Interim Results

RNS Number : 2029B
Balfour Beatty PLC
13 August 2008
 



13 August 2008



BALFOUR BEATTY PLC

RESULTS FOR THE HALF-YEAR ENDED 28 JUNE 2008


Financial Summary

2008

first half

2007

first half

Revenue including joint ventures and associates

£4,332m

£3,375m

Pre-tax profit from continuing operations

- before exceptional items and amortisation

- after exceptional items and amortisation


£95m

£144m


£76m

£35m

Profit attributable to equity shareholders

£106m

£60m

Earnings per share

- adjusted*

- basic


16.2p

24.1p


14.2p

14.0p

Interim dividend per share

5.1p

4.6p

Financing

- net cash before PPP subsidiaries (non-recourse)

- net borrowings of PPP subsidiaries (non-recourse)


£333m

£(91)m


£479m

£(27)m

†    including share of revenue of joint ventures and associates 

*    before exceptional items and amortisation of intangible assets, and, in the case of earnings per share in 2007, including the pre-exceptional results of discontinued operations 


Highlights


-    Revenue† up 28% at £4,332 million

-    Pre-tax profit* up 25% at £95 million

-    Adjusted earnings per share* up 14% to 16.2p

-    Interim dividend increased 11% to 5.1p

-    Order book up 14% at £12.1 billion

-    Net cash of £333 million, after £272 million acquisition expenditure and £183 million share

      placing

-    Acquisition of GMH Military Housing establishes strong US PPP presence

-    Preferred bidder position achieved for M25 widening PPP


'The first half of 2008 was a further period of substantial growth for the Group both organically and through acquisitions. Financial performance improved significantly, our order book continued to increase and our cash position remains strong.


We anticipate that order intake and trading performance will remain strong throughout the year and that we will make further good progress in the second half of the year.'


Steve Marshall, Chairman                                                                                             Ian Tyler, Chief Executive



13 August 2008



BALFOUR BEATTY PLC

RESULTS FOR THE HALF-YEAR ENDED 28 JUNE 2008

INTERIM MANAGEMENT REPORT


OVERVIEW


The first half of 2008 was a further period of substantial growth for the Group both organically and through acquisitions. Financial performance improved significantly, our order book continued to increase and our cash position remains strong.


We continued to enhance our earnings potential through the acquisition of GMH Military Housing in the US (now Balfour Beatty Communities);  Barnhart, a leading Californian construction management company; Dean & Dyball, a leading UK regional contractor;  Blackpool International Airport; and, in July 2008, the German rail engineer, Schreck-Mieves.


We are committed to the continuing delivery of the reliable, responsible growth that our shareholders have enjoyed over recent years.  We have a clear strategy for the development of the business in both the medium and long term and a proven track record of delivery.


FIRST HALF-YEAR RESULTS


Balfour Beatty's pre-tax profit from continuing operations* for the six months to 28 June 2008, were up 25% at £95 million (2007: £76 million). Adjusted earnings per share* were up by 14% to 16.2p (2007: 14.2p). This reflects good performance across the Group's business mix with particularly strong progress in the building and engineering sectors.


Operating cash performance was satisfactory.  In May, the Company raised £183 million from an equity placing which helped fund £272 million expenditure on acquisitions in the first half.  Period end net cash stood at £333 million (2007: £479 million), before taking account of the consolidation of £91 million (2007: £27 million) of non-recourse net debt held in PPP subsidiaries. 


The Board has declared an interim dividend up 11% at 5.1p per ordinary share (2007: 4.6p). There was an exceptional non-cash credit of £60 million, representing a reduction in past service liability arising from announced measures to limit increases in pensionable pay under the Balfour Beatty defined benefit pension scheme. There were also £3 million of exceptional acquisition integration, reorganisation and other costs.


Profit for the period attributable to equity shareholders was £106 million (2007: £60 million, including £18 million loss from discontinued operations) and basic earnings per share were 24.1p (2007: 14.0p).


Revenue, including the Group's share of joint ventures and associates, at £4,332 million (2007: £3,375 million) was up by 28%.


The period end order book stood at £12.1 billion, up by 14% since 30 June 2007, and by 6% since the year end.  


Information about the Group's related party transactions and principal risks and uncertainties is included in Notes 18 and 20 respectively of the condensed Group financial statements.


* before exceptional items and amortisation of intangible assets and, in the case of earnings per share in 2007 including the pre-exceptional results of discontinued operations


THE FIRST HALF IN BRIEF


Strategy and Acquisitions


The Group has made excellent progress in the first half-year in developing its position in the four areas for medium-term growth identified within its strategic plan. Dean & Dyball is an important addition to Balfour Beatty's UK regional contracting network. The Group's professional services businesses in both the UK and the US have continued to grow.  Balfour Beatty's infrastructure investment portfolio has been further broadened in PPP outside the UK and in the airports sector. The Group's overall US presence has been further augmented and its size and composition continue to move closer to its successful UK business model.


During the first half of the year, the Group made five acquisitions at a net cash cost of £272 million.


On 15 May 2008, Balfour Beatty launched, and successfully completed, an underwritten placing of ordinary shares raising £183 million after costs. Balfour Beatty's very substantial acquisition programme since May 2000 had been funded from operating cash flow and the proceeds of disposals. The placing was undertaken in order to enable the Group to take advantage of continuing attractive acquisition opportunities to deliver incremental growth while, at the same time, retaining the strength and liquidity of its balance sheet. This is desirable both to secure major new customers and business, and to satisfy increasing surety bonding requirements resulting from the Group's growth in the US.


Order Book


During the first half of the year, the Group's order book grew by £0.7 billion to £12.1 billion. In addition to the consolidation of the order books of Dean & Dyball and Barnhart, it was a successful period for the Group in securing major project awards.


These included the Midfield Pier Project for BAA at Heathrow Airport; the new Tamar Government Complex in Hong Kong; an extension of the contract to provide facilities management for BT; the Aquatics Centre for the London Olympics; the rail systems work for the new Gotthard Tunnel in Switzerland; and major public and private sector projects in Dubai and the US, including a $330 million Toll Road in Texas.


Since 28 June 2008, Balfour Beatty has been awarded a £300 million rail contract in Malaysia and has also reached financial close on the Islington schools BSF project, the Institute of Technical Education in Singapore and two large military housing projects in the US, all of which generate substantial construction orders for the Group.


The Board


At the AGM on 15 May 2008, Steve Marshall succeeded Sir David John as Chairman of Balfour Beatty plc after the latter's five-year tenure.


In July, it was announced that Hubertus Krossa will join the Board as a non-executive Director in September 2008 and that Hans-Christoph von Rohr will retire from the Board at that time.


