premium on buy-back of preference shares - 1.5 Exceptional items (0.8) (36.4) ------------ ----------- Adjusted earnings per share 24.1 22.5 ============ =========== The calculation of basic earnings is based on profit from continuing operations after charging, in 2004, preference dividends and appropriations arising on the buy-back of preference shares. The weighted average number of shares used to calculate diluted earnings per share has been adjusted for the conversion of share options. 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, in 2004, appropriations arising on the buy-back of preference shares and including the results of discontinued operations, have been disclosed to give a clearer understanding of the Group's underlying trading performance. 9 Dividends on ordinary shares 2005 2004 ------------------------------------------- Per share Amount Per share Amount pence Â£m pence Â£m Proposed dividends for the year: Interim - current year 3.50 15 2.85 12 Final - current year 4.60 20 3.75 16 ------------------------------------------- 8.10 35 6.60 28 =========================================== Recognised dividends for the year: Final - prior year 16 14 Interim - current year 15 12 --------- --------- 31 26 ========= ========= An interim 2005 dividend of 3.5p (2004: 2.85p) per ordinary share was paid on 3 January 2006. Subject to approval at the Annual General Meeting on 11 May 2006, the final 2005 dividend will be paid on 3 July 2006 to holders of ordinary shares on the register on 28 April 2006 by direct credit or, where no mandate has been given, by cheque posted on 29 June 2006 payable on 3 July 2006. These shares will be quoted ex-dividend on 26 April 2006. 10 Acquisitions On 17 February 2005, the Group acquired 100% of the issued share capital of JCM Group in the USA for an initial consideration of US$8.9m, deferred consideration of US$1.2m and costs of US$1.4m. The provisional fair value of net assets acquired was US$4.0m and goodwill arising was US$7.5m. The goodwill recognised is attributable to the benefit obtained from JCM's position being particularly strong in the higher education, healthcare and government markets. On 9 August 2005, the Group acquired 100% of the issued share capital of Pennine Group, the UK ground engineering business, for an initial consideration of Â£7.3m, deferred consideration of Â£0.5m and costs of Â£0.3m. The provisional fair value of net assets acquired was Â£2.3m and provisional goodwill arising was Â£5.8m, pending finalisation of the post-acquisition review of the fair value of the net assets. The goodwill recognised is attributable to the acquisition giving the Group a strong, complementary presence in ground engineering. On 24 August 2005, the Group acquired 100% of the issued share capital of Signalbau Bahn GmbH, the specialist German rail signalling contractor, for a consideration of â‚¬14.0m, before adjustment to reflect the fair value of net assets acquired, estimated at â‚¬0.8m. The provisional fair value of net assets acquired was â‚¬6.8m and provisional goodwill arising was â‚¬6.4m, pending finalisation of the post-acquisition review of the fair value of the net assets. The goodwill recognised is attributable to the acquisition giving the Group the opportunity to broaden its signalling capability in Germany. On 16 December 2005, the Group acquired a further 31.4% interest in Consort Healthcare (Edinburgh Royal Infirmary) Holdings Ltd for a consideration of Â£31.1m and costs of Â£0.1m. The provisional fair value of the net assets acquired, consideration paid and provisional goodwill arising on these transactions were: Book value Fair value of assets Fair value of assets acquired adjustments acquired Â£m Â£m Â£m Net assets acquired: Goodwill 14 - 14 Property, plant and equipment 6 - 6 Investments in joint ventures and associates 31 - 31 Working capital 5 (1) 4 Term loans (1) - (1) --------------------------------------- 55 (1) 54 --------------------------------------- Due on acquisitions 2 ----------- Total consideration 56 Satisfied by: ----------- Cash consideration 55 Costs incurred 1 ----------- 56 ----------- The subsidiary businesses acquired earned revenues of Â£30m and profits from operations of Â£1.2m for the full year, of which Â£16m and Â£1.2m respectively were earned in the period since acquisition. In 2005, Â£2.2m deferred consideration was paid in respect of acquisitions completed in earlier years. 11 Goodwill Accumulated impairment Carrying Cost losses amount Â£m Â£m Â£m At 31 December 2004 297 (18) 279 Implementation of IAS 32 and IAS 39 (5) - (5) --------------------------------------- At 1 January 2005 292 (18) 274 Exchange adjustments 2 (2) - Businesses acquired (see Note 10) 14 - 14 Impairment losses for the year - (4) (4) --------------------------------------- At 31 December 2005 308 (24) 284 ======================================= 12 Joint ventures and associates Share of results and net assets of joint ventures and associates 2005 ------------------------------------------------------------- Investments and Building, Civil and developments building specialist Rail ----------------- management engineering engineering and and and PFI/PPP Barking Total services services services Power Â£m Â£m Â£m Â£m Â£m Â£m Revenue 113 554 3 368 63 1,101 ============================================================= Operating profit before exceptional items 4 16 - 15 15 50 Investment income - 1 - 69 - 70 Finance costs - (1) - (52) (3) (56) ------------------------------------------------------------- Profit before taxation and exceptional items 4 16 - 32 12 64 Taxation (1) (6) - (10) (4) (21) Exceptional