BUSINESS SECTORS


Building, Building Management and Services


Profit from operations in the building sector, before exceptional items and amortisation, rose by 30% to £39 million (2007: £30 million) during the first half of the year. This reflected a full six-month contribution from Balfour Beatty Construction US, which was acquired at the end of March 2007, the impact of the acquisitions of Cowlin and Covion in the second half of 2007 and very satisfactory organic growth in Balfour Beatty's established business, held back somewhat by a write-down on a building services project pending resolution of income recovery negotiations, arising from design issues.


Major projects were secured in the UK from BAA, BT and in the education sector;  and in the US from the Navy, Army and Air Force.



In June, Balfour Beatty acquired Douglas E Barnhart Inc, the largest construction management and building company in San Diego and the sixth largest education sector builder in the US, for a cash consideration of $121 million. Barnhart, which provides a strong base in the fast-growing markets for education and other building sectors in California, has become part of the Group's US professional services business, Heery International.


The sector order book increased by 5% to £6.4 billion during the period. We anticipate continuing strong progress in the second half of the year.


Civil and Specialist Engineering and Services


Profit from continuing operations in the engineering sector, before exceptional items and amortisation, rose by 69% to £44 million (2007: £26 million). This represents a very strong performance across the board with particularly good progress being made in Dubai, where half-year revenues were up almost 40% on last year and full-year revenues of the joint venture business will exceed £0.7 billion. Progress was also particularly marked in Balfour Beatty Utility Solutions, which continues to enjoy the benefits of its major re-organisation in 2007.


Major projects were secured in the UK for the Olympic Development Authority, the Scottish Office and Network Rail; in the US for Texas Department of Transportation and the water industry in California; in Dubai for Novotel and in the healthcare sector; and in South-East Asia for the Hong Kong Government.


The Group's strategy to build further on its already strong UK regional contracting base progressed in March through the acquisition for £45 million cash of Dean & Dyball, a leading UK regional civil engineering and building contractor. This has given the Group a substantially stronger position in the southern half of England and Wales.


The order book in the engineering sector has grown by 7% to £4.7 billion since the year end, with several major projects scheduled to be awarded in the near future. We expect to make good progress in the second half of the year.


Rail Engineering and Services


Profit from operations in the rail sector, before exceptional items and amortisation, fell by £3 million to £10 million (2007: £13 million) in the first half.  Improvement in performance in the US was more than offset by the phasing of profit recognition on major contracts in the UK.  In the UK, Thameslink, Crossrail and other major rail project expenditure in the coming years will create substantial opportunities for Balfour Beatty, as will the investment plans of a number of other rail network owners around the world.  


Major projects were secured for the rail systems for the new Gotthard Tunnel and for electrification in Malaysia.


In July, the Group completed the acquisition of the German rail trackwork engineering group, Schreck-Mieves, for €36 million. This further strengthens Balfour Beatty's position in Germany, through enhancing its ability to deliver major, multi-disciplinary projects in that market.  


The sector order book has grown by 11% to £1.0 billion during the period. We expect performance to be steady for the rest of the year.


Investments


Profit from continuing operations in the investments sector, before exceptional items and amortisation, fell by £3 million to £14 million (2007: £17 million) during the first half of the year.  Underlying concession performance was satisfactory, although profitability was impacted by further increases in bidding costs as Balfour Beatty Capital extends its activities beyond UK PPP markets.  There was a first contribution from Balfour Beatty Communities (formerly GMH Military Housing).


Profits in Barking Power were somewhat lower than last year as a result of the benefit of some one-off items in last year's performance.




On 30 April, the Group acquired Balfour Beatty Communities for $350 million cash. Balfour Beatty Communities is a leader in the US market for major military housing PPP concessions. This acquisition secured a reliable, long-term profit and cash flow from a high-quality portfolio of PPP concessions and added an experienced and successful management team to develop further Balfour Beatty's presence in the growing US PPP market. Balfour Beatty Communities is responsible for the development, renovation, financing, operations and management of military accommodation projects for the US Army, Navy and Air Force and has secured rights to 16 concessions covering 43 military bases across the US.


The first phase of the Islington Schools BSF concession reached financial close in July, followed in August by the Institute of Technical Education in Singapore, the Group's first PPP project outside the UK.


Balfour Beatty Capital has three further concessions at preferred bidder stage, including the £1.5 billion M25 widening and maintenance scheme which is expected to reach financial close before the year end.

   

Balfour Beatty’s strategy to extend its infrastructure investment business beyond the UK PPP market, which began with last year’s acquisition of Exeter International Airport, was continued in May with the acquisition of Blackpool International Airport for an initial cash consideration of £14 million. As is the case with Exeter, Blackpool is a well-located regional airport with significant growth potential.


We expect to make progress in the investments sector for the year as a whole with a better second-half performance than last year, including a full six-month contribution from Balfour Beatty Communities.


OUTLOOK


We anticipate that order intake and trading performance will remain strong throughout the year and that we will make further good progress in the second half of the year.





Enquiries to:

Ian Tyler, Chief Executive


Duncan Magrath, Finance Director


Tim Sharp, Director of Corporate Communications




Tel: 020 7216 6800




www.balfourbeatty.com




* * * * * * * *



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.




* * * * * * * *



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.



* * * * * * * *



High resolution photographs are available to the media free of charge at www.newscast.co.uk (Tel . +44 (0)20 8886 5895).  


A presentation to analysts and investors will be held at J P Morgan Cazenove,    20 Moorgate, London, EC2R 6DA 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. 



* * * * * * * *



A half-year update will be posted on 19 August 2008 to holders of ordinary shares and preference shares.  The financial report for the half-year ended 28 June 2008 can be viewed on the Company's website at www.balfourbeatty.com


The interim 2008 dividend of 5.1p net per ordinary share will be paid on 10 December 2008 to holders of these shares on the register on 24 October 2008 by direct credit or, where no mandate has been given, by cheque posted on 9 December 2008 payable on 10 December 2008. The ordinary shares will be quoted ex-dividend on 22 October 2008.


A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending    31 December 2008 on 1 January 2009 to holders of these shares on the register on    21 November 2008 by direct credit or, where no mandate has been given, by cheque posted on 31 December 2008 payable on 1 January 2009. The preference shares will be quoted ex-dividend on 19 November 2008.



* * * * * * *


Condensed Group income statement










For the half-year ended 28 June 2008 based on unaudited figures









2008


2007


2007



first half


first half


year



Before

Exceptional



Before

Exceptional



Before

Exceptional




exceptional

items*



exceptional

items*



exceptional

items*




items*

(Note 6)

Total


items*

(Note 6)

Total


items*

(Note 6)

Total

Notes

£m

£m

£m


£m

£m

£m


£m

£m

£m

Continuing operations













Revenue including share of joint ventures and associates


4,332

-

4,332


3,375

-

3,375


7,488

-

7,488

Share of revenue of joint ventures and associates

3

(544)

-

(544)


(512)

-

(512)


(1,022)

-

(1,022)














Group revenue


3,788

-

3,788


2,863

-

2,863


6,466

-

6,466

Cost of sales


(3,520)

-

(3,520)


(2,655)

(35)

(2,690)


(5,959)

(33)

(5,992)

Gross profit


268

-

268


208

(35)

173


507

(33)

474

Net operating expenses













- amortisation of intangible assets


-

(8)

(8)


-

(3)

(3)


-

(9)

(9)

- other


(213)

57

(156)


(169)

(2)

(171)


(381)

(6)

(387)

Group operating profit/(loss)


55

49

104


39

(40)

(1)


126

(48)

78

Share of results of joint ventures and associates

3

36

-

36


34

-

34


65

6

71

Profit from operations


91

49

140


73

(40)

33


191

(42)

149

Investment income

4

16

-

16


13

-

13


29

-

29

Finance costs

5

(12)

-

(12)


(10)

(1)

(11)


(19)

(2)

(21)

Profit before taxation


95

49

144


76

(41)

35


201

(44)

157

Taxation

7

(24)

(14)

(38)


(17)

60

43


(53)

65

12

Profit for the period from continuing operations


71

35

106


59

19

78


148

21

169

Loss for the period from discontinued operations

8

-

-

-


2

(20)

(18)


2

(20)

(18)

Profit for the period attributable to equity shareholders


71

35

106


61

(1)

60


150

1

151

* and amortisation of intangible assets

















2008




2007




2007




first half



first half



year





pence




pence




pence

Basic earnings per ordinary share













- continuing operations

9



24.1




18.2




39.3

- discontinued operations

9



-




(4.2)




(4.2)



 

 

24.1


 

 

14.0


 

 

35.1

Diluted earnings per ordinary share













- continuing operations

9



23.9




18.1




39.0

- discontinued operations

9



-




(4.2)




(4.2)



 

 

23.9


 

 

13.9


 

 

34.8

Dividends per ordinary share proposed for the period

10

 

 

5.1


 

 

4.6


 

 

11.5














Condensed Group statement of recognised income and expense







For the half-year ended 28 June 2008 based on unaudited figures











2008




2007




2007




first half



first half




 year




   Notes  

£m




£m




£m

Actuarial (losses)/gains on retirement benefit obligations 

(105)




126




2

PPP cash flow hedges

- fair value revaluations


21




39




(7)


- reclassified and reported in net profit

-




7




7

PPP financial assets

- fair value revaluations

19




(36)




(26)


- reclassified and reported in net profit

-




(3)




(3)

Changes in fair value of net investment hedges

(3)




5




(4)

Currency translation differences 

8




(7)




7

Tax on items taken directly to equity 


 

 

21




(43)




5

Net (expense)/income recognised directly in equity

(39)




88




(19)

Profit for the period from continuing operations

106




78




169

Loss for the period from discontinued operations

-




(18)




(18)

Total recognised income for the period attributable to equity shareholders     

14 

67


 

 

148


 

 

132


Condensed Group balance sheet








At 28 June 2008 based on unaudited figures













2008


2007


2007






first half


first half


year



Notes

£m


£m


£m

Non-current assets









Intangible assets

- goodwill


 


819


603


694


- other




170


44


59

Property, plant and equipment 



257


199


215

Investments in joint ventures and associates


3

433


356


381

Investments





57


46


57

PPP financial assets





99


28


62

Deferred tax assets





135


92


125

Derivative financial instruments



6


8


3

Trade and other receivables




61


42


77







2,037

 

1,418

 

1,673

Current assets










Inventories





93


92


72

Due from customers for contract work



442


  349 


  338 

Derivative financial instruments



6


3


1

Trade and other receivables



1,086


828


881

Current tax assets



-


10


-

Cash and cash equivalents  

- PPP subsidiaries



1


-


3


- other



351


481


391







1,979

 

1,763

 

1,686












Total assets





4,016


3,181


3,359








 


 


Current liabilities










Trade and other payables 



(2,106)


(1,798)


(1,718)

Due to customers for contract work



(418)


  (365)


  (415)

Derivative financial instruments





(1)


-


(6)

Current tax liabilities





(12)


(8)


(7)

Borrowings






   




- PPP non-recourse term loans



(3)


-


(3)  


- other 



(14)


(1)


(16)







(2,554)

 

  (2,172)

 

  (2,165)

Non-current liabilities









Trade and other payables



(121)


(97)


(135)

Derivative financial instruments



(1)


-


(6)

Borrowings










- PPP non-recourse term loans



(89)


(27)  


  (61)


- other



(4)


  (1)


  (1)

Deferred tax liabilities




(7)


  (5)


(7)

Liability component of preference shares



(87)


(88)


(87)

Retirement benefit obligations


12

(309)


  (160)


  (286)

Provisions





(144)


  (118)


  (128)







(762)

 

(496)

 

(711)












Total liabilities





(3,316)

 

(2,668)

 

(2,876)












Net assets





700

 

513

 

483












Equity









Called-up share capital



14

238


  216 


  216 

Share premium account



14

52


  46 


  52 

Equity component of preference shares




14

16


16


16

Special reserve




14

142


  167 


  164 

Share of joint ventures' and associates' reserves




14

193


  167 


  178 

Other reserves




14

20


  3 


  9 

Retained profits/(accumulated losses)




14

38


(102)


(152)

Equity attributable to equity holders of the parent





699

 

513

 

483

Minority interests






1


-


-

Total equity






700


513


483













Condensed Group cash flow statement








For the half-year ended 28 June 2008 based on unaudited figures


















2008


2007


2007



first half


first half


year


Notes


£m


£m


£m

Cash flows from operating activities








Cash generated from operations

16.1


73


181


281

Income taxes paid



(8)


(10)


  (24)

Net cash from operating activities



65

 

171

 

257









Cash flows from investing activities








Dividends received from joint ventures and associates



43


76


  83 

Interest received



13


13


26

Acquisition of businesses, net of cash and cash equivalents acquired



(272)


(95)


  (198)

Purchase of property, plant and equipment



(49)


(39)


(80)

Purchase of investments



-


-


(11)

Investment in and loans made to joint ventures and associates



-


(33)


  (50)

Investment in PPP financial assets



(35)


(7)


(39)

Disposal of businesses, net of cash and cash equivalents disposed



-


92


  92

Disposal of property, plant and equipment



10


7


  9 

Net cash (used in)/from investing activities



(290)

 

14

 

(168)











Cash flows from financing activities








Proceeds from issue of ordinary shares



183


2


  5 

Purchase of ordinary shares



(9)


(4)


  (4)

Proceeds from new loans



28


6


  42

Repayment of loans



(4)


(1)


  (1)

Buy-back of preference shares



-


(3)


  (8)

Ordinary dividends paid



-


-


  (42)

Interest paid



(5)


(7)


(7)

Preference dividends paid



(5)


(6)


  (11)

Net cash from/(used in) financing activities



188

 

(13)

 

(26)





 

 

 

 

Net (decrease)/increase in cash and cash equivalents



(37)


172


63









Effects of exchange rate changes



(1)


1


  8









Cash and cash equivalents at beginning of period



379


  308 


  308 









Cash and cash equivalents at end of period

16.2


341

 

481

 

379


























Notes

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

1

Basis of presentation

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

The condensed Group financial statements for the half-year ended 28 June 2008 included in this report have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union. The condensed Group financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which were prepared in accordance with IFRS as adopted by the European Union.  