items (net of taxation) - - - - 30 30 ------------------------------------------------------------- Profit after taxation 3 10 - 22 38 73 ============================================================= Goodwill - 25 2 2 - 29 Property, plant and equipment 1 66 1 29 109 206 PFI/PPP financial assets - - - 1,255 - 1,255 Net cash/(borrowings) (3) 55 6 (914) (32) (888) Other net assets/(liabilities) 6 (79) (9) (123) (22) (227) ------------------------------------------------------------- Net assets 4 67 - 249 55 375 ============================================================= 2004 ------------------------------------------------------------- Investments and Building, Civil and developments building specialist Rail ----------------- management engineering engineering and and and PFI/PPP Barking Total services services services Power Â£m Â£m Â£m Â£m Â£m Â£m Revenue 118 299 3 283 46 749 ============================================================= Operating profit before exceptional items 3 14 (1) 13 15 44 Investment income - 1 - 66 - 67 Finance costs - (1) - (54) (5) (60) ------------------------------------------------------------- Profit before taxation and exceptional items 3 14 (1) 25 10 51 Taxation (1) (5) - (6) (3) (15) ------------------------------------------------------------- Profit after taxation 2 9 (1) 19 7 36 ============================================================= Goodwill 7 25 2 - - 34 Property, plant and equipment - 64 1 34 111 210 PFI/PPP financial assets - - - 562 - 562 Net cash/(borrowings) 3 31 6 (444) (69) (473) Other net assets/(liabilities) 1 (68) (8) (44) (25) (144) ------------------------------------------------------------- Net assets 11 52 1 108 17 189 ============================================================= 13 PFI/PPP subsidiaries At 31 December 2005, the Group had a 100% interest in two PFI/PPP concessions through its shareholdings in Connect Roads Sunderland Holdings Ltd and Connect Roads South Tyneside Holdings Ltd. The Group also had a 100% interest in three PFI/PPP concessions through its shareholdings in Connect Roads Ltd and Connect M77/GSO Holdings Ltd until 20 December 2005, when the Group disposed of a 15% interest in those companies and they became joint ventures. The performance of the wholly-owned PFI/PPP concessions (since becoming subsidiaries as appropriate) and their balance sheets are summarised below: 2005 2004 Â£m Â£m Income statement Group revenue 32 78 ========================= Profit from operations - 1 Investment income 36 34 Finance costs (19) (18) ------------------------- Profit before taxation 17 17 Taxation (5) (5) ------------------------- Profit for the year 12 12 ========================= Cash flow Profit from operations - 1 Decrease in working capital - 6 Income taxes paid (3) (4) ------------------------- Net cash (outflow)/inflow from operating activities (3) 3 Net cash outflow from investing activities (20) (7) Net cash inflow from financing activities 29 - ------------------------- Net cash inflow/(outflow) 6 (4) Net borrowings at beginning of year/date of acquisition (244) (240) Net borrowings at date of disposal 224 - ------------------------- Net borrowings at end of year (14) (244) ========================= Balance sheet PFI/PPP financial assets 14 282 Current and deferred taxation - (9) Other net current assets - 3 Cash and cash equivalents - 30 Non-recourse term loans (14) (274) ------------------------- Net assets - 32 ========================= 14 Movements in equity/shareholders' funds 2005 2004 Â£m Â£m Total recognised income for the year 93 247 Ordinary dividends (31) (26) Preference dividends - (13) Premium paid on buy-back of preference shares (3) (6) Issue of ordinary shares 6 4 Buy-back of preference shares - carrying value in shareholders' funds - (14) Movements relating to share-based payments - 4 ------------------------- 65 196 Shareholders' funds at beginning of year 302 106 Implementation of IAS 32 and IAS 39 (75) - ------------------------- Equity/shareholders' funds at end of year 292 302 ========================= 15 Retirement benefit obligations The Group's actuaries have updated to 31 December 2005 on the basis of IAS 19 'Employee Benefits' the latest actuarial funding valuations of the Group's principal defined benefit schemes, namely the Balfour Beatty Pension Fund, the Balfour Beatty Shared Cost section of the Railways Pension Scheme and the two Mansell pension schemes. Details of these valuations and the disclosures prescribed by IAS 19 are set out in the Report and Accounts along with the funding valuation reviews. 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: 2005 2004 ------------------------------- ---------------------------- Balfour Balfour Beatty Railways Beatty Railways Pension Pension Mansell Pension Pension Mansell Fund Scheme schemes Fund Scheme schemes % % % % % % Inflation rate 2.8 2.8 2.8 2.8 2.8 2.8 Discount rate 4.75 4.75 4.75 5.3 5.3 5.3 Future salary increases 4.3 4.3 4.3 4.3 4.3 4.3 Future pension increases 2.8 2.8 2.8 2.8 2.8 2.8 Expected return on plan assets 5.98 7.00 6.60 6.11 7.11 7.06 Number Number Number Number Number Number Total number of members 37,833 3,342 3,397 36,168 3,327 3,434 Â£m Â£m Â£m Â£m Â£m Â£m IAS 19 DEFICIT Present value of funded obligations (1,820) (159) (212) (1,638) (125) (190) Fair value of plan assets 1,643 136 160 1,479 111 133 ------------------------------- ---------------------------- Liability in the balance sheet (177) (23) (52) (159) (14) (57) =============================== ============================ In addition, the Group has funded and unfunded post-retirement benefit