 


 

 

 

 

 

 

 

 


The condensed Group financial statements have been reviewed, not audited, and were approved for issue by the Board on 12 August 2008. The full year figures for 2007 included in this report do not constitute statutory accounts for the purposes of Section 240 of the Companies Act 1985. A copy of the Company's statutory accounts for the year ended 31 December 2007 has been delivered to the Registrar of Companies. The independent auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain any statement under Section 237(2) or (3) of the Companies Act 1985.












The condensed Group financial statements have been prepared on the basis of the accounting policies set out in the Directors' Report and Accounts 2007. The condensed Group income statement and condensed Group statement of recognised income and expense and related notes for the half-year ended 30 June 2007 have been re-presented following the classification of Metronet as a discontinued operation.












IAS 1 Presentation of Financial Statements (Revised 2007), IAS 23 Borrowing Costs (Revised 2007), IFRS 8 Operating Segments, IFRIC 11 IFRS 2 Group and Treasury Share Transactions, IFRIC 12 Service Concession Arrangements, IFRIC 13 Customer Loyalty Programmes and IFRIC 14 IAS 19 The Limit of the Defined Benefit Asset, Minimum Funding Requirements and their Interaction were either in issue but not yet effective or not yet adopted by the European Union at 28 June 2008.  

    

IFRIC 15 Agreements for the Construction of Real Estate and IFRIC 16 Hedges of a Net Investment in a Foreign Operation were issued on 3 July 2008 and therefore in issue at the date of authorisation of these condensed Group financial statements but not yet effective.  











2

Segment analysis - continuing operations

 

 

 

 

 



 

 

 

 

 

 

 

 


For the half-year ended 28 June 2008

 

 

 

 

 

 

 

 


Performance by activity:

 

 

Building, building management and services

Civil and specialist engineering and services

Rail engineering and services

Investments

Corporate costs

Total



 

 

£m

£m

£m

£m

£m

£m



 

 

 

 

 

 

 

 


Revenue including share of joint ventures and associates

2,151

1,563

398

220

-

4,332


Share of revenue of joint ventures and associates

(60)

(298)

(18)

(168)

-

(544)


Group revenue

 

 

2,091

1,265

380

52

-

3,788



 

 








Group operating profit

 

 

38

33

10

(10)

(16)

55


Share of results of joint ventures and associates

1

11

-

24

-

36


Profit from operations before exceptional items and amortisation

39

44

10

14

(16)

91


Exceptional items

-

(1)

-

(1)

59

57


Amortisation of intangible assets

(5)

(2)

(1)

-

-

(8)


Profit from operations

34

41

9

13

43

140












Investment income








16


Finance costs








(12)


Profit before taxation

 

 






144



 

 

 

 

 

 

 



Performance by geographic origin:

 

 

 

 

Europe

North America

Other*

Total



 

 

 

 

£m

£m

£m

£m



 

 

 

 

 

 

 



Group revenue

 

 

 

 

2,830

936

22

3,788


 

 

 

 

 






Profit from operations before exceptional items and amortisation

61

17

13

91


Exceptional items



59

(2)

-

57


Amortisation of intangible assets



 

 

(5)

(3)

-

(8)


Profit from operations

 

 

115

12

13

140












For the half-year ended 30 June 2007

 

 

 

 

 

 

 

 


Performance by activity:

 

 

Building, building management and services

Civil and specialist engineering and services

Rail engineering and services

Investments

Corporate costs

Total



 

 

£m

£m

£m

£m

£m

£m



 

 

 

 

 

 

 

 


Revenue including share of joint ventures and associates

1,563

1,286

344

181

1

3,375


Share of revenue of joint ventures and associates

(54)

(282)

(3)

(173)

-

(512)


Group revenue

 

 

1,509

1,004

341

8

1

2,863



 

 

 

 

 

 

 

 


Group operating profit

 

 

30

20

12

(10)

(13)

39


Share of results of joint ventures and associates

-

6

1

27

- 

34


Profit from operations before exceptional items and amortisation

30

26

13

17

(13)

73


Exceptional items

(25)

(11)

(1)

-

-

(37)


Amortisation of intangible assets

(2)

(1)

-

-

- 

(3)


Profit from operations

3

14

12

17

(13)

33





 

 

 

 

 

 


Investment income



 

 

 

 

 

13 


Finance costs



 

 

 

 

 

(11)


Profit before taxation

 

 

 

 

 

 

 

35 






















Performance by geographic origin:

 

 

 

 

Europe

North America

Other*

Total



 

 

 

 

£m

£m

£m

£m



 

 

 

 

 

 

 



Group revenue

 

 

 

 

2,290

559

14

2,863


 

 

 

 

 

 

 

 

 


Profit from operations before exceptional items and amortisation 

65 

-

8

73


Exceptional items



(35)

(2)

-

(37)


Amortisation of intangible assets



 

 

(1)

(2)

-

(3)


Profit from operations

 

 

29

(4)

8

33












For the year ended 31 December 2007

 

 

 

 

 

 


Performance by activity:

 

 

Building, building management and services

Civil and specialist engineering and services

Rail engineering and services

Investments

Corporate costs

Total



 

 

£m

£m

£m

£m

£m

£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

 

 

75 

63

43

(25)

(30)

126


Share of results of joint ventures and associates

-

23

1

41

-

65


Profit from operations before exceptional items and amortisation

75

86

44

16

(30)

191


Exceptional items

(26)

(9)

2

-

-

(33)


Amortisation of intangible assets

(6)

(3)

-

-

- 

(9)


Profit from operations

43

74

46

16

(30)

149










Investment income



 

 

 

 

 

29 


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

145 

18

28

191


Exceptional items



(27)

(6)

-

(33)


Amortisation of intangible assets



 

 

(4)

(5)

-

(9)


Profit from operations



114

7

28

149










* Other principally comprises the Group's operations in Hong Kong and Dubai.











3

Share of results and net assets of joint ventures and associates











2008

2007

2007






first half

first half

year






£m

£m

£m


Income statement - continuing operations








Share of revenue of joint ventures and associates




544

512

1,022










Operating profit before exceptional items




28

24

47


Investment income




63

57

118


Finance costs




(43)

(39)

(83)


Taxation




(12)

(8)

(17)


Share of results of joint ventures and associates before exceptional items


36

34

65










Balance sheet








Property, plant and equipment




134

157

132


PPP financial assets




1,472

1,277

1,375


Net cash/(borrowings)

- PPP non-recourse




(1,352)

(1,278)

(1,357)



- other




70

73

69


Other net assets




109

127

162


Share of net assets of joint ventures and associates




433

356

381









4

Investment income












2008

2007

2007






first half

first half

year






£m

£m

£m


PPP interest on financial assets

 



3

1

2


PPP subordinated debt interest receivable




6

4

11


Other interest receivable and similar income




7

8

16






16

13

29









5

Finance costs












2008

2007

2007







first half

first half

year







£m

£m

£m


PPP non-recourse

- other interest payable




3

1 

2 


Other interest payable

- bank loans and overdrafts




2

1 

3 



- other




1

2 

1 


Losses on derivatives designated as hedges of net investments in foreign operations


-

-

1


Preference shares

- finance cost




6

6 

12 







12

10

19 


Exceptional items

- premium on buy-back of preference shares


-

1 

2 






12

11 

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 at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending 31 December 2008 on 1 January 2009 to holders of these shares on the register on 21 November 2008 by direct credit or, where no mandate has been given, by cheque posted on 31 December 2008 payable on 1 January 2009. These shares will be quoted ex-dividend on 19 November 2008. 



6

Exceptional items and amortisation of intangible assets












2008

2007

2007






Notes

first half

first half

year







£m

£m

£m










6.1

Credited to/(charged against) profit from operations







Net operating expenses

- reduction in pension past service liabilities


12

60

-

-



- post-acquisition integration, reorganisation

  and other costs



(3)

(2)

(6)


Cost of sales

- Metronet - contract losses



-

(35)

(33)


Share of joint ventures and associates

- Metronet - contract profits



-

-

6







57

(37)

(33)

6.2

Charged against finance costs









- premium on buy-back of preference shares



-

(1)

(2)


Credited to/(charged against) profit before taxation



57

(38)

(35)










6.3

(Charged against)/credited to taxation









- tax (charged)/credited on items above



(16)

9

11




- recognition of US deferred tax assets



-

50

51


Credited to profit for the period from continuing operations



41

21

27










6.4

Credited to/(charged against) profit for the period from discontinued operations








- profit on sale of operations



-

57

57




- Metronet

- impairment of investment



-

(87)

(87)





- tax thereon



-

10

10


Exceptional items credited to profit for the period



41

1

7











Amortisation of intangible assets



(8)

(3)

(9)


Tax thereon




2

1

3


Credited to/(charged against) profit for the period



35

(1)

1










6.1

In 2008, the Group has announced measures to limit the increase in pension benefits of certain groups of in service members of the Balfour Beatty Pension Fund to the movement in RPI inflation, giving rise to a reduction in past service liabilities of £60m (2007: first half £nil, full year £nil).


Costs of £2m (2007: first half £nil, full year £nil) have been incurred relating to Balfour Beatty Communities (formerly GMH Military Housing) comprising integration and other costs.  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: first half £1m, full year £1m).  The 2007 exceptional items also included costs incurred on the reorganisation and integration of Balfour Beatty Construction Group Inc (formerly Centex Construction) (2007: first half £1m, full year £3m) and the reorganisation of Balfour Beatty Rail Inc (2007: first half £nil, full year £2m).


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. 

 

 

 

 

 

 

 

 

 

 

6.2 

The exceptional items charged against finance costs are the premium of £0.1m (2007: first half £1m, full year £2m) arising on the repurchase for cancellation of 0.3m (2007: first half 2m, full year 5m) preference shares at a cost of £0.4m (2007: first half £3m, full year £8m).



6.3

The exceptional items credited to/(charged against) profit from operations have given rise to a net tax charge of £16m (2007: first half £9m credit, full year £11m credit). 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 US crystallised and were recognised in full in accordance with IAS 12, giving rise to an exceptional gain (first half £50m, full year £51m).  



6.4

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 the 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 investment in the Metronet concessions, including profits recognised in previous periods, was written down to £nil.











7

Taxation

 

 







 

 

 

 




2008

2007

2007

 

 

 

 




first half

first half

year

 

 

 

 




£m

£m

£m

 

UK current tax

 

 




11

6

23

 

Foreign current tax

 

 




5

5

13


Deferred tax






8

6

17








24

17

53

 

Exceptional items and amortisation of intangible assets 



14

(60)

(65)

 

Total tax charge/(credit)

 

 




38

(43)

(12)

 

 

 

 







 

The Group 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 3).




Under IAS 34 the half-year tax charge represents the expected tax rate applicable for the full year, calculated as far as practicable for each tax jurisdiction, applied to the profit before taxation, exceptional items and amortisation of intangible assets for each tax jurisdiction. If the profit mix between tax jurisdictions differs between the half-year and full year, a different overall effective tax rate for the half-year and full year will arise.




In addition to the Group tax charge above is £21m of tax credited directly to equity (2007: first half £43m charged, full year £5m credited), comprising a current tax credit of £2m (2007: first half £2m charge, full year £1m credit), a deferred tax credit of £28m (2007: first half £43m charge, full year £3m charge) and a charge of £9m in respect of joint ventures and associates (2007: first half £2m credit, full year £7m credit). Further, in 2007, there was a credit of £10m which related to discontinued operations as disclosed in Note 8.



8

Discontinued operations

 

 

 

 




2008

2007

2007

 

 

 

 




first half

first half

year

 

 

 

 




£m

£m

£m

 

Group revenue

 

 




-

3

3


Group share of revenue of joint ventures and associates



-

185

197


Group operating profit



-

(1)

(1)


Group share of results of joint ventures and associates



-

3

3





-

2

2


Profit on sale of operations



-

57

57


Impairment of investment



-

(87)

(87)


Taxation thereon






-

10

10

 

Loss for the period from discontinued operations



-

(18)

(18)

 

 

 

 








On 5 January 2007, the Group acquired a 100% indirect interest in Exeter and Devon Airport Ltd ('EDAL') with the intent of selling on a 40% equity interest. Consequently, from 5 January 2007 to 4 April 2007, when the 40% equity interest was sold, EDAL was treated as an asset held for resale, and its results (£1m loss) shown under discontinued operations. The Group's 24.5% interest in Devonport Management Ltd ('DML'), sold on 28 June 2007 and previously included in Civil and specialist engineering and services, was classified as discontinued. The results of Metronet Rail BCV Holdings Ltd and Metronet Rail SSL Holdings Ltd ('Metronet') previously included in Investments were classified as discontinued as a result of the appointment of a PPP Administrator to the concession companies on 18 July 2007.