obligations in Europe and North America amounting to Â£28m (2004: Â£24m), the majority of which arrangements are closed to new entrants. Including Â£5m (2004: Â£3m) pension costs in respect of other defined contribution schemes, the total net pension cost recognised in the income statement in the year was Â£49m (2004: Â£48m) with contributions paid of Â£42m (2004: Â£43m). The principal assumptions used by the actuaries and the funding valuations for the Group's principal defined benefit schemes are summarised below: 2005 2004 ------------------------------- ---------------------------- Balfour Balfour Beatty Railways Beatty Railways Pension Pension Mansell Pension Pension Mansell Fund Scheme schemes Fund Scheme schemes % % % % % % Inflation assumption 2.8 2.8 2.8 2.8 2.8 2.8 Rate of increase in salaries 4.3 4.3 4.3 4.3 4.3 4.3 Rate of increase in pensions in payment (or such other fixed rate as is guaranteed) 2.8 2.8 2.8 2.8 2.8 2.8 Return on existing investments: - actives and deferred members - pre-retirement 7.7 7.7 7.7 7.8 7.8 7.8 - post-retirement 5.0 5.0 5.0 5.5 5.5 5.5 - pensioners, widows and dependants 4.5 4.5 4.5 5.0 5.0 5.0 Â£m Â£m Â£m Â£m Â£m Â£m SCHEME SURPLUS/(DEFICIT) Market value of assets 1,644 136 160 1,480 111 133 Present value of scheme liabilities (1,637) (137) (182) (1,479) (105) (169) ------------------------------- ---------------------------- Surplus/(deficit) in scheme 7 (1) (22) 1 6 (36) =============================== ============================ 16 Notes to the cash flow statement 2005 2004 Â£m Â£m (a) Cash generated from operations comprises: Profit from continuing operations 131 92 Trading profit from discontinued operations - 8 Share of results of joint ventures and associates (73) (36) Depreciation of property, plant and equipment 41 41 Impairment charge 12 18 Movements relating to share-based payments 3 2 (Profit)/loss on disposal of property, plant and equipment (2) 1 Profit on disposal of businesses (6) (1) ---------------------- Operating cash flows before movements in working capital 106 125 Decrease in working capital 61 23 ---------------------- Cash generated from operations 167 148 ====================== (b) Cash and cash equivalents comprise: Cash and deposits 131 119 Term deposits 199 269 UK PFI/PPP project - cash and deposits 15 - finance - term deposits - 30 Bank overdrafts (29) (12) ---------------------- 316 406 ====================== (c) Analysis of net cash/(borrowings): Unsecured - US Dollar fixed rate term loan borrowings 8.06% (2008) - (62) - bank overdrafts (29) (12) - other short-term loans - (1) Secured borrowings - finance leases (1) (2) Cash and deposits 146 119 Term deposits 199 269 ---------------------- 315 311 PFI/PPP non-recourse - Sterling floating rate term loan (13) (8) term loans (2008-2027) - Sterling floating rate term loan (1) - (2011-2030) - Sterling floating rate term loan - (25) (2005-2011) - Sterling floating rate term loan - (93) (2005-2012) - Sterling fixed rate bond - (148) (2006-2034) PFI/PPP term deposits - 30 ---------------------- Net cash 301 67 ====================== A significant part of the PFI/PPP non-recourse project finance floating rate term loans have been swapped into fixed rate debt by the use of interest rate swaps. (d) Analysis of movement in net cash: Opening net cash 67 124 Net (decrease)/increase in cash and cash equivalents (93) 209 Acquisitions - borrowings at date of acquisition (1) (278) Businesses sold - borrowings at date of disposal 253 - New loans (6) (6) Repayment of loans 80 12 Finance lease principal 2 2 repayments Exchange adjustments (1) 4 ---------------------- Closing net cash 301 67 ====================== 17 Post balance sheet events No post balance sheet events have occurred since 31 December 2005. 18 Explanation of transition to IFRS As described in Note 1, the 2005 financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). On 23 June 2005, the Company published restated consolidated financial information for 2004. Following completion of the required conversion work on all the Group's PFI/PPP concessions resulting from the adoption of IAS 32 and IAS 39 'Financial Instruments' and the draft interpretations on PFI/PPP concession accounting prospectively from 1 January 2005, the Company made further amendments to the restated 2004 financial information in relation to the accounting for five of its PFI/PPP concessions to conform with IFRIC 4. Revised reconciliations showing the changes between UK GAAP and IFRS disclosure format and the changes arising from the adoption of IFRS were placed on the Company's website (at www.balfourbeatty.com/bbeatty/ir/ifrs/) on 17 August 2005. Reconciliations of the Group's profit for the year ended 31 December 2004 and balance sheet as at 31 December 2004, showing the effects of changes in presentation and accounting policies arising from the adoption of IFRS on the figures published under UK GAAP on 9 March 2005, are set out on the following pages, with the principal changes described below. (a) Principal changes in presentation (reformat) The financial statements prepared under UK GAAP have been reformatted in accordance with the requirements of IFRS as follows: (i) Under IFRS, the post-tax results of discontinued operations include the profit on sale of those operations and are reported on a single line after 'Profit for the year from continuing operations'. Non-current assets and groups of assets to be disposed of and associated liabilities are separately classified if their carrying amount will be recovered through a sale transaction rather than through continuing use; (ii) Interests in associates and