9

Earnings per ordinary share












   2008

2007

2007





   first half

first half

year





Basic

Diluted

Basic

Diluted

Basic

Diluted





£m

£m

£m

£m

£m

£m


Earnings









- continuing operations


106

106

78

78

169

169


- discontinued operations


-

-

(18)

(18)

(18)

(18)




106

106

60

60

151

151


Exceptional items



(41)


(1)


(7)



Amortisation of intangible assets


6


2


6



Adjusted earnings



71


61


150













Comprising:










- continuing operations



71


59


148



- discontinued operations



-


2


2






71


61


150
















m

m

m

m

m

m


Weighted average number of ordinary shares

440.2

443.7

429.1

432.2

430.0

433.7











 


 


 pence 

 pence 

pence

pence

pence

pence

 

Earnings per ordinary share








 

- continuing operations

 


24.1

23.9

18.2

18.1

39.3

39.0


- discontinued operations



-

-

(4.2)

(4.2)

(4.2)

(4.2)





24.1

23.9

14.0

13.9

35.1

34.8


Exceptional items



(9.3)


(0.2)


(1.6)



Amortisation of intangible assets


1.4


0.4


1.5


 

Adjusted earnings per ordinary share


16.2


14.2


35.0













Comprising:










- continuing operations



16.2


13.7


34.4



- discontinued operations



-


0.5


0.6






16.2


14.2


35.0













The calculation of basic earnings is based on profit for the period attributable to equity shareholders. The calculation of the weighted average number of shares was impacted 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 period. 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.










10

Dividends on ordinary shares












2008

2007

2007





first half

first half

year





Per share

Amount

Per share

Amount

Per share

Amount





 pence 

£m

pence

£m

pence

£m


Proposed dividends for the period:


 

 

 

 

 


Interim 2007

-

-

4.6

20

4.6

20


Final 2007

-

-

  -  

  -  

6.9

30


Interim 2008

5.1

24

  -  

  -  

-

  -  



5.1

24

4.6

20

11.5

50


Recognised dividends for the period:








Final 2006


-

 

22

 

22


Interim 2007


-

 

  -  

 

20


Final 2007


30

 

  -  

 

  -  




30

 

22

 

42










The interim 2008 dividend will be paid on 10 December 2008 to holders of ordinary shares on the register on 24 October 2008 by direct credit or, where no mandate has been given, by cheque posted on 9 December 2008 payable on 10 December 2008. These shares will be quoted ex-dividend on 22 October 2008.










11

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 concessions and their balance sheets are summarised below:




 

 

 




2008

2007

2007


 

 

 




first half

first half

year


 

 

 




£m

£m

£m


Income statement

 








Group revenue

 




42

8

51


Profit from operations

 




-

  - 

1 


Investment income

 




3

  1 

2 


Finance costs

 




(3)

  (1)

(2)


Profit before taxation

 




-

  - 

1 


Taxation

 

 




-

  -

-


Profit for the period

 




-

- 

  1 


Cash flow

 








Profit from operations

 




-

  -

1


Decrease/(increase) in working capital

 




7

  - 

  (3)


Income taxes paid

 




-

  -

-


Net cash inflow/(outflow) from operating activities




7

  - 

(2)


Net cash outflow from investing activities




(34)

  (5)

(36)


Net cash outflow from financing activities




(3)

(1)

(2) 


Net cash outflow

 




(30)

(6) 

  (40)


Net borrowings at beginning of period



(61)

  (21)

(21)


Net borrowings at end of period




(91)

  (27)

(61)


Balance sheet








PPP financial assets




99

  28 

  62 


Other net current (liabilities)/assets




(4)

2 

(4)


Cash and cash equivalents




1

-

3


Non-recourse term loans




(92)

  (27)

(64)


Net assets/(liabilities)




4

3

(3)









12

Retirement benefit obligations
















The Group has announced measures to limit the increase in pension benefits of certain groups of in service members of the Balfour Beatty Pension Fund to the movement in RPI inflation, giving rise to a reduction in past service liabilities of £60m, which has been classified as an exceptional item.




The following actuarial assumptions have been used in the IAS 19 valuations of the Group's principal defined benefit pension schemes:














2008

2007

2007






first half

first half

year






%

%

%


Inflation rate




4.10

3.30

3.35


Discount rate




6.70

5.85

5.85


Future increases in pensionable salary - certain members of the Balfour Beatty Pension Fund

4.10

4.80

4.85


Future increases in pensionable salary - other




5.60

4.80

4.85


Future pension increases




4.10

3.30

3.35


Expected return on plan assets - Balfour Beatty Pension Fund


6.53

6.35

6.53


Expected return on plan assets - Railways Pension Scheme


7.45

7.30

7.45


Expected return on plan assets - Mansell schemes


6.83

6.79

6.83










2008

2007

2007




first half

first half

year


The movement in retirement benefit obligations for the period was as follows:


£m

£m

£m


At beginning of period




(286)

(288)

(288)


Exchange adjustments




(1)

-

(1)


Service cost




(23)

(26)

(54)


Interest cost




(67)

(59)

(120)


Expected return on plan assets




70

66

133


Contributions from employer - deficit funding




24

5

10


Contributions from employer - regular funding




18

16

34


Benefits paid




1

-

2


Exceptional past service cost release




60

-

-


Actuarial gains and losses

- assets




(170)

(35)

(21)



- liabilities




65

161

20


Businesses acquired




-

-

(1)


At end of period




(309)

(160)

(286)









13

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 £183m after issue costs.




During the half-year ended 28 June 2008, 49,816 ordinary shares were issued following the exercise of savings-related share options and 230,427 ordinary shares were issued following the exercise of executive share options for an aggregate cash consideration of £0.6m.




During the half-year ended 28 June 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.