joint venture entities are accounted for using the equity method under UK GAAP and IFRS. Under UK GAAP, the Group's share of their operating profits, interest and taxation were included under those respective captions in the income statement. Under IFRS, the Group's share of the post-tax profits of joint ventures and associates are disclosed in a single line within 'Profit from operations'; (iii) Deferred tax assets, included within debtors under UK GAAP, are separately classified within 'Non-current assets' under IFRS. Current and deferred tax liabilities, included within other creditors under UK GAAP, are separately classified within 'Current liabilities' and 'Non-current liabilities' under IFRS; (iv) Debtors due after one year, included within current assets under UK GAAP, are reclassified within 'Non-current assets' under IFRS; and (v) Balances arising on long-term contracts are reclassified as 'Due from customers for contract work' and 'Due to customers for contract work' in accordance with the requirements of IAS 11 'Construction Contracts'. (b) Principal changes in accounting policy (restatement) The transition to IFRS has resulted in the following restatements as a result of changes in accounting policies: (i) Under UK GAAP, goodwill was amortised on a straight-line basis over its economic useful life of up to 20 years, tested for impairment and provided for as necessary. Under IFRS, goodwill is no longer amortised but is carried at cost and subject to annual review for impairment at 31 December. This change increased 'Profit from operations' for the year ended 31 December 2004 and 'Net assets' at 31 December 2004 by Â£17m. Under UK GAAP, the gain on disposal of businesses was determined after taking into account goodwill previously written-off to reserves. Such goodwill is not included in determining the profit on disposal under IFRS. This change increased 'Profit for the year' for the year ended 31 December 2004 by Â£38m; (ii) Under UK GAAP, the Group accounted for its defined benefit pension schemes in accordance with the requirements of SSAP 24 'Accounting for Pension Costs'. The cost of providing the defined benefit pensions was charged against 'Operating profit' with surpluses and deficits arising in the funds amortised to 'Operating profit' over the remaining service lives of participating employees. Under IAS 19 'Employee Benefits', the cost of providing pension benefits (current service cost) for defined benefit pension schemes is recognised in the income statement and the defined benefit pension obligation is determined annually by independent actuaries and recognised on the balance sheet. The Group has elected to include within 'Group operating profit' the interest cost arising on the projected obligations and the returns on the schemes' assets in addition to the current service cost. Actuarial gains and losses are recognised in the Statement of recognised income and expense in the period in which they occur. The effect of this change is to decrease 'Profit from operations' for the year ended 31 December 2004 by Â£4m and 'Net assets' at 31 December 2004 by Â£174m; (iii) Under IFRS 2 'Share-based Payment', a charge is recognised in the Income statement for all share-based payments granted after 7 November 2002 but not vested, based on the fair values of the grants and the number expected to become exercisable. Â£3m of current and deferred tax credits recognised in the Income statement for the year ended 31 December 2004 are, under IAS 12 'Income Taxes', required to be credited directly to Equity. As a result 'Profit for the year' is reduced through the revised recognition of these credits. In the UK, the tax relief arising from share-based payments is not related to the expense recognised under IFRS 2. IAS 12 specifies how both the current tax relief and deferred tax arising on share-based payments should be assessed. Recognition of the deferred tax asset gives rise to an increase of Â£5m in 'Net assets' at 31 December 2004; (iv) Under UK GAAP, proposed dividends were recognised as a liability in the year to which they related. Under IAS 10 'Events after the Balance Sheet Date', dividends are not recognised as a liability until they are declared. As a result, 'Net assets' at 31 December 2004 increase by Â£16m; (v) IAS 12 requires the recognition of deferred tax on property revaluations and, subject to certain conditions, on the undistributed reserves of foreign subsidiaries, associates and joint ventures. Under UK GAAP such provisions were not required. The effect of this change is to reduce 'Net assets' at 31 December 2004 by Â£4m; and (vi) IFRIC 4 requires arrangements which convey the right to use assets in return for a payment or series of payments to be treated as a lease and accounted for in accordance with IAS 17 'Leases'. This change in accounting for certain of the Group's PFI/PPP concessions results in an increase of Â£12m in 'Profit before taxation' for the year ended 31 December 2004 and an increase of Â£29m in 'Net assets' at 31 December 2004. Reformat of Group income statement For the year ended 31 December 2004 JVs' and Ordinary UK GAAP as associates' dividend UK GAAP previously Discontinued tax and Exceptional to in IFRS UK GAAP reported operations interest items reserves format UK GAAP in IFRS format Â£m Â£m Â£m Â£m Â£m Â£m +----------------------------------------------------------------+ Turnover including | | Revenue including share of joint | | share of joint ventures and associates | 4,171 (51) - - - 4,120| ventures and associates Share of turnover | | Share of revenue of of joint ventures | | joint ventures and