14

Movements in equity










For the half-year ended 28 June 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)

Total



£m

£m

£m

£m

£m

£m

£m

£m


At 1 January 2008

216

52

16

164

178

9

(152)

483


Net profit for the period

-

-

-

-

36

-

70

106


Actuarial losses on retirement benefit obligations

-

-

-

-

-

-

(105)

(105)


PPP cash flow hedges










- fair value revaluations

-

-

-

-

12

9

-

21


PPP financial assets










- fair value revaluations

-

-

-

-

19

-

-

19


Changes in fair value of net investment hedges

-

-

-

-

-

(3)

-

(3)


Currency translation differences

-

-

-

-

-

8

-

8


Tax on items taken directly to equity

-

-

-

-

(9)

(1)

31

21


Total recognised income for the period

-

-

-

-

58

13

(4)

67


Ordinary dividends

-

-

-

-

-

-

(30)

(30)


Joint ventures' and associates' dividends

-

-

-

-

(43)

-

43

-


Issue of ordinary shares

22

-

-

-

-

161

-

183


Movements relating to share-based payments

-

-

-

-

-

(2)

(2)

(4)


Transfers 

-

-

-

(22)

-

(161)

183

-


At 28 June 2008

238

52

16

142

193

20

38

699












On 20 May 2008, 43,320,411 ordinary shares were issued and placed with institutions at a price of 430p per share, raising £183m after issue costs. The placing utilised a cash box structure, qualifying for merger relief under Section 131 of the Companies Act 1985 so that the premium arising was not required to be credited to the Company's share premium account. As a result of the placing, £22m reflecting the nominal value of the new ordinary shares issued was transferred from the Company's special reserve to the profit and loss reserve. In addition, the Company transferred the £161m premium from a merger reserve to the profit and loss reserve.


















For the half-year ended 30 June 2007











Called-up share capital

Share premium account

Equity component of preference shares

Special reserve

Share of joint ventures' and associates' reserves

Other reserves

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 period

-

-

-

-

37

-

23

60


Actuarial gains on retirement benefit obligations

-

-

-

-

-

-

126

126


PPP cash flow hedges










- fair value revaluations

-

-

-

-

35

4

-

39


- reclassified and reported in net profit

-

-

-

-

7

-


7


PPP financial assets










- fair value revaluations

-

-

-

-

(36)

-

-

(36)


- reclassified and reported in net profit

-

-

-

-

(3)

-


(3)


Changes in fair value of net investment hedges

-

-

-

-

-

5

-

5


Currency translation differences

-

-

-

-

(1)

(6)

-

(7)


Tax on items taken directly to equity

-

-

-

-

2

(3)

(42)

(43)


Total recognised income for the period

-

-

-

-

41

-

107

148


Ordinary dividends

-

-

-

-

-

-

(22)

(22)


Joint ventures' and associates' dividends

-

-

-

-

(76)

-

76

-


Issue of ordinary shares

1

1

-

-

-

-

-

2


Buy-back of preference shares

-

2

-

-

-

-

(3)

(1)


Movements relating to share-based payments

-

-

-

-

-

(2)

1

(1)


Transfers

-

-

-

(2)

(41)

-

43

-


At 30 June 2007

216

46

16

167

167

3

(102)

513






















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

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


Buy-back 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











15

Acquisitions




















On 18 March 2008, the Group acquired 100% of the issued share capital of Dean & Dyball Ltd, a leading UK regional civil engineering and building business, for a cash consideration of £43.7m, deferred consideration of £1.3m and costs of £1.0m. The provisional fair value of net assets acquired was £6.9m and provisional goodwill arising was £39.1m. The provisional goodwill arising is attributable to the acquisition strengthening the Group's UK regional civil engineering and building business.




On 30 April 2008, the Group acquired Balfour Beatty Communities (formerly GMH Military Housing), the military PPP accommodation business of GMH Communities Trust, a US real estate investment trust, for a cash consideration of £176.8m and costs of £2.4m. The provisional fair value of net assets acquired was £149.4m and provisional goodwill arising was £29.8m. The provisional goodwill arising is attributable to the acquisition extending the Group's position in the UK PPP and facilities management markets to the US.




On 5 May 2008, the Group acquired a 95% interest in the issued share capital of Regional & City Airports (Blackpool) Ltd for a cash consideration of £14.0m, costs of £1.1m and deferred costs of £3.6m. The provisional fair value of net assets acquired was £12.1m and provisional goodwill arising was £6.6m. The provisional goodwill arising is attributable to the acquisition strengthening the Group's non-PPP infrastructure investment portfolio. 






On 4 June 2008, the Group acquired 100% of the issued share capital of Douglas E Barnhart Inc, a US programme and construction management business, for a cash consideration of £60.6m, deferred consideration of £2.4m and costs of £0.8m. The provisional fair value of net assets acquired was £24.6m and provisional goodwill arising was £39.2m. The provisional goodwill arising is attributable to the acquisition complementing the Group's US project and programme management business.




On 26 June 2008, the Group acquired a joint venture interest in Leonard Wood Family Communities LLC, a PPP military accommodation business where the Group earns a pre-determined share of profits subject to the performance of the LLC, for a cash consideration of £1.7m. The provisional fair value of net assets acquired was £1.7m and provisional goodwill arising was £nil.


The provisional fair value of the net assets acquired, consideration paid and provisional 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

-

108

108

-

11

11

-

119

119


Investments in joint ventures and associates

36

-

36

-

1

1

36

1

37


Property, plant and equipment

-

-

-

32

(2)

30

32

(2)

30


Working capital

5

-

5

(7)

(18)

(25)

(2)

(18)

(20)


Deferred taxation

-

-

-

-

5

5

-

5

5


Cash and cash equivalents

-

-

-

33

-

33

33

-

33


Borrowings

-

-

-

(9)

-

(9)

(9)

-

(9)


Minority interests

-

-

-

(1)

-

(1)

(1)

-

(1)



41

108

149

48

(3)

45

89

105

194


Goodwill



30



85



115





179



130



309


Satisfied by:











Cash consideration



177



120



297


Costs incurred



2



3



5





179



123



302


Deferred consideration and costs



-



7



7





179



130



309













Fair value adjustments comprise intangible assets recognised in respect of customer contracts and relationships, adjustments to harmonise accounting methods for the recognition of profit on long-term contracts and provision for onerous commitments.




During the first half 2008, £3.3m deferred consideration was paid in respect of acquisitions completed in earlier years.




The acquired businesses earned revenues of £121.0m and profit from continuing operations of £0.8m (after charging exceptional items of £1.0m and amortisation of intangible assets of £0.6m) in the period since acquisition.




The following summary presents the Group as if all of the businesses acquired during the half-year ended 28 June 2008 had been acquired on 1 January 2008. The amounts include the results of the acquired businesses, depreciation and amortisation of the acquired fixed assets and intangible assets recognised on acquisition. The amounts do not include any possible synergies from the acquisition. The results of acquired companies for the period before acquisition have not been adjusted to reflect Balfour Beatty accounting policies nor to reflect the fair value adjustments made on acquisition. The information is provided for comparative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of the future results from operations of the combined companies.