and associates | (672) - - - - (672)| associates +----------------------------------------------------------------+ Group turnover 3,499 (51) - - - 3,448 Group revenue ================================================================== Group operating profit 74 (8) - (2) - 64 Group operating profit +----------------------------------------------------------------+ - before | | - before exceptional items | 67 (8) - (2) - 57| exceptional items - exceptional items | 7 - - - - 7| - exceptional items +----------------------------------------------------------------+ Share of operating Share of results of profits of joint joint ventures and ventures and associates 71 - (41) - - 30 associates Profit on sale of operations 135 (137) - 2 - - Provision for loss on sale of operations 2 - - (2) - - Loss on sale of tangible fixed assets (2) - - 2 - - ------------------------------------------------------------------ Profit on ordinary activities before interest 280 (145) (41) - - 94 Profit from operations Interest receivable 23 - - - - 23 Investment income Interest payable (23) - - - - (23) Finance costs Share of joint ventures' and associates' net interest payable (23) - 23 - - - ------------------------------------------------------------------ Profit on ordinary activities before taxation 257 (145) (18) - - 94 Profit before taxation +----------------------------------------------------------------+ Profit on ordinary | | activities before | | goodwill | | Profit before goodwill amortisation and | | amortisation and impairment, | | impairment, exceptional items | | exceptional items and taxation | 150 (8) (18) (2) - 122| and taxation Goodwill | | Goodwill amortisation and | | amortisation and impairment | (35) - - - - (35)| impairment Exceptional items | 142 (137) - 2 - 7| Exceptional items +----------------------------------------------------------------+ Tax on profit on ordinary activities (54) 13 18 - - (23) Taxation ------------------------------------------------------------------ Profit for the Profit for the year financial year 203 (132) - - - 71 from continuing operations Profit for the year - 132 - - - 132 from discontinued operations ------------------------------------------------------------------ 203 - - - - 203 Profit for the year Dividends (41) - - - 28 (13) Preference dividends Premium paid on Premium paid on buy-back of buy-back of preference shares (6) - - - - (6) preference shares ------------------------------------------------------------------ Profit for the year attributable to Transfer to reserves 156 - - - 28 184 equity shareholders ================================================================== JVs' and Ordinary UK GAAP as associates' dividend UK GAAP previously Discontinued tax and Exceptional to in IFRS UK GAAP reported operations interest items reserves format UK GAAP in IFRS format pence pence pence pence pence pence Basic earnings per Basic earnings per ordinary share ordinary share - continuing - continuing operations - 12.4 - - - 12.4 operations - discontinued - discontinued operations - 31.4 - - - 31.4 operations ------------------------------------------------------------------ 43.8 - - - - 43.8 ================================================================== Restatement of Group income statement For the year ended 31 December 2004 UK GAAP Impact of in Goodwill Retirement IFRIC 4 on IFRS Goodwill in Discontinued benefit Share-based PFI/PPP format amortisation reserves operations obligations payments concessions IFRS Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue including share +-------------------------------------------------------------------------------------+ of joint ventures and | | associates |4,120 - - - - - 119 4,239| Share of revenue of | | joint ventures and | | associates |(672) - - - - - (77) (749)| +-------------------------------------------------------------------------------------+ Group revenue 3,448 - - - - - 42 3,490 ======================================================================================= Group operating profit 64 15 1 - (4) - (20) 56 +-------------------------------------------------------------------------------------+ - before exceptional | | items | 57 33 - - (12) - (20) 58| - exceptional items | 7 (18) 1 - 8 - - (2)| +-------------------------------------------------------------------------------------+ Share of results of joint ventures and associates 30 2 - - - - 4 36 --------------------------------------------------------------------------------------- Profit from operations 94 17 1 - (4) - (16) 92 Investment income 23 - - - - - 33 56 Finance costs (23) - - - - - (5) (28) --------------------------------------------------------------------------------------- Profit before taxation 94 17 1 - (4) - 12 120 +-------------------------------------------------------------------------------------+ Profit before goodwill | | amortisation and | | impairment, exceptional | | items and taxation | 122 - - - (12) - 12 122| Goodwill amortisation | | and impairment | (35) 17 - - - - - (18)*| Exceptional items* | 7 - 1 - 8 - - 16*| +-------------------------------------------------------------------------------------+ Taxation (23) - - - - (3) (2) (28) --------------------------------------------------------------------------------------- Profit for the year from continuing operations 71 17 1 - (4) (3) 10 92 Profit for the year from discontinued operations 132 - 37 (1) - - - 168 --------------------------------------------------------------------------------------- Profit for the year 203 17 38 (1) (4) (3) 10 260 Preference dividends (13) - - - - - - (13) Premium paid on buy-back of preference