£m


Group revenue









4,082


Profit for the period from continuing operations 







114



16

Notes to the cash flow statement







 

 

 

 




2008

2007

2007

 

 

 

 




first half

first half

year

 

 

 

 




£m

£m

£m

16.1

Cash generated from operations comprises:




 

 

 

 

Profit from operations - continuing

 




140

33

149


Exceptional reduction in pension past service liabilities




(60)

-

-


Trading loss from discontinued operations




-

(1)

(1)

 

Share of results of joint ventures and associates




(36)

(34)

(71)

 

Depreciation of property, plant and equipment




31

21

50

 

Amortisation of other intangible assets

 




8

3

9


Pension deficit payments




(24)

(5)

(10)

 

Movements relating to share-based payments




3

2

7

 

Profit on disposal of property, plant and equipment




(3)

(1)

(3)

 

Operating cash flows before movements in working capital




59

18

130

 

Decrease in working capital

 




14

163

151

 

Cash generated from operations




73

181

281









16.2

Cash and cash equivalents comprise:


 





 

Cash and deposits





323

218

293

 

Term deposits





28

263

98


PPP cash balances





1

-

3

 

Bank overdrafts



 


(11)

-

(15)

 





 

 

341

481

379









16.3

Analysis of net cash:


 

 




 

Bank overdrafts



 

 

(11)

-

(15)

 

Other short-term loans



 

 

(3)

-

(1)

 

Finance leases



 

 

(4)

(1)

(1)


Other borrowings





-

(1)

-

 

Cash and deposits



 

 

323

218

293


Term deposits





28

263

98

 





 

 

333

479

374

 

PPP non-recourse project finance

- Sterling floating rate term loan (2008-2027)

(25)

(19)

(22)

 



- Sterling floating rate term loan (2011-2030)

(11)

(6)

(9)




- Sterling floating rate term loan (2012-2031)

(4)

(2)

(2)

 

 

 

- Sterling floating rate term loan (2010-2034)

 

(52)

  -

(31)


PPP cash and cash equivalents





1

-

3

 

Net cash



 

 

242

452

313

 





 

 




16.4

Analysis of movement in net cash:

 

 




 

Opening net cash



 

 

313

284

284

 

Net (decrease)/increase in cash and cash equivalents

 

 

(37)

172

63

 

Acquisitions - borrowings at date of acquisition

 

 

(9)

(35)

(36)


Businesses sold - borrowings at date of disposal




-

35

35

 

New loans




 

 

(28)

(6)

(42)

 

Repayment of loans



 

 

4

1

1

 

Exchange adjustments



 

 

(1)

1

8

 

Closing net cash




 

 

242

452

313

 

 




 

 




16.5

Borrowings










During the period to 28 June 2008 the significant movements in borrowings were an increase of £28m in non-recourse borrowings funding the development of financial assets in PPP subsidiaries, the inclusion of £9m of borrowings in acquired companies and repayment of £4m of loans.











17

Contingent liabilities




 

 





On 17 April 2008, the Office of Fair Trading ('OFT') issued a Statement of Objections arising from its widescale investigation into tender activities across the construction sector. The Company has provided the OFT with its response to the Statement of Objections. Whilst the Company has, subject to ongoing co-operation, been granted leniency, which will reduce any fines ultimately levied, the outcome remains uncertain.

 





 

 




18

Related party transactions










The Group has contracted with, provided services to, and received management fees from, certain joint ventures and associates amounting to £280m (2007: first half £683m, full year £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 £37m (2007: first half £35m, full year £38m). The amount due to joint ventures and associates from trading activities was £22m (2007: first half £32m, full year £27m).  











19

Post balance sheet events










On 2 July 2008, the Finance Act 2008 was substantively enacted, implementing the phased withdrawal of industrial buildings allowances.  This will affect certain PPP road concessions, where the Directors believe agreement will be reached with HMRC on an alternative basis of taxation, together with the Group's industrial buildings, and will give rise to an overall one-off exceptional tax charge of £5m in the second half of the year.


On 31 July 2008, the Group acquired 100% of the share capital of Schreck-Mieves GmbH, a railway engineering business based in Germany with net assets of €17m at 31 December 2007, for a cash consideration of €36m. As this company has been acquired recently and prepares its local accounts under German GAAP, at the date of authorisation of these condensed Group financial statements it is impracticable to determine the fair value of the net assets acquired and goodwill.



20

Principal risks and uncertainties


The weaknesses emerging in some of the world's major economies which have occurred during the first half of the year have increased uncertainties concerning the commercial property market, which may affect some of the Group's building businesses. In addition, these macro economic trends, together with liquidity issues arising from the 'credit crunch' will increase pressure on some of the Group's customers and its supply chain. However, given the strength of the Group's order book and careful management of its supply chain, the Directors consider that these will have very limited impact on the Group's results in the second half of the year.


Other than the specific risks detailed above, the Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance in the second half of the year is unchanged from those identified on pages 08 to 09 of the Directors' Report and Accounts 2007. These include the impact of the external business environment including government policy and customer risks; strategic risks over tendering, acquisitions and investments; organisational and management risks including information technology and human resources; and delivery and operational risks encompassing asset and service delivery risk, supply chain risk and health, safety and environmental risks.

 


21

Seasonality


The Group's construction and services activities are not subject to significant seasonal variation.  








Responsibility statement


We confirm that to the best of our knowledge:


- the condensed Group financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting;


- the interim management report includes a fair review of important events during the first six months and their impact on the condensed Group financial statements and a description of the principal risks and uncertainties for the remaining six months of the year, as required by the Disclosure and Transparency Rule 4.2.7R; and


- the interim management report includes a fair review of related parties' transactions and changes therein, as required by the Disclosure and Transparency Rule 4.2.8R.



On behalf of the Board





I P Tyler


D J Magrath







Chief Executive


Finance Director







12 August 2008







Independent review report to Balfour Beatty plc


We have been engaged by Balfour Beatty plc ('the Company') to review the condensed Group financial statements of Balfour Beatty plc for the half-year ended 28 June 2008 which comprise the condensed Group income statement, the condensed Group statement of recognised income and expense, the condensed Group balance sheet, the condensed Group cash flow statement and the related Notes 1 to 21. We have read the other information contained in the half-year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed Group financial statements.  


This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.


Directors' responsibilities


The half-year financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-year financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.  


As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union. The condensed Group financial statements included in this half-year financial report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. 


Our responsibility


Our responsibility is to express to the Company a conclusion on the condensed Group financial statements in the half-year financial report based on our review.


Scope of review


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.


Conclusion


Based on our review, nothing has come to our attention that causes us to believe that the condensed Group financial statements in the financial report for the half-year ended 28 June 2008 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


Deloitte & Touche LLP

Chartered Accountants and Registered Auditors

London, UK

12 August 2008

 





 

 











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