shares (6) - - - - - - (6) --------------------------------------------------------------------------------------- Profit for the year attributable to equity shareholders 184 17 38 (1) (4) (3) 10 241 ======================================================================================= UK GAAP Impact of in Goodwill Retirement IFRIC 4 on IFRS Goodwill in Discontinued benefit Share-based PFI/PPP format amortisation reserves operations obligations payments concessions IFRS pence pence pence pence pence pence pence pence Basic earnings per ordinary share - continuing operations 12.4 3.9 0.3 - (0.7) (0.9) 2.3 17.3 - discontinued operations 31.4 - 8.8 (0.1) - - - 40.1 --------------------------------------------------------------------------------------- 43.8 3.9 9.1 (0.1) (0.7) (0.9) 2.3 57.4 ======================================================================================= Reformat of Group balance sheet At 31 December 2004 UK GAAP UK GAAP as previously Contract UK GAAP in reported Taxation Debtors balances Other IFRS format UK GAAP in IFRS format Â£m Â£m Â£m Â£m Â£m Â£m Fixed assets Non-current assets Intangible assets - goodwill 265 - - - - 265 Goodwill Tangible assets Property, plant and equipment - PFI/PPP constructed - PFI/PPP constructed assets 288 - - - - 288 assets - other 149 - - - - 149 - other Investments in joint Investments in joint ventures 100 - - - 81 181 ventures and associates Investments in associates 81 - - - (81) - Investments 42 - - - - 42 Investments - 20 - - - 20 Deferred tax assets - - 79 (4) - 75 Trade and other receivables ---------------------------------------------------------- 925 20 79 (4) - 1,020 ---------------------------------------------------------- Current assets Current assets Stocks 102 - - (52) - 50 Inventories Due from customers for - - - 218 - 218 contract work Debtors - due within one year 738 (18) - (156) - 564 Trade and other receivables - due after one year 79 - (79) - - - Cash and deposits Cash and cash equivalents - PFI/PPP subsidiaries 30 - - - - 30 - PFI/PPP subsidiaries - other 388 - - - - 388 - other ---------------------------------------------------------- 1,337 (18) (79) 10 - 1,250 ---------------------------------------------------------- ---------------------------------------------------------- 2,262 2 - 6 - 2,270 Total assets ---------------------------------------------------------- Creditors: amounts falling due within one year Current liabilities Other creditors (1,209) 38 - 209 - (962) Trade and other payables Due to customers for - - - (264) - (264) contract work - (38) - - - (38) Current tax liabilities Borrowings Borrowings - PFI/PPP non-recourse - PFI/PPP non-recourse term loans (13) - - - - (13) term loans - other (15) - - - - (15) - other ---------------------------------------------------------- (1,237) - - (55) - (1,292) ---------------------------------------------------------- Creditors: amounts falling due after more than one year Non-current liabilities Borrowings Borrowings - PFI/PPP non-recourse - PFI/PPP non-recourse term loans (261) - - - - (261) term loans - other (62) - - - - (62) - other Other creditors (110) - - 26 - (84) Trade and other payables - (2) - - - (2) Deferred tax liabilities Provisions for liabilities and charges (179) - - 23 - (156) Provisions ---------------------------------------------------------- (612) (2) - 49 - (565) ---------------------------------------------------------- ---------------------------------------------------------- (1,849) (2) - (6) - (1,857) Total liabilities ---------------------------------------------------------- ---------------------------------------------------------- 413 - - - - 413 Net assets ========================================================== Capital and reserves Capital and reserves Called-up share capital 213 - - - - 213 Called-up share capital Share premium account 150 - - - - 150 Share premium account Special reserve 181 - - - - 181 Special reserve Share of joint ventures' Revaluation reserves 70 - - - (2) 68 and associates' reserves Other reserves 4 - - - 2 6 Other reserves Profit and loss account (205) - - - - (205) Accumulated losses ---------------------------------------------------------- Shareholders' funds 413 - - - - 413 Shareholders' funds ========================================================== Restatement of Group balance sheet At 31 December 2004 Impact of UK GAAP Retirement IFRIC 4 on in IFRS benefit Share-based Proposed Deferred PFI/PPP format Goodwill obligations payments dividends taxation concessions IFRS Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Goodwill 265 15 - - - - (1) 279 Property, plant and equipment - PFI/PPP constructed assets 288 - - - - - (288) - - other 149 - - - - - - 149 Investments in joint ventures and associates 181 2 (16) - - 2 20 189 Investments 42 - - - - - - 42 PFI/PPP financial assets - - - - - - 282 282 Deferred tax assets 20 - 67 5 - (6) 1 87 Trade and other receivables 75 - (26) - - - (8) 41 --------------------------------------------------------------------------------------- 1,020 17 25 5 - (4) 6 1,069 --------------------------------------------------------------------------------------- Current assets Inventories 50 - - - - - - 50 Due from customers for contract work 218 - - - - - - 218 Trade and other receivables 564 - (1) - - - - 563 Cash and cash equivalents - PFI/PPP subsidiaries 30 - - - - - - 30 - other 388 - - - - - - 388 --------------------------------------------------------------------------------------- 1,250 - (1) - - - - 1,249 --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Total assets 2,270 17 24 5 - (4) 6 2,318 --------------------------------------------------------------------------------------- Current liabilities Trade and other payables (962) - - - 16 - - (946) Due to customers for contract work (264) - - - - - - (264) Current tax liabilities (38) - - - - - - (38) Borrowings - PFI/PPP non-recourse term loans (13) - - - - - - (13) - other (15) - - - - - - (15) --------------------------------------------------------------------------------------- (1,292) - - - 16 - - (1,276) --------------------------------------------------------------------------------------- Non-current liabilities Borrowings - PFI/PPP non-recourse term loans (261) - - - - - - (261) - other (62) - - - - - - (62) Trade and other payables (84) - 3 - - - 23 (58) Deferred tax liabilities (2) - - - - - - (2) Retirement benefit obligations - - (254) - - - - (254) Provisions (156) - 53 - - - - (103) --------------------------------------------------------------------------------------- (565) - (198) - - - 23 (740) --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Total liabilities (1,857) - (198) - 16 - 23 (2,016) --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Net assets 413 17 (174) 5 16 (4) 29 302 ======================================================================================= Capital and reserves Called-up share capital 213 - - - - - - 213 Share premium account 150 - - - - - - 150 Special reserve 181 - - - - - - 181 Share of joint ventures' and associates' reserves 68 - (16) - - - 20 72 Other reserves 6 - - 4 - (1) - 9 Accumulated losses (205) 17 (158) 1 16 (3) 9 (323) --------------------------------------------------------------------------------------- Shareholders' funds 413 17 (174) 5 16 (4) 29 302 ======================================================================================= The financial information set out above (which was approved by the Board on 7 March 2006) has been compiled in accordance with IFRS, but does not contain sufficient information to comply with IFRS. That financial information does not constitute the Company's statutory accounts for the year ended 31 December 2005 for the purpose of Section 240 of the Companies Act 1985 which comply with IFRS, but is extracted from those accounts. The Company's statutory accounts for the year ended 31 December 2005 will be filed with the Registrar of Companies following the Annual General Meeting. 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. The Company's statutory accounts for the year ended 31 December 2004 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. Pro forma financial statements For the year ended 31 December 2005 based on unaudited figures As permitted by IFRS 1 'First-time Adoption of IFRS', the Group has elected to adopt IAS 32 and IAS 39 'Financial Instruments' prospectively from 1 January 2005, and comparative figures have not been restated. These standards have a significant impact on the Group and particularly affect the accounting for the Company's convertible redeemable preference shares, the hedging activities of the Group and those of the PFI/PPP concessions, and the assets and income of the PFI/PPP concessions. Pro forma IFRS financial statements, which include the impact of IAS 32 and IAS 39 as if the Group had adopted them for the year ended 31 December 2004, are included below with the IFRS financial statements for 2005. These pro forma statements assume the full adoption of IAS 32 and IAS 39, and the application of hedge accounting where management believes it is appropriate to assume the relevant accounting criteria regarding documentation and effectiveness could have been met. The changes which the adoption of IAS 39 and the IFRIC draft interpretations in respect of PFI/PPP concessions would have made on the restated IFRS profit for the year and net assets if these standards had been adopted for the year ended 31 December 2004 are summarised below. 2004 -------------------------- Profit Profit for before the Net taxation* year assets Â£m Â£m Â£m IFRS restated 122 260 302 Preference shares - dividend restated as a finance cost (13) (13) - - additional accrued interest (1) (1) - - premium on buy-back restated as a finance cost - (6) - - liability element and deferred tax - - (113) Derivatives - Group interest rate swaps (1) (1) (3) - Group PFI/PPP concessions - - (6) - joint venture and associate PFI/PPP concessions - - (35) PFI/PPP financial assets - Group PFI/PPP concessions - - 26 - joint venture and associate PFI/PPP concessions - - 49 Goodwill adjustment arising from concession share purchase - 7 7 -------------------------- Pro forma IFRS 107 246 227 ========================== * Before exceptional items Pro forma Group income statement For the year ended 31 December 2005 based on unaudited figures Pro forma IFRS including IAS 32 and IAS 39 -------------------------------- 2005 2004 --------------------------------- -------------------------------- Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total Â£m Â£m Â£m Â£m Â£m Â£m Revenue including share of +-------------------------------+ +------------------------------+ joint ventures and associates | 4,938 - 4,938 | | 4,239 - 4,239 | Share of revenue of joint | | | | ventures and associates | (1,101) - (1,101) | | (749) - (749) | +-------------------------------+ +------------------------------+ Group revenue 3,837 - 3,837 3,490 - 3,490 ================================= ================================ Group operating profit 72 (14) 58 58 5 63 Share of results of joint ventures and associates 43 30 73 36 - 36 --------------------------------- -------------------------------- Profit from operations 115 16 131 94 5 99 Investment income 56 - 56 56 - 56 Finance costs (37) (9) (46) (43) (6) (49) --------------------------------- -------------------------------- Profit before taxation 134 7 141 107 (1) 106 Taxation (32) (3) (35) (23) (5) (28) --------------------------------- -------------------------------- Profit for the year from continuing operations 102 4 106 84 (6) 78 Profit for the year from discontinued operations - - - 8 160 168 --------------------------------- -------------------------------- Profit for the year attributable to equity shareholders 102 4 106 92 154 246 ================================= ================================ 2005 2004 Basic earnings per pence pence ordinary share - continuing operations 24.9 18.6 - discontinued operations - 40.1 -------- -------- 24.9 58.7 Exceptional items (0.8) (36.6) -------- -------- Adjusted earnings per share 24.1 22.1 ======== ======== Pro forma Group balance sheet At 31 December 2005 based on unaudited figures Pro forma IFRS including IAS 32 and IAS 39 ------------------ 2005 2004 Â£m Â£m Non-current assets Goodwill 284 274 Property, plant and equipment 167 149 Investments in joint ventures and associates 375 204 Investments 38 42 PFI/PPP financial assets 14 340 Deferred tax assets 83 64 Derivative financial instruments 2 - Trade and other receivables 35 41 ------------------------------- 998 1,114 ------------------------------- Current assets Inventories 61 50 Due from customers for contract work 217 218 Derivative financial instruments - 1 Trade and other receivables 619 562 Cash and cash equivalents - PFI/PPP subsidiaries - 30 - other 345 388 ------------------------------- 1,242 1,249 ------------------------------- ------------------------------- Total assets 2,240 2,363 ------------------------------- Current liabilities Trade and other payables (1,038) (946) Due to customers for contract work (274) (264) Derivative financial instruments - PFI/PPP subsidiaries - (13) - other (4) (4) Current tax liabilities (30) (38) Borrowings - PFI/PPP non-recourse term loans - (13) - other (30) (15) ------------------------------- (1,376) (1,293) ------------------------------- Non-current liabilities Borrowings - PFI/PPP non-recourse term loans (14) (261) - other - (62) Liability component of preference shares (98) (103) Derivative financial instruments (2) - Trade and other payables (66) (58) Deferred tax liabilities (3) (2) Retirement benefit obligations (280) (254) Provisions (109) (103) ------------------------------- (572) (843) ------------------------------- ------------------------------- Total liabilities (1,948) (2,136) ------------------------------- ------------------------------- Net assets 292 227 =============================== Capital and reserves Called-up share capital 214 212 Share premium account 26 15 Equity component of preference shares 18 19 Special reserve 175 181 Share of joint ventures' and associates' reserves 182 86 Other reserves 5 40 Accumulated losses (328) (326) ------------------------------- Equity 292 227 =============================== Pro forma segmental analysis For the year ended 31 December 2005 based on unaudited figures Performance by activity: Building, Civil and building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total Â£m Â£m Â£m Â£m Â£m Â£m Group revenue 1,674 1,366 763 34 - 3,837 ================================================================== Group operating profit 32 39 32 (10) (21) 72 Share of results of joint ventures and associates 3 10 - 30 - 43 ------------------------------------------------------------------ Profit from operations before exceptional items 35 49 32 20 (21) 115 Exceptional items (8) - (12) 36 - 16 ------------------------------------------------------------------ Profit from operations 27 49 20 56 (21) 131 =========================================================== Investment income 56 Finance costs (46) ------- Profit before taxation 141 ======= Performance by geographic origin: North Europe America Other Total Â£m Â£m Â£m Â£m Group revenue 3,332 483 22 3,837 ======================================== Profit from operations before exceptional items 134 (20) 1 115 Exceptional items 28 (12) - 16 ---------------------------------------- Profit from operations 162 (32) 1 131 ======================================== For the year ended 31 December 2004 based on unaudited figures Performance by activity: Building, Civil and building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total Â£m Â£m Â£m Â£m Â£m Â£m Group revenue 1,468 1,144 800 78 - 3,490 ================================================================== Group operating profit 32 7 45 (9) (17) 58 Share of results of joint ventures and associates 2 9 (1) 26 - 36 ------------------------------------------------------------------ Profit from operations before exceptional items 34 16 44 17 (17) 94 Exceptional items - 1 (3) 7 - 5 ------------------------------------------------------------------ Profit from operations 34 17 41 24 (17) 99 =========================================================== Investment income 56 Finance costs (49) ------- Profit before taxation 106 ======= Performance by geographic origin: North Europe America Other Total Â£m Â£m Â£m Â£m Group revenue 3,107 377 6 3,490 ======================================== Profit from operations before exceptional items 137 (45) 2 94 Exceptional items 22 (18) 1 5 ---------------------------------------- Profit from operations 159 (63) 3 99 ======================================== This information is provided by RNS The company news service from the London Stock